This article is an extract from the 5th edition of Government Procurement.
After its August 2019 decision in Harris Corporation v. Department of Public Works and Government Services, where the Canadian International Trade Tribunal ruled that government bodies cannot unilaterally declare themselves exempt from their trade treaty duties by declaring security exemptions, Canada’s federal government passed a statutory amended that removed the Tribunal’s oversight powers over those procurements.
In its subsequent March 2021 ruling in Ocalink Technologies Inc. v. Department of Public Works and Government Services, the Tribunal found that a 2019 federal statutory amendment breached international legal standards by removing the transparency requirements that previously applied to national security sole-sourcing:
The 2019 amendments to the Regulations stand in contrast not only to recent World Trade Organization (WTO) jurisprudence, but also to Canada’s own position before the WTO. In April 2019, the WTO ruled that a state seeking to invoke a national security exception must demonstrate the existence of a valid national security concern, and that any measure taken under the guise of the exception be truly necessary to protect the invoking state’s security interests. During the course of this litigation, Russia and the United States claimed that sovereign states could invoke the national security exception at their sole discretion (i.e. that the exception is “self-justifying”), but Canada argued that states must provide reasons to justify use of the exception, and that those reasons must stand up to scrutiny.
There is accordingly a stark disconnect between the position taken by the Government of Canada at the WTO (which prevailed and therefore constitutes the current state of international law), and the position that Canada adopted domestically, just weeks after the WTO’s decision, when the Governor in Council adopted the 2019 amendments to the Regulations.
The WTO Revised Agreement on Government Procurement and the Canadian Free Trade Agreement both provide for exceptions based on national security. However, they both also provide for exceptions based on the protection of human life and health.
The Tribunal also noted that the federal government misused the now-shrouded national security exception to engage in pandemic-related sole-sourcing that did not properly fall under the national security exception and questioned the legality of the new regulations:
In the Tribunal’s view, the current state of the law allows it to recognize a validly invoked national security exception only in circumstances where national security (e.g. matters involving a state’s borders, its armed forces, its information technology infrastructure, or generally its sovereignty) is truly at stake. In contrast, because the current COVID-19 pandemic is a WHO-mandated “Public Health Emergency of International Concern”, it ought properly to be recognized as such. It follows that any exception to recognized trade rules when procuring pandemic-related supplies ought to be done, not under the guise of a national security exception, but rather under the exceptions to the trade agreements relating to the protection of human life and health.
The ventilators in issue in this matter were procured in response to the COVID-19 pandemic. This situation does not arise from a matter of national security in the sense recognized by international law.
The COVID-19 pandemic is a threat to the life and health of Canadians. The procurement at issue in this case was designed to obtain ventilators as quickly as possible in order to protect human life and health.
It follows that the more properly invoked applicable trade agreement exception made by the government institutions in this matter is to be identified as the exception relating to the protection of human life and health, and not the national security exception. Irrespective, it remains that the government institutions involved in this matter have chosen to remove this procurement from review by the Tribunal, even in respect of qualified Canadian suppliers who otherwise would have had the benefit of the Canadian Free Trade Agreement, and of the bid challenge mechanism administered by the Tribunal.
In response to Ocalink’s argument that PWGSC was required to notify bidders that an exception to the trade agreements had been invoked, the Tribunal can only conclude that its role does not extend to enforcing notice requirements set out in the PWGSC Supply Manual. As the Tribunal has previously stated, “a failure on the part of a government institution to follow the guidelines outlined in the PWGSC Supply Manual would not, in and of itself, amount to a violation of the trade agreements unless following the procedures specified by the guidelines were required by the tender documents.” Nevertheless, the lack of notification is reflected in the Tribunal’s cost award, as explained below.
Finally, although the issue is not squarely before the Tribunal because of the outcome of this matter, the Tribunal queries whether the 2019 amendments to the Regulations are properly intra vires the powers afforded by Parliament to the Governor in Council, when examined under the statutory provisions pursuant to which they were promulgated and general principles of the common law.
Moreover, the Tribunal recalls that “Parliamentary sovereignty dictates that a legislature may violate international law, but that it must do so expressly.” Yet the Tribunal cannot but remark that (as outlined above) the state of international law at the time of the 2019 amendments to the Regulations was and remains that the use of a national security exception must be rationally connected to bona fide national security concerns; invoking that exception cannot, either, constitute a disguised trade-limiting measure. The Tribunal queries whether the 2019 amendments to the Regulations have the effect of limiting trade, by comprehensively ousting security-cleared Canadian domestic suppliers from access to the Tribunal. As such, the Tribunal also queries whether the 2019 amendments to the Regulations are consonant with Canada’s federal-provincial obligations under the CFTA.
This case reflects the ongoing erosion of the Tribunal’s oversight powers in relation to controversial federal government procurement decisions relating to purported national security concerns.
In fact, in its subsequent March 2022 determination in Thales Canada Inc. v. Canada (Department of Public Works and Government Services), the Tribunal recognized the government’s declaration of a national security exemption and determined that it had no jurisdiction to conduct an inquiry over the complaint in question. As the Tribunal noted, the invocation of the national security exemption was based on regulatory amendments that were passed in 2019 that enabled a broad and non-reviewable right to exempt procurements from the Tribunal’s jurisdiction even when the matters at issue, such as the use of an electronic bid submission platform which was the specific issue in the complaint, do not pertain to national security:
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. 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.
The Tribunal therefore dismissed the complaint due to the government’s declaration of a national security exemption. Whether more federal institutions misuse the national security exemption to bypass the Tribunal’s oversight role in the future remains an open question.
