File PR-2021-067 Thales Canada Inc. v. Department of Public Works and Government Services

Order issued Friday, March 4, 2022 Reasons issued Friday, March 18, 2022

 

TABLE OF CONTENTS

ORDER i

STATEMENT OF REASONS 1

MOTION TO DISMISS THE COMPLAINT 1

PROCEDURAL BACKGROUND 1

RELEVANT PROVISIONS OF THE REGULATIONS 3

ANALYSIS 3

The motion is granted 3

The Acting ADM had the authority to invoke the NSE 4

The Tribunal cannot lift the veil to control the rationale for invoking the NSE 4

The 2019 amendments to the Regulations codify the approach to NSE cases until 2016 5

Final considerations 8

CONCLUSION AND ORDER 9

 

IN THE MATTER OF a complaint filed by Thales Canada Inc. pursuant to subsection 30.11(1) of the Canadian International Trade Tribunal Act;

AND FURTHER TO a decision to conduct an inquiry into the complaint pursuant to subsection 30.13(1) of the Canadian International Trade Tribunal Act;

AND FURTHER TO a motion filed by the Department of Public Works and Government Services to dismiss the complaint pursuant to subsections 10(2) and (3) of the Canadian International Trade Tribunal Procurement Inquiry Regulations.

BETWEEN
THALES CANADA INC.	Complainant
AND
THE DEPARTMENT OF PUBLIC WORKS AND GOVERNMENT SERVICES	Government Institution

ORDER

WHEREAS Thales Canada Inc. (Thales) filed the above-mentioned complaint on January 11, 2022;

AND WHEREAS the Canadian International Trade Tribunal decided, on January 11, 2022, to inquire into the complaint pursuant to subsection 30.13(1) of the Canadian International Trade Tribunal Act (CITT Act) and subsection 7(1) of the Canadian International Trade Tribunal Procurement Inquiry Regulations (Regulations);

AND WHEREAS, on February 1, 2022, the Department of Public Works and Government Services (PWGSC) requested that the Tribunal dismiss the complaint, pursuant to subsections 10(2) and (3) of the Regulations, on the basis that a national security exception had been invoked for the procurement at issue in the complaint;

AND WHEREAS subsection 30.13(5) of the CITT Act provides that the Tribunal may cease conducting the inquiry;

AND WHEREAS subsection 10(2) of the Regulations provides that the Tribunal shall dismiss a complaint in respect of which a national security exception has been properly invoked by the relevant government institution;

THEREFORE, pursuant to subsection 10(2) of the Regulations, the Tribunal dismisses Thales’ complaint. Each party shall bear its own costs.

The statement of reasons will be issued at a later date.

STATEMENT OF REASONS

MOTION TO DISMISS THE COMPLAINT

[1] The complaint by Thales Canada Inc. (Thales) underlying this matter relates to a procurement (Solicitation W6369-20CY06/C) by the Department of Public Works and Government Services (PWGSC) on behalf of the Department of National Defence (DND) for a project called “Cyber Defence - Decision Analysis and Response” (CD-DAR).

[2] Thales alleges that it was unable to submit its bid by no fault of its own, but rather because of a technical problem with the Canada Post Corporation’s epost Connect platform, by which bids were to be transmitted to PWGSC for this opportunity. Thales argues that the circumstances it encountered were unfair and as a result, that PWGSC acted contrary to its obligations under the Canadian Free Trade Agreement and the Canada-European Union Comprehensive Economic and Trade Agreement.

[3] PWGSC brought a motion to dismiss the complaint pursuant to subsections 10(2) and (3) of the Canadian International Trade Tribunal Procurement Inquiry Regulations (Regulations), on the grounds that the national security exception (NSE) had been invoked to exclude the procurement from any applicable trade agreements and, consequently, that the Tribunal has no jurisdiction to conduct an inquiry.

[4] For the reasons that follow, the Tribunal must dismiss the complaint pursuant to subsection 10(2) of the Regulations.

PROCEDURAL BACKGROUND

[5] On March 31, 2020, PWGSC’s Acting Assistant Deputy Minister (ADM) of the Defence and Marine Procurement Branch signed a letter approving the invocation of the NSE under Canada’s trade agreements in respect of “the procurement of all goods and professional services related to the delivery and in-service support” of the CD-DAR. [1]

[6] Over a year later, on April 21, 2021, PWGSC published the Invitation to Qualify (ITQ) for the CD-DAR project. The ITQ indicated that the NSE had been invoked and, “therefore, this procurement is excluded from all of the obligations of all the trade agreements.” [2]

[7] On August 20, 2021, which was the bid closing date, Thales attempted to submit its bid through epost Connect. [3] However, Thales was ultimately unable to submit its bid through epost Connect before bid closing time as the platform was allegedly unresponsive. [4]

[8] On the same day, and before the bid closing time, Thales communicated with PWGSC to advise it of the technical difficulty it was experiencing with epost Connect. [5]

[9] Having received no response, Thales submitted its bid proposal by email, before bid closing time. [6]

[10] On the same day, after bid closing time, PWGSC responded to Thales’s email, informing Thales that it would seek internal guidance to determine whether it would accept the bid. [7]

[11] Thales communicated with PWGSC over the next several weeks in order to ascertain whether its bid would be accepted. [8]

[12] On November 1, 2021, PWGSC informed Thales that it would not accept Thales’s proposal, stating that it was not responsible for any failure attributable to epost Connect. [9]

[13] On November 12, 2021, Thales objected to PWGSC’s decision and requested that it be reconsidered. [10]

[14] On November 16, 2021, PWGSC advised Thales that the request was under advisement. [11]

[15] On December 23, 2021, PWGSC notified Thales that further to an internal investigation, it had decided to deny the relief sought by Thales and therefore to maintain its decision not to accept its bid. [12]

[16] Thales filed its complaint with the Tribunal on January 11, 2022. Thales also requested that the Tribunal issue an order postponing the contract award.

[17] On January 19, 2022, the Tribunal informed the parties that the complaint had been accepted for inquiry and that a postponement of award order had been issued. [13] In its decision to conduct an inquiry, the Tribunal noted that the solicitation documents referred to the invocation of the NSE, but that no information was currently on file to independently verify that fact. [14]

[18] On February 1, 2022, PWGSC filed the motion that is the subject of these reasons, requesting that the Tribunal dismiss the complaint pursuant to subsections 10(2) and (3) of the Regulations on the basis that the NSE had been properly invoked for the procurement at issue and that the Tribunal was therefore without jurisdiction. [15]

[19] On February 2, 2022, the Tribunal requested comments from Thales on the motion to dismiss the complaint. The Tribunal also extended its inquiry to 135 days pursuant to paragraph 12(c) of the Regulations and suspended the deadline for the filing of the Government Institution Report. [16]

[20] On February 9, 2022, Thales made comments opposing the motion to dismiss the complaint. [17]

[21] On February 16, 2022, PWGSC replied to Thales’s comments opposing the motion to dismiss the complaint. [18]

RELEVANT PROVISIONS OF THE REGULATIONS

[22] Subsections 10(2) and (3) of the Regulations (also referred to in these reasons as the “2019 amendments to the Regulations”) read as follows:

Dismissal of Complaints

10 (2) The Tribunal shall order the dismissal of a complaint in respect of which a national security exception set out in the Agreement on Government Procurement, the CCFTA, the CPFTA, the CCOFTA, the CPAFTA, the CHFTA, the CKFTA, CETA, the CFTA, CUFTA or the TPP, as applicable, has been properly invoked by the relevant government institution.

(3) The national security exception is properly invoked when an assistant deputy minister, or a person of equivalent rank, who is responsible for awarding the designated contract has signed a letter approving that the national security exception be invoked and the letter is dated prior to the day on which the designated contract is awarded.

ANALYSIS

The motion is granted

[23] For the reasons that follow, the motion is granted.

[24] The evidence on file demonstrates that the NSE in this matter was “properly invoked” as per (i) the manner and (ii) the time envisaged at subsection 10(3) of the Regulations.

[25] Because subsection 10(2) of the Regulations prescribes that the “Tribunal shall order the dismissal of a complaint in respect of which [the NSE] . . . has been properly invoked . . .” [emphasis added], the Tribunal is required to order the dismissal of the complaint. When both conditions (i) and (ii) are met, as they are here, the Tribunal disposes of no interpretative discretion and must order the dismissal of the complaint. The Tribunal is cognizant that this contrasts with decisions it had delivered prior to the 2019 amendments to the Regulations. Nevertheless, the 2019 amendments to the Regulations are now a complete code dictating how the Tribunal must act in these circumstances.

[26] Concerning condition (i), the NSE was invoked by an official with the rank of assistant deputy minister (ADM). [19] The ADM in that position is responsible for the eventual awarding of the solicitation. As well, the official “signed a letter approving that the [NSE] be invoked” as required by subsection 10(3).

[27] Concerning condition (ii), the letter was “dated prior to the day on which the designated contract is awarded”, again as prescribed by subsection 10(3). The letter was, indeed, signed on March 31, 2020, well before the initiation of the ITQ in 2021. In fact, it was issued before the series of procurement processes associated with the multi-year CD-DAR project had been initiated in July 2020. [20]

[28] The foregoing is sufficient to dispose of the motion. Nevertheless, the Tribunal wishes to examine several issues raised by the parties in advocating their respective positions.

The Acting ADM had the authority to invoke the NSE

[29] Thales argued that the NSE had been invoked by an official that did not have the authority to do so because that official was in an acting or interim role. That argument is inherently flawed. The information provided by PWGSC demonstrates that acting authorities were properly delegated to the official in issue in the absence of the ADM and as approved by PWGSC’s Deputy Minister. [21] It results from this delegation that the official was empowered to perform all the functions usually performed by the ADM of the Defence and Marine Procurement Branch, including the ability to invoke the NSE in relation to the solicitation in issue. The Tribunal finds no evidence of anything improper or illegal in respect of that action. In short, it is irrelevant that the official occupied the position on an acting or interim basis in the absence of the titular ADM at the time.

The Tribunal cannot lift the veil to control the rationale for invoking the NSE

[30] Thales raised various arguments essentially urging the Tribunal to lift the veil to review the underlying reasons for which PWGSC had invoked the NSE. At its simplest, Thales is asking the Tribunal to control the legitimacy of the invocation.

[31] The Tribunal finds that PWGSC correctly explained why that is inappropriate. In short, it is because the Regulations do not provide for the measure of control sought by Thales. [22] Rather, as described above, the Regulations provide for Tribunal control of (i) the manner in which the NSE is invoked (i.e. by the ADM from the procuring department who signs a letter authorizing the NSE), and (ii) when it is invoked (i.e. the letter must be dated before contract award). The Regulations provide for no other control when in the presence of the NSE.

[32] Most observers would qualify this control as being very limited in scope, both in form and in substance. Nevertheless, those are the limits imposed by the Regulations. In the Tribunal’s view, there is no other reasonable, let alone correct, way to read the Regulations.

[33] It follows that Thales’s views on the purpose and historical treatment of the NSE, [23] its proposed purposive interpretation of the Regulations and applicable trade agreements, [24] and pleadings on relative advantages or disadvantages of alternate avenues for redress [25] or on PWGSC policies [26] are all informative but of no assistance to the Tribunal in disposing of this motion.

[34] Thales’s submission is tantamount to asking the Tribunal to examine the consistency of a measure adopted by the Government of Canada with its commitments under various trade agreements. That is something that the Tribunal does not do. A challenge to the consistency of subsections 10(2) and (3) of the Regulations with the obligations adhered to by the Government of Canada under various trade agreements (both international and domestic) can be envisaged under the dispute settlement mechanisms of those trade agreements. [27] But such a challenge is not a matter justiciable in front of the Tribunal under the Canadian International Trade Tribunal Act (CITT Act). Ocalink referred to one such proceeding at the World Trade Organization (WTO); [28] another similar WTO proceeding ended since that decision was issued. [29]

The 2019 amendments to the Regulations codify the approach to NSE cases until 2016

[35] Ocalink posed the question of whether the 2019 amendments to the Regulations were properly adopted (i.e. “intra vires”). Ocalink did not, however, answer that question. Thales asked the Tribunal to determine that question in this matter. It argues that the 2019 amendments to the Regulations are ultra vires. PWGSC argued the opposite position.

[36] For the reasons that follow, the Tribunal is not convinced that the Regulations are ultra vires. Before examining the arguments made by Thales on this issue more closely, the Tribunal will recall the evolution of how various panels approached NSE cases prior to the adoption of the 2019 amendments to the Regulations.

Tribunal case law prior to the 2019 amendments to the Regulations

[37] The parties described the evolution of the Tribunal’s case law on the NSE. In essence, there were three periods: (a) a period up to 2016; (b) Eclipsys, which noted a series of systemic concerns; and (c) the period of the trilogy (M.D. Charlton, Hewlett-Packard, and Harris Corporation), which ended with the adoption of the 2019 amendments to the Regulations. [30]

[38] During period (a), in various decisions, the Tribunal had taken the legal position that it lacked jurisdiction to inquire into a complaint where the NSE had been invoked, so long as it had been “properly invoked”. The “properly invoked” element of that test was created by the Tribunal as what appears to be the most minimal of checks. That element of the test, as now codified in subsection 10(3) of the Regulations, was and remains entirely procedural. The test is as follows: (1) the NSE must have been invoked by the competent ADM; (2) the procurement must fall within the scope of what had been envisaged by the NSE; and (3) the invocation of the NSE must have occurred prior to the awarding of the solicitation. [31]

[39] Period (b) covers one case alone—Eclipsys. [32] In that matter, while the Tribunal applied the “procedural standpoint only” test of whether the NSE had in fact been “properly invoked”, it also had the opportunity to remark on some issues of concern that were spotlighted by that matter. Specifically, in Eclipsys, the Tribunal raised important concerns pertaining to the integrity of the competitive procurement system, and access to justice, if the NSE were used too broadly, or without sufficient circumspection, so as to deny properly security-cleared Canadian suppliers access to the disciplines of the Agreement on Internal Trade, since replaced by the Canadian Free Trade Agreement (CFTA), and the Tribunal’s bid challenge mechanism. [33] Nevertheless, in Eclipsys, the Tribunal “[could not] but cease its inquiry and dismiss the complaint” and did not examine the matter on its merits. [34]

[40] Period (c) covers a trilogy of cases—M.D. Charlton, Hewlett-Packard and Harris Corporation. The same concerns raised by the Tribunal in Eclipsys provided a basis for the Tribunal to take jurisdiction and examine the merits of a NSE-related complaint in each case of the trilogy. This period ends with the adoption of the 2019 amendments to the Regulations. The Tribunal provided extensive reasons setting out the legal basis for its decisions of this period. [35]

[41] In each case of the trilogy, the Tribunal took jurisdiction to examine suppliers’ complaints despite the invocation of the NSE. Very importantly, in none of those instances did the Tribunal examine or take issue with the security concern invoked by the government institution for excluding foreign suppliers from competition; [36] it simply proceeded with an inquiry on the merits of the complaint on the basis that the government institution had not explained why the disciplines of the trade agreements pertaining to fairness, transparency, equal treatment, and access to the Tribunal’s bid challenge mechanism had to be set aside for properly security-cleared Canadian suppliers. At its simplest, the Tribunal took the legal position that the NSE ought to be interpreted restrictively (like any other exception) and that the government institutions involved were unjustifiably trying to overbear on the curtailing of suppliers’ rights, by way of overreaching and all encompassing NSE prerogatives that were not, in the Tribunal’s view, allowed pursuant to the trade agreements without plausible justification or demonstrated circumspection (and those two conditions were found to be missing in each of those cases). [37] It is also worth noting that none of those decisions were the subject of review by the Federal Court of Appeal. [38]

Thales’s arguments concerning the 2019 amendments to the Regulations

[42] Instead of waiting for an opportunity to ask the Federal Court of Appeal to overturn the case law developed by the Tribunal in the aforementioned decisions starting with Eclipsys, the Governor in Council decided to adopt the 2019 amendments to the Regulations. Again, in Ocalink, the Tribunal queried whether this was appropriate, remarking that the more classic manner of overturning a lower court or tribunal decision is to either (i) seek a ruling from a reviewing body, or (ii) seek a change in the law via an act of Parliament. Policy makers chose to amend the regulations instead. The 2019 amendments to the Regulations were adopted under paragraphs 40(a) and (i) of the CITT Act. [39] Paragraph 40(a) of the CITT Act provides sufficiently wide parliamentary grant of regulation making power to justify the 2019 amendments to the Regulations. [40]

[43] Against that backdrop, Thales’s views concerning the 2019 amendments to the Regulations are best characterized as the expression of its fundamental disagreement with the policy choice made by the Governor in Council when adopting those provisions. And, in fact, Thales advances various policy reasons why it disagrees with that choice. [41] The Tribunal has not been convinced that those views are founded in law. Ultimately, the Governor in Council simply acted as she saw fit under the regulatory-making powers delegated by Parliament at section 40 of the CITT Act. The Tribunal does not pose judgment on policy choices.

[44] The 2019 amendments to the Regulations nullified the legal position taken by the Tribunal in the trilogy of cases following Eclipsys, effectively codifying the approach taken prior to those cases. [42] Thales is effectively asking the Tribunal to disregard the 2019 amendments to the Regulations despite the very fact that the Governor in Council adopted those amendments, in the first place, to purposely overturn the Tribunal’s case law at period (c). There is no basis in law to do so.

Final considerations

[45] The Federal Court of Appeal has recognized the Tribunal’s specialized expertise in the area of procurement review. [43] When considering remedies, and permeating the CITT Act, Parliament has asked the Tribunal to consider (and in effect to be preoccupied with) the transparency, accessibility, and efficiency of the competitive procurement system.

[46] The ultimate consequence of the 2019 amendments to the matter at hand is that they subtract from Tribunal scrutiny a matter wholly unrelated to national security – that is, whether the epost Connect platform was properly ready to receive Thales’s bid. The Tribunal has had occasion, recently, to examine alleged shortcomings of the epost Connect platform. [44] The courts may not have similar in‑depth knowledge of that system. The matter raised by Thales would have afforded the Tribunal another opportunity to scrutinize that portal, and to determine whether it posed a punctual or even systemic threat to the proper functioning and integrity of the competitive procurement system. In the Tribunal’s view, this is a missed opportunity. Without pronouncing on the merits of Thales’s complaint, the Tribunal encourages PWGSC to closely examine the issues raised by Thales in respect of the epost Connect platform, and to take any appropriate action.

CONCLUSION AND ORDER

[47] The Tribunal hereby grants the motion and orders the dismissal of the complaint. Each party will bear its own costs.