Date: 20000526
Docket: A-440-99
CORAM: DESJARDINS J.A.
ROTHSTEIN J.A.
McDONALD J.A.
BETWEEN:
NOVELL CANADA LTD.
Applicant
and
THE MINISTER OF PUBLIC WORKS
AND GOVERNMENT SERVICES CANADA and
MICROSOFT CORPORATION
Respondents
HEARD at Ottawa, Ontario, on Wednesday, May 24, 2000
JUDGMENT DELIVERED from the Bench at Ottawa, Ontario, on Friday, May 26, 2000
REASONS FOR JUDGMENT OF THE COURT BY: ROTHSTEIN J.A.
Date: 20000526
Docket: A-440-99
CORAM: DESJARDINS J.A.
ROTHSTEIN J.A.
McDONALD J.A.
BETWEEN:
NOVELL CANADA LTD.
Applicant
and
THE MINISTER OF PUBLIC WORKS
AND GOVERNMENT SERVICES CANADA and
MICROSOFT CORPORATION
Respondents
REASONS FOR JUDGMENT
(Delivered from the Bench at Ottawa, Ontario
on Friday, May 26, 2000)
ROTHSTEIN J.A.
[1] This is a judicial review of a June 17, 1999 decision of the Canadian International Trade Tribunal. In that decision, the Tribunal found that a complaint made by the applicant was valid and recommended that the government respondents compensate the applicant for its loss of a contract to supply software licences that the Tribunal found was not, but should have been, open to competitive bidding.
[2] The applicant asks for a determination that the Tribunal declined to exercise its jurisdiction to determine whether the government respondents had engaged in dividing procurement requirements into separate contracts to avoid their obligations under the North American Free Trade Agreement S.C. 1993 c. 44, the Agreement on Government Procurement pursuant to the World Trade Organization Agreement, S.C. 1994 c. 47, and the Agreement on Internal Trade S.C. 1996 c. 17.
[3] Applying the functional and pragmatic approach, we are of the view that the standard of review in this case is correctness. There is no dispute that the Tribunal had jurisdiction to decide whether the government respondents have engaged in dividing procurement requirements into separate contracts. The question is whether they did so in this case. The Tribunal must act within and according to the jurisdiction conferred on it by its governing statute. There is a right to judicial review from decisions of the Tribunal. The Tribunal"s decision on this issue is not discretionary. It is not necessary to go further. The standard of review in this case is correctness.
[4] The applicant is a supplier of a Network Operating System (NOS) to the Department of National Defence (DND). The other supplier had been Banyan Systems Inc. On December 11, 1998, the government respondents gave public notice of their intent to purchase 325 Microsoft NT 4.0 server licences and 12,000 Microsoft client access licences. This purchase was said to be for the purpose of upgrading the Banyan Network Operating System. According to the evidence, Banyan and Microsoft had entered into a strategic alliance whereby users who wished to upgrade their Banyan system would use Microsoft software. The government respondents took the position that this acquisition was exempt from the procurement provisions of NAFTA and the other Trade Agreements which generally require government procurement to be by way of competitive tendering. The Department"s view was that this purchase was exempt from competitive tendering requirements because of the uneconomical nature of such procedures in this case, the time constraints associated with attainingY2K compliance, and because the project was viewed as merely an upgrade to the Banyan Network Operating System.
[5] On February 11, 1999, the applicant filed a complaint with the Tribunal. While the basis of the complaint was that the specific contract to acquire the Microsoft server and client access licences was not subject to competitive tendering, the applicant says its concerns were broader. While the contract for the server and client access licences was for some $360,000, the applicant claimed compensation from the government respondents of $1,956,000. The applicant"s position was that there was evidence that the server and client access licence contract was but one component of a much broader procurement program involving replacing and rationalizing the Banyan and Novell Network Operating Systems. The applicant said that the acquisition by the government respondents of the Microsoft server and client access licences was part of a procurement program that would shut the applicant out of the DND market to supply a new Network Operating System. The lost opportunity was valued by the applicant at $1,956,000 as being its lost profit in replacing the entire Network Operating System for the DND.
[6] Subsection 30.11(1) of the CITT Act provides:
| 30.11(1) Subject to the regulations, a potential supplier may file a complaint with the Tribunal concerning any aspect of a procurement process that relates to a designated contract and request the Tribunal to conduct an inquiry into the complaint. |
30.11 (1) Tout fournisseur potentiel peut, sous réserve des règlements, déposer une plainte auprès du Tribunal concernant la procédure des marchés publics suivie relativement à un contrat spécifique et lui demander d'enquêter sur cette plainte. |
As we read this provision, it enables a potential supplier to file a complaint concerning any aspect of a procurement process that relates to a designated contract. Here, the designated contract was the server and client access licences contract. The aspect of the procurement process that the applicant was complaining about was, among other things, contract splitting, that is, that the government respondents were attempting to avoid their obligations under NAFTA and the other Trade Agreements to promote fair, open and impartial procurement procedures.
[7] The Canadian International Trade Tribunal Procurement Inquiry Regulations (SOR/93-602) require the Tribunal to make its decision according to whether the procurement provisions of the relevant Trade Agreements have been complied with. Section 11 of the Regulations states:
| 11. Where the Tribunal conducts an inquiry into a complaint, it shall determine whether the procurement was conducted in accordance with the requirements set out in whichever one of the NAFTA, the Agreement on Internal Trade or the Agreement on Government Procurement applies. |
[8] Article 1001(4) of NAFTA provides:
| No party may prepare, design or otherwise structure any procurement contract in order to avoid the obligations of this chapter. |
Article l002(4) provides:
| Further to Article 1001(4), an entity may not select the valuation method or divide procurement requirements into separate contracts, to avoid the obligations of this chapter. |
Article 1017(1)(a) provides:
| In order to promote fair, open and impartial procurement procedures, each party shall adopt and maintain bid challenge procedures for procurement covered by this chapter in accordance with the following: |
| (a) each party shall allow suppliers to submit bid challenges concerning any aspect of the procurement process, which for the purposes of this article begins after the entity has decided on its procurement requirement and continues through the contract award. |
The relevant provisions of the World Trade Organization Agreement on Government Procurement and the Agreement on Internal Trade are to similar effect.
[9] The applicant"s obvious concern was that by engaging in contract splitting, the government respondents were migrating the DND Network Operating System to Microsoft without giving the applicant a fair opportunity to bid on the supply and maintenance of a new Network Operating System for the DND.
[10] On the question of contract splitting, it must be said that the Tribunal"s reasons are obscure. The Tribunal commences by referring to contract splitting as one of "a number of peripheral questions". In view of the applicant"s complaint to the Tribunal, the question of contract splitting could hardly be considered to be "peripheral".
[11] The Tribunal then states:
| Novell has suggested that the solicitation at issue is but a component of a comprehensive NOS rationalization project that has been unfolding at DND since September 1995. In this respect, the Tribunal makes it clear that only Solicitation No. W8474-9-QQD8/A is before the Tribunal. The merits of prior or future procurement actions referred to or mentioned by the parties in the record of these proceedings are not before the Tribunal. |
This paragraph suggests that the Tribunal was confining itself to the server and client access licences contract because that was all that was before it and because prior or future procurement actions were not before it. However, the applicant, in its complaint and its reply, did provide some references to hardware and software actions already taken by the DND and actions that the applicant thought would take place that would result in the inevitable rationalization and migration of the DND Network Operating System to Microsoft. It is, therefore, difficult to understand how the Tribunal could say that only the server and client access licences contract was before it and that prior and future procurement actions were not.
[12] The next of the Tribunal"s paragraphs is equally difficult to understand.
| With respect to the issue of "contract splitting" raised by Novell, the Tribunal notes that the trade agreements provide that parties may not prepare, design or otherwise structure any procurement contract in order to avoid the obligations of the trade agreements. In this context, the Tribunal observes that the solicitation at issue, whether or not a component of a larger procurement, is conducted under the provisions of NAFTA, the AGP and the AIT. Consequently, in the Tribunal"s opinion, DND and the Department are not avoiding the obligations of the trade agreements in this instance. |
The Tribunal acknowledges the requirements of NAFTA and the other Trade Agreements. However, it is difficult to interpret the words "the solicitation at issue, whether or not a component of a larger procurement, ..." as meaning anything other than the Tribunal refusing to turn its mind to whether, in fact, the contract at issue was a component of a larger procurement process, one of the very issues raised by the applicant in its complaint to the Tribunal.
[13] The next of the Tribunal"s paragraphs is also ambiguous.
| Furthermore, the Tribunal is of the view that what Novell characterized as an overarching procurement, implemented piecemeal by DND, can also be viewed as the unfolding of an information technology strategy. The Tribunal makes this distinction to point out that there is nothing wrong with the development of an information technology strategy in generic terms that does not adopt or apply technical specifications with the purpose or the effect of creating unnecessary obstacles to trade. The Tribunal believes that this clarification is useful in light of the submission made by Microsoft that entities, not the Tribunal, are the ones in the best position to determine their needs. While the Tribunal subscribes to this view, the Tribunal notes that, when such strategies are implemented, the trade agreements clearly require that these generally be implemented by means of competitive tendering procedures. In the Tribunal"s opinion, it is, therefore, clear that, when strategies, such as the DND NOS strategy, are implemented, the procurement contracts flowing therefrom must be conducted according to the provisions fo the applicable trade agreements. |
We confess that we cannot understand the difference, if there is one in these circumstances, between an "overarching procurement, implemented piecemeal" and "the unfolding of an information technology strategy". The government respondents" counsel referred to the former as harmful and the latter as benign. However, if they are the same thing, we fail to understand how they can be both harmful and benign at the same time.
[14] While the Tribunal stipulates that procurement under the DND Network Operating System strategy must be conducted according to NAFTA and the other Trade Agreements, this begs the question of whether, on the evidence put before it by the applicant, the applicant was being foreclosed from bidding on future DND Network Operating System procurement contracts and if so, whether the compensation recommended by the Tribunal in lieu of competitive tendering for the designated contract was adequate.
[15] As we have said, the Tribunal"s reasons are ambiguous. For this reason, we are not satisfied that the Tribunal exercised the jurisdiction conferred upon it by statute and regulations to consider whether NAFTA and the other Trade Agreements had been violated by contract splitting by the government respondents as alleged by the applicant.
[16] The appeal should be allowed with costs and the matter should be referred back to the CITT to consider the applicant"s complaint whether, in respect of the designated contract, the server and client access licences contract, the government respondents are engaged in contract splitting to avoid their obligations under NAFTA and the other Trade Agreements and if so, to determine an appropriate remedy.
"Marshall Rothstein"
J.A.