ATTORNEY GENERAL OF CANADA V. RAPISCAN SYSTEMS INC.: REFLECTIONS ON THE CHALLENGE OF JUDICIAL REVIEW IN GOVERNMENT PROCUREMENT.
In particular, the Federal Court and Federal Court of Appeal decisions in Attorney General of Canada v Rapiscan Systems Inc. (3) have raised the following question: when should unsuccessful participants--or, indeed, non-participants--in government tendering processes be entitled to administrative law remedies against a government agency? This is a vexing question to which Canadian courts have given various and contradictory answers. No clear or consistent answer can be found in the jurisprudence of the Supreme Court of Canada. An answer, however, is clearly needed. Government agencies must know the scope of their liability in order to structure their affairs. Bidders and other market participants must know their rights and potential remedies. Indeterminacy in this arena--and the complex and protracted litigation associated with it--is costly for all involved, particularly taxpayers. In short, this is an issue ripe for clarification by our highest court.
In this comment, I use Rapiscan as to illustrate how and why Canadian courts have lost their way in using administrative law to review government tendering. I then propose a means of getting back on track. My ultimate argument is simple: the principles of contract law--and only those principles--should govern public procurement disputes except in very particular and limited circumstances (which this comment will outline). Such a result is right in principle. It is also right as a matter of policy. Since administrative law review exists to uphold the rule of law and to encourage good governance, the central challenge I must address is this: is contract law, on its own, sufficient to achieve these goals in the context of government tendering?
I argue that contract law is up to that challenge. In Part 1,1 will briefly review the concurrent administrative law and contract law framework for government procurement litigation. In Part 2, I will review recent jurisprudence, with a focus on Rapiscan, to illustrate the problems caused by administrative law review of government procurement, and then trace these problems to confusion in the jurisprudence of the Supreme Court of Canada. In Part 3, I will argue that a primarily private law approach to government procurement litigation is preferable.
I OVERVIEW OF GOVERNMENT TENDERING LITIGATION
As mentioned above, government procurement decisions are frequently the subject of complicated, high stakes litigation. There are multiple legal avenues through which such decisions can be litigated. This paper, however, will focus on the relationship between two primary avenues: contract law and administrative law. (4) It is helpful to briefly review the basic structure of these two types of actions in order to then delineate where they overlap and conflict with one another.
I. THE CONTRACT LAW FRAMEWORK FOR TENDERING LITIGATION
Canadian courts have developed a special contract law framework for assessing tendering. Under a traditional contractual analysis, a call for bids would be a mere invitation to treat insufficient to create legal rights and obligations. In Ron Engineering, (5) however, the Supreme Court of Canada took a different view, holding that the submission of a bid in response to a tendering call could in some circumstances create a form of contract ("Contract A").
Since Ron Engineering, the Supreme Court has clarified the meaning and content of this "Contract A" (as distinct from "Contract B", the contract awarded to the ultimately successful bidder). Contract A will exist where "the parties intended to initiate contractual relations by the submission of a bid." (6) The tender call is an offer and the submission of the bid constitutes acceptance. Contract A is an agreement about process, not result. It will generally include an implied term of equal and fair treatment for bidders. More specifically, it will require that the successful bid be chosen in accordance with--and only with--disclosed, pre-set criteria. (7) Such implied terms can be ousted by the specific terms of the tender call, but only by clear and explicit language. (8) After the formation of Contract A, "[w] here a bid is accepted, the terms of the tender and bid documents become the terms and conditions of Contract B." (9)
A cause of action will lie, therefore, with unsuccessful bidders when the tendering agency awards Contract B (i) to a non-compliant bidder or (ii) without fair and equal consideration of all bidders, unless those duties have been explicitly ousted. The remedy available to the unsuccessful bidder will generally be expectation damages. (10) No cause of action, however, will lie with those who do not participate by submitting a bid. They are not in privity with the parties to Contract A.
All of this will be true of both private tendering and government tendering. The analytical approach to Contract A and Contract B remains the same in both cases.
II. THE ADMINISTRATIVE LAW FRAMEWORK FOR TENDERING LITIGATION
The involvement of government agencies in tendering opens up the possible alternative route of judicial review through administrative law. A disappointed bidder can rely on statutory avenues of judicial review such as s. 17 of the Federal Courts Act. (11) Alternatively, she can plead for relief based on the prerogative jurisdiction of the Superior Courts, including writs of certiorari, mandamus or prohibition. Because the cause of action is not framed in contract, the applicant for judicial review need not be a bidder (a point to which we will return later).
Two types of judicial review are available: procedural review and substantive review. First, where applicants can demonstrate that their "rights, privileges or interests" may have been impacted by the decision, they will be entitled to procedural fairness. (12) The content of that duty will vary based on the context in accordance with the factors set out by the Supreme Court in Baker. (13) Requirements may include the right to make written or oral representations to the decision maker and have the decision maker consider them, entitlements to notice, rights of appeal and the provision of reasons. Second, the applicant may urge the court to evaluate the substantive reasonableness of the decision. Courts will generally afford deference or a "margin of appreciation" to discretionary decisions where they fall "within a range of possible, acceptable outcomes which are defensible in respect of the facts and law." (14)
Therefore, in the tendering context, a cause of action in administrative law will lie with a party who has been treated unfairly by the tendering agency or who has been adversely impacted by a substantively unreasonable choice of successful bid.
II ADMINISTRATIVE LAW: A SOURCE OF CONFUSION
Administrative law is a source of confusion in government procurement disputes for two related reasons. First, it is unclear when administrative law review ought to be available. Second, the jurisprudence delineating the scope of public law duties of fairness and reasonableness is often difficult to apply to the commercial context. The first part of this section reviews recent lower court jurisprudence, focusing on the Rapiscan case, to illustrate how these twin problems play out in tendering litigation. The second traces the source of confusion to the jurisprudence of the Supreme Court.
I. THE CURRENT CHALLENGE
The conflicting judgments of the Federal Court (FC) and the Federal Court of Appeal (FCA) in Attorney General of Canada v Rapiscan Systems Inc. (15) illustrate the confusion created by inserting public law remedies into tendering disputes. First, inconsistencies in internal reasoning and indeterminate legal tests make it difficult to ascertain when public law remedies are supposed to be available. Second, public law concepts prove to be an awkward analytical fit for a dispute that, at its core, is commercial in nature, making it difficult to apply the jurisprudence on the scope of public law duties in the procurement context. Before turning to those two challenges, however, it is necessary to understand what was at stake in the Rapiscan case.
In Rapiscan, the applicant corporation challenged the decision of a government agency (the Canadian Air Transport Security Authority or "CATSA") to award a contract for x-ray technology to another bidder. The applicant alleged that (a) CATSA's ultimate decision was unlawful because CATSA staff misled the CATSA Board about the substance of the bids and (b) its bid was reviewed in a procedurally unfair manner. Although the case was factually complex, the core legal issue was whether public law remedies were available. Since the terms of the tender call (the "RFP") expressly excluded the formation of Contract A and any of its related duties, the applicant could not rely on implied private law duties of fairness. (16)
The trial judge found that a public law remedy was available, agreeing with both of the applicant's allegations. On the first allegation, he found that CATSA's management had misled its Board on fundamental aspects of both the process used and the substance of the bids. Consequently, CATSA's decision was unlawful because it was made without the Board exercising its "oversight function" as required by regulatory policy. (17) On the second allegation, the trial judge found that the applicant was entitled to public law guarantees of procedural fairness notwithstanding the ouster of Contract A. He relied on a test set out in the Irving Shipbuilding (18) and Air Canada (19) cases, which makes public law remedies available where contractual disputes involve a "public element". (20) Public law remedies are necessary to maintain the "integrity" of government procurement processes, and therefore "good government". Consequently, the trial judge held that the Court had a freestanding power to grant public law remedies against conduct that "significantly undermines the integrity" of any government tendering process. (21)
On appeal, the FCA agreed with the trial judge on the first issue--that the CATSA decision was unlawful insofar as it was the result of an explicit violation of regulatory policy. (22) On the second issue, however, it reversed the trial judge's decision. The Court declined to find that CATSA owed or breached a duty of procedural fairness. Its analysis on this point, however, is internally inconsistent. At one point in its decision the Court relied on the trial judge's application of the "public element" test from Irving Shipbuilding and Air Canada, and in so doing found that the decision was reviewable under public law principles. (23) The Court nevertheless proceeded to review the issue of procedural fairness pursuant to the Ron Engineering Contract A/Contract B framework, noting that procedural fairness duties had been ousted. (24) It then noted in passing that public law could be invoked in cases of "grave misconduct such as fraud, bribery or corruption" to remedy alleged breaches of procedural fairness. (25) In effect, the FCA seems to have held that public law was applicable to the dispute but then used private law principles to determine whether CATSA owed or breached a public law duty.
Rapiscan illustrates the twin challenges mentioned above. First, confusion stems from the use of indeterminate tests, such as the "public element" test, to determine when public law review will be available. Second, even where courts decide to apply public law principles, the scope of their applicability remains unclear in light of the concurrent framework of contract law. Furthermore, other recent jurisprudence citing Irving Shipbuilding illustrates the difficulty of this approach. Superior Courts have, for example, cited the case for precisely opposite statements of the law. The New Brunswick Court of Queen's Bench and the Ontario Superior Court have both cited Irving Shipbuilding for the proposition that government tendering decisions will generally fall within the realm of administrative law. (26) The British Columbia Supreme Court, by contrast, has cited Irving Shipbuilding for the proposition that public law duties of fairness will generally not be applicable to commercial tendering cases involving government agencies. (27) The Federal Court, from whence this jurisprudence originated, has also inconsistently applied Irving Shipbuilding. In one case, it cited Irving Shipbuilding for the view that "judicial review was all but ousted when dealing with commercial arrangements." (28) In another, it used Irving Shipbuilding as the basis to permit a prospective bidder who explicitly decided not to bid after participating in a pre-RFP consultation process to challenge the tendering process. (29)
I note this uncertainty not merely to suggest the unworkability of one particular approach crafted in the Federal Courts. I note it, instead, to frame my ultimate point: that it is unwise to maintain the overlapping application of public law principles to disputes for which (a) they were not designed and (b) there already exists a fine-tuned legal framework in the form of private law. Where, then, does this confounding overlap originate?
II. THE ROOT OF CONFUSION: SUPREME COURT JURISPRUDENCE
The challenges described above are of relatively recent vintage. Prior to the early 1990s, most Canadian courts held that government procurement decisions were not susceptible to public law review absent some express statutory basis for challenge. (30) For example, in Ainsworth Electric Co v Exhibition Place (Board of Governors), (31) the Ontario Divisional Court denied an application for judicial review of a decision of a public body on a tender for electrical contracting services.
Justice Galligan, writing for the Court, adopted the broad proposition that "courts have no authority, in the exercise of their prerogative jurisdiction, to review a commercial business decision." (32) In the early 1990s, in part because of its statutory mandate, the Federal Court was the first adopter of a limited degree of public law review of government procurement. (33) But the application of public law principles to government tendering began in earnest following the decision of the Supreme Court of Canada in Shell Canada Products. (34)
Shell involved the decision of Vancouver's City Council to refuse to award contracts to Royal Dutch Shell as long as it continued to do business in apartheid South Africa. The majority of the Court granted Shell its requested relief on the basis that the council resolution in question was ultra vires the municipality. The case is notable, however, for the dissent of Justice McLachlin (as she then was). Although Justice McLachlin ultimately sided with the municipality, her reasons take aim at the "long line of cases in Canada holding that the purchasing decisions of a municipality, referred to as the procurement power, are immune from judicial review." (35) That line of cases was animated, in her view, by the "traditional view that contract law is wholly the realm of private law." (36) The doctrine of immunizing procurement powers from public law review "should not apply to municipalities," although such review should be restricted to "clear cases." (37)
Justice McLachlin's reasons in Shell focused primarily on why judicial review of municipal decisions is necessary. They provide a compelling rationale--drawing on the rule of law legacy of Roncarelli v Duplessis (38)--for why municipal decisions in general should not be exempt from administrative law review. But comparatively little attention was paid to whether procurement decisions should be subject to public law review. The fundamental error was to treat those two issues as one and the same. Thus in attempting to solve one problem (debate over the reviewability of municipal decisions) her reasons created another (the injection of public law into government tendering). Justice McLachlin provided only one paragraph of reasoning indicating why municipal procurement should be viewed distinctly from private procurement. In essence, her position was that (i) governments use public funds and (ii) their exercise of contracting power may have consequences for other interests (such as equality of access to government markets and the integrity of government business). (39) Justice McLachlin did not engage in an analysis of whether the public law principles the applicant sought to have applied would be preferable to private law principles in addressing those concerns. Nor did she weigh the benefits of a public law approach against the downsides of overlapping legal regimes for government tendering.
In subsequent decisions, lower courts adopted Justice McLachlin's approach. Shell has been relied upon as authority for the proposition that public law principles can be applied to purely "commercial" tendering decisions where courts can identify a "public interest" in the outcome of a tendering process. (40) This was not, however, the final word from the Supreme Court on this subject. Subsequent conflicting jurisprudence has complicated the matter further.
In Dunsmuir, (41) the Supreme Court overhauled Canada's long-criticized administrative law framework. In a less often noted portion of that judgment, however, it also made comments in tension with the approach to administrative law review of contracting decisions flowing from Shell. (42) The Supreme Court reconsidered some of its prior jurisprudence, including Knight (43) and held that "in the specific context of dismissal from public employment, disputes should be viewed through the lens of contract rather than public law". (44) Notwithstanding the public dimension of the relationship, "the essence of the employment relationship is still contractual". (45) The Court found it "difficult to see" how the state agent acts differently from a private party in this context. (46) Crucially, the Court recognized that applying the private law of contract does not necessarily mean an abandonment of the rule of law values promoted by public law:
[W]hile public law is rightly concerned with preventing the arbitrary exercise of delegated powers, the good faith exercise of the contractual rights of an employer ... cannot be qualified as arbitrary. Where the terms of the employment contract were explicitly agreed to, it will be assumed that procedural fairness was dealt with by the parties ... If, however, the contract of employment is silent, the fundamental terms will be supplied by the common law or the civil law... (47)
The Court rejected the view that a public law remedy is automatically a superior means of achieving justice in the individual case or in advancing the public interest. On the contrary, it stated that in some cases "the private law offers a more principled and fair remedy." (48)
Dunsmuir did not, however, overrule the case law flowing from Shell. Lower courts have continued to apply the approach of Justice McLachlin in Shell, notwithstanding the majority's comments in Dunsmuir. (49) The FCA in Irving Shipbuilding relied on these portions of Dunsmuir in suggesting ousting, or at least limiting, judicial review in government procurement, but as discussed above, the FCA did not provide a clear rubric for determining when public law remedies should apply. Indeed, the Supreme Court of Canada further muddied the waters in Canada (Attorney General) v TeleZone Inc, (50) when it referred in passing (and in obiter dictum) to the Irving Shipbuilding case as standing for the proposition that public law review should be available for government procurement decisions. (51)
Ill CONTRACT LAW: THE SOLUTION
Identifying weaknesses in the administrative law jurisprudence is, of course, not sufficient on its own to justify abandoning administrative law review in government tendering. One must examine the alternative. Therefore, I begin this section by outlining the contours of a predominately private law approach. Examining this alternative leads to the following fundamental question: in the tendering context, is it right that governments should be treated in exactly the same way as any other commercial party? Inherent in the very idea of public law is that governments bear some obligations not borne by private parties. Reasonableness and fairness review exist to protect very basic societal interests in the rule of law and rational, effective government decision-making. So the question becomes whether it is in the public interest to apply public law or private law to government tendering disputes. That is the ultimate issue I aim to address in this section.
I. THE PRINCIPLED QUESTION: MEETING THE RULE OF LAW CHALLENGE
Justice McLachlin posed a fundamental challenge in her dissent in Shell. Roncarelli tells us that for a public decision-maker there is no such thing as an absolute and untrammeled discretion. (52) The dignity of the citizen requires that decisions made by their leaders must be based on acceptable reasons. Their decisions cannot be arbitrary. Administrative law, it is thought, is the application of those rule of law ideas. Shell, therefore, can be seen as standing for the proposition that administrative law must be extended to government procurement in order for it to conform to bedrock legal principles.
This account, however, is correct only if one accepts the proposition that rule of law principles are solely the province of public law. It is true that the foundational scholarship on the rule of law would generally be associated with public law (including, for example, the work of Dicey and Fuller). (53) But recent scholarship has emphasized the substantial "role that private law plays in securing individuals from the arbitrary exercise of power." (54) On its face, it might appear that the scope for decision-making permitted by the private law of contract creates space for the arbitrary exercise of power. But viewing the issue more deeply, the exercise of private law powers--when done in accordance with the principles of private law--does not inexorably lead to arbitrary decision-making. The law of contract does not as a general matter permit the arbitrary exercise of power. Even where the rigid formality of the common law permits a degree of discretionary decision-making that would appear inconsistent with a public law conception of fairness, equity operates to constrain decision-making. As Professor Henry Smith has argued, equity in the private law acts as a constraint where the "simple structures of the law are open to exploitation by opportunists." (55) This is the point that the Court deftly identified in Dunsmuir but has not consistently applied. The "good faith exercise" of contractual rights "cannot be qualified as arbitrary." (56)
To return to the tendering context, private law rules constrain the discretion of a government agency engaged in procurement. In simpler cases, ordinary contractual interpretation should suffice for this purpose. In Martel Building, the Court held that an implied term of fair and equal treatment was "necessary to give business efficacy to the tendering process." (57) In Tercon, the majority of the Court used a strict approach to interpretation, coupled with the contra proferentem principle, to avoid the application of an exclusion clause to immunize the tendering agency from liability for a botched procurement process. (58) Likewise, the compellingly-argued dissent in Double N held that the "integrity of the bidding process" could be upheld through ordinary contractual principles. The dissenting judges refused to hold that a tendering agency could defer "the fulfillment of its duty under Contract A to a time after Contract B has been entered into and then argue that Contract A is at an end." Contract A could not be interpreted, in their view, in a manner that encouraged a tendering agency to permit the "duplicity" of allowing a bidder to submit "ambiguous or deliberately misleading" bids with the intention of subsequently renegotiating the terms after Contract B is awarded. (59) In all of these cases, the Court used ordinary private law principles--rooted in the intention of the parties, measured objectively--to constrain arbitrary exercises of contractual power.
Other contract law doctrines can address more difficult cases. For example, exclusion of liability clauses for bidders, where they fundamentally undermine the integrity of government business, may be void under the public policy branch of the Tercon test. (60) The bar will, of course, be high--not all decisions to exclude Contract A liability will be contrary to public policy. Justice Binnie's approach in dissent in the Tercon judgment provides a sound example. In Tercon, Justice Binnie would have declined to use public policy to void the exclusion clause at issue. That decision, however, took place in a context in which the government decision to exclude liability was consistent with broader public policy objectives. The British Columbia Government was required by statute to use a standard competitive procurement process as a general matter, but other means could be employed where "the minister believes that an alternative contracting process will result in a competitively established cost for the project." (61) In other circumstances, however, one could envision the application of public policy to deny the benefit of an exclusion clause to protect a fundamentally deceptive or irrational process established by a tendering agency. (62) Using this pre-existing framework for infusing public policy considerations into contractual disputes is more pragmatic and intelligible than the concurrent application of administrative law and contract law.
Likewise, reprehensible conduct in dealing with bidders may attract relief under the Bhasin organizing principle of good faith. Although in the tendering context prior to Bhasin, good faith may be unsatisfactory, dishonest conduct that defeats the legitimate commercial objectives of other parties will not be tolerated under Bhasin. This is particularly important given that the Bhasin principle of good faith operates not as an implied term--which may be excluded by clear language pursuant to the Tercon analysis--but rather as a general legal principle that applies irrespective of the intention of the parties. (63) Granted, the full meaning of the principle of good faith discussed in Bhasin and its attendant set of specific duties that may arise from the principle is not yet clear, but the notion of good faith provides a much more attractive potential framework for reviewing the fairness of government procurement activity than the concurrent application of contract law and administrative law.
Critics might reply by pointing out that contract law may deny standing to those who would challenge improper conduct in tendering. A stranger to Contract A may not sue for its violation. In such a case, public law may provide the only avenue for redress. This was the situation in Airbus Helicopters. (64) The applicant corporation declined to submit a bid because of what it considered to be unfavourable terms in the tender call. Lacking standing to pursue a contractual claim, the applicant framed its case in administrative law. The defendant public agency pursued a consultation process (in which the applicant participated) prior to publishing the tender call and thereby gave the matter a "public element" which entitled the applicant to public law review and remedies. Critics of the private law approach might say that a public law approach grants standing to allow challenges and ensure that the rule of law is maintained in the tendering process.
Both public law and private law, however, restrict standing. Administrative law does not give a freestanding right to any citizen to challenge any public decision. The common law restricts the administrative law guarantee of procedural fairness only to those whose "rights, privileges or interests" are affected. (65) Statutes also restrict review: for example, s. 18(1) of the Federal Courts Act stipulates that only parties "directly affected by the matter in respect of which the relief is sought" may make an application for review. (66) Thus, the "rule of law" concern that animates the argument for broader standing is tempered by pragmatic concerns under both public and private law. The only question is which set of standing rules is to be preferred. And there are a number of reasons to prefer the standing rules developed in the law of contract.
First, at the most basic level, the common law of contract has been grappling with this question in the commercial context for far longer. The accumulated wisdom of the common law has settled upon contract law's standing rules. They have, from time to time, been modified, as in the case of third-party beneficiaries, but they have generally proven durable and workable. Second, and relatedly, the law of contract provides clear, predictable rules instead of indeterminate tests. This may appear inflexible, but certainty and finality have their benefits--especially in the commercial sphere, where both market participants and taxpayers stand to lose from frequent complex litigation. Third, and most importantly, the rules of standing in contract make good practical sense. Consider once again the Airbus Helicopters case. The availability of public law relief shaped the decision-making of the applicant. Instead of attempting to submit a bid to meet the criteria set out in the tender call, the applicant refused to submit a bid, electing instead to challenge the process itself. The applicant performed an "end run" around contractual standing rules in order to gain the benefits of Contract A--namely, fairness guarantees--without taking on the risk of submitting a bid (which, if accepted, would become binding on it). If successful, the applicant could effectively force the government to produce a tender call more favourable to it without using any of the ordinary bargaining tools. This is not a positive practical result with respect to the public interest (a subject to which we will return soon).
In sum, then, closer consideration suggests that Justice McLachlin's rule of law concerns, as articulated in Shell, are not as forceful as they appear. The exclusive application of the private law would not immunize arbitrary exercises of state power from challenge. Further, where the law of contract denies standing and cuts off avenues of relief, it does so for good reason, just as administrative law does in other contexts.
II. THE POLICY QUESTION: BALANCING FLEXIBILITY WITH ACCOUNTABILITY
Governments ostensibly use tendering to ensure equal access to government markets and maximize value-for-money for taxpayers. Those objectives, however, cut both ways when addressing the question of whether the government should be treated in the same way as any other private party putting out a tender call. On the one hand, tying the state's hands can limit its ability to attain value for money. On the other, the use of public funds may suggest a need for greater vigilance against potential incompetence or corruption. And fair treatment, consistent with bidders' reasonable expectations, accords with the public interest. Stephen Waddams captures this dilemma, albeit in a slightly different context, quite well:
The public interest may seem to justify special treatment of [government] agreements in order to permit maximum flexibility to public authorities in pursuing that public interest. On the other hand, protection of the reasonable expectations of persons dealing with public authorities is also itself a public interest. The difficulties in the law arise from an attempt to reconcile those conflicting objectives. (67)
Our task, then, is to determine whether the flexibility and certainty provided by the private law approach outweigh the potential loss of accountability supposedly provided by administrative law review. There is a wide range of views on this subject. Some authors, most notably Sue Arrowsmith, favour the view that "there are many considerations applicable to public bodies and not to private which may justify different treatment of the two, even when engaged in similar activity". (68) Others take the position that making public law remedies available will "frustrate" government attempts to "mimic and compete with the private sector". (69)
Let us begin by considering the arguments militating in favour of greater scrutiny (and therefore, the argument goes, the application of public law principles). The first and most obvious is a concern about corruption. The FCA alluded to this concern in Rapiscan, suggesting that public law could be invoked in cases of "grave misconduct such as fraud, bribery or corruption" to remedy alleged breaches of procedural fairness. (70) Fortunately this is not as pervasive a problem in Canada as it is elsewhere in the world. Yet given the vast sums of taxpayer money involved in government procurement, courts must nevertheless safeguard against the spectre of bid rigging. It is not clear, however, that administrative law provides any additional protection in this vein. Bid rigging is an indictable criminal offense under section 47 of the Competition Act subject to a maximum 14 year term of imprisonment. (71) Public officials engaging in bid rigging may be liable in tort for misfeasance in public office. (72) They may also be liable, along with any bidders with whom they collude, for civil conspiracy. (73) While there may well be concerns relating to the discoverability of collusion (including infrequency of prosecutions for violations of the Competition Act), making public law review available is not a remedy to those concerns. The legal tools for dealing with bid rigging exist without administrative law review of government procurement.
Subtler would be the concern that the terms of a tender call may unduly favour one bidder without amounting to an illegal conspiracy. In such cases, one might question whether government conduct in tendering is truly maximizing value for taxpayers. Justice McLachlin articulated this point in Shell as a concern for "integrity in the conduct of government business." (74) This objection is weighty and merits consideration. As Sue Arrowsmith has argued, both public and private interests may require protection from the ineffective exercise of executive governmental authority with respect to the "huge amount of resources at [government's] disposal". (75) Further, it could be argued that the private law does not sufficiently capture concerns about value for money; commercial parties are generally presumed to be best placed to determine their own self-interest, and yet the assumption may not hold true in the case of state officials. There are, as Gareth Morley points out, doubtless agency costs associated with state officials spending money that does not belong to them. (76)
Ultimately, however, one must ask whether the application of administrative law to procurement truly serves to remedy such concerns. The administrative law doctrines of fairness and reasonableness do not provide scope for a fine-grained cost-benefit review of various potential government purchases. Even if they did, could courts claim proper institutional competence to conduct such a review? Procurement decisions often involve both the exercise of business judgment and the application of specialized technological or industry expertise. It is one thing for the courts to hold government to its own rules where it establishes in law its own procedures for ensuring such decisions are made properly (as in Rapiscan, discussed above). (77) It is quite another for the courts to impose a decision-making procedure or to interrogate the substantive merits of government business decisions.
What, then, is to be said for the other side of the balance? The arguments in favour of the contract law framework are compelling. First and most importantly, applying the private law approach puts government on the same footing as ordinary commercial parties. The government uses the law of contract at its own risk, binding itself to attain its benefits along with its costs. Peter Hogg and his co-authors in Liability of the Crown put this point well, albeit in converse form:
Canada, like the United Kingdom, Australia, New Zealand and the United States, has not followed the French model of a "public law" of contract or a special category of "administrative contracts" ... An argument that has been advanced in favour of a public law of contract is that the government's responsibility for public policy differentiates the Crown from private contracting parties ... The better view, in our opinion, is that the Crown should be bound by its contracts in the same way as a private person. The Crown is not obliged to enter into contracts; the assumption of contractual liability is a voluntary policy choice by the Crown. (78)
Put simply, where the Crown chooses to take on the risk of contracting, it does so to advance the public interest in sound commercial management of government affairs and is entitled to the attendant benefits of the law of contract. It should not be subjected to superadded layers of potential liability, increasing potential expense and undermining the benefits of using contract law. The majority of the Court in Double N rightly noted that too great a degree of scrutiny could "[frustrate] the tendering industry generally" by introducing "an element of uncertainty". (79) The superadded liability from that type of uncertainty could then "deter successful tenderers from dealing with the government" undermining the governments "pursuit of legislative goals". (80) Finally, as Nicholas Seddon points out, administrative law remedies are "asymmetric in that they are available to a private sector party but not to the government". (81) Putting the government on the same legal footing as other commercial parties allows it to be competitive with those parties.
Second, and relatedly, there is a public interest in limiting the torrent of costly, time consuming litigation that can flow from the concurrent application of both contract law and administrative law. Critics might argue that judicial review in the Federal Courts constitutes a speedy and effective means of resolving disputes--typically taking place as fast-moving summary proceedings with streamlined procedure. By precluding a public law remedy, it could be argued, one condemns the parties to a civil lawsuit after the process is complete along with its attendant complexity and expense. But this argument cuts both ways--public law challenges to tender calls can slow down the process and disrupt government's ability to take advantage of the institution of tendering. The trial judgment in Rapiscan was handed down four years after the impugned procurement decision was made. (82) While litigation will likely be time consuming and in some cases unavoidable under either the administrative law or the contract law approach, the higher predictability provided by applying the law of contract alone seems preferable. It also appears likely to reduce the legal costs associated with subjecting government procurement processes to potential challenges in two concurrent legal structures.
On balance, the pragmatic benefits of an administrative law approach to government procurement are outweighed by the drawbacks. Accountability concerns can be addressed through other means, and courts lack institutional competence to provide value-for-money oversight. By contrast, governments--and by extension the taxpayers they serve--stand to benefit from the clear and consistent application of a single legal regime that has been designed over many decades to deal with commercial disputes.
III. WHAT ROLE FOR ADMINISTRATIVE LAW?
Public law cannot be entirely ousted from the procurement context, nor should it be. But its application should be confined to clear, containable situations. First, where a government imposes binding rules upon itself--whether in the form of statute or regulation--as to how it should make decisions, it ought to be held to those rules. This is, as mentioned above, the narrow, and in my view correct, holding of the FCA in Rapiscan. Courts should be wary, however, not to imply rules where no express legislative or regulatory provision creates them. While a government may, for example, adopt a general approach favouring certain modes of competitive tendering, that government may nevertheless in some circumstances have valid reasons for preferring a sole-sourcing approach or a less costly, more informal bid process. These policy choices should not be interfered with absent some clear and explicit rule to the contrary.
Second, where government procurement decisions violate other aspects of public law, they can and should be subject to review. Examples of such violations would include environmental protection law, international trade law and aboriginal rights and treaty obligations.
Finally, courts should resist the urge to employ administrative law principles merely because government agencies enter into contracts pursuant to a statutory grant of authority. Much is made in the jurisprudence of the distinction between contracts entered into pursuant to a statutory grant of authority and those entered into pursuant to the inherent power of the Crown, as a legal person, to assume obligations. (83) The former, it is said, should more frequently be subject to administrative law review, the latter less so. In this context that distinction, however, is entirely formalistic and unhelpful. The source of the power to contract is of no significance in practice or principle in answering the question of which law is preferable. Except where a statutory grant of authority includes express limitations on the manner in which--or the purposes for which--it can be exercised, it should not be considered.
A collaborator of Marshall McLuhan's once suggested that "we shape our tools, and thereafter our tools shape us." Those are wise words for lawyers. There is a great deal of merit in thinking carefully about how the legal concepts we employ to achieve certain ends--accountability, fairness, reasonableness--can take on a life of their own, themselves shaping behavior and changing outcomes. Picking the right legal tool is important, even in situations where the same substantive outcome can be attained by multiple means.
Government procurement is a case where using the wrong tool--and indeed, sometimes using two different tools at the same time--has led to confusion and uncertainty. It has also led to market participants changing their behavior in ways that are detrimental to all involved, particularly taxpayers. Canadian courts, animated by a desire to uphold rule of law principles and ensure good governance, have overlooked the merits of contract law and overestimated the value of administrative law.
That error can and should be rectified. Administrative law review should be constrained. Courts should reaffirm the capacity of private law to ensure rule of law and good governance and use substantive doctrines of law and equity, including good faith, to constrain improper conduct. The result will be greater clarity without sacrificing accountability.
(*) Hon BA, JD (University of Toronto), Law Clerk (Court of Appeal for Ontario, 2016-2017; Supreme Court of Canada, 2017-2018). This paper solely reflects the author's opinion, not that of the judges for whom he works.
(1) Anne McNeely, Canadian Law of Competitive Bidding and Procurement (Aurora, ON: Canada Law Book/Thomson Reuters, 2010) at 4.
(2) Based on a legal database search, at the time of writing the leading procurement case from the Supreme Court, The Queen (Out) v Ron Engineering,  1 SCR 111. 1981 CanLII 17 (SCO [Ron Engineering], has been cited nearly 400 times in Canadian courts. Between one-half and two-thirds of those cases name federal, provincial or municipal governments or government agencies in the style of cause (depending on how one counts quasi-public organizations such as Crown corporations).
(3) 2014 FC 68, 369 DLR (4th) 526 [Rapiscan FC], rev'd 2015 FCA 96, 385 DLR (4th) 170 [Rapiscan FCA].
(4) It should be noted that government procurement decisions can also be challenged for noncompliance with international trade obligations, environmental obligations, aboriginal rights and other statutory requirements. These challenges are important but outside the scope of this paper.
(5) Ron Engineering, supra note 3.
(6) MJB Enterprises Ltd v Defence Construction (1951) Ltd, [19911 1 SCR 619 at para 23, 170 DLR (4th) 577 [MJB].
(7) Martel Building Ltd v Canada, 2000 SCC 60,  2 SCR 860 [Martel Building].
(8) Tercon Contractors Ltd v British Columbia (Transportation and Highways), 2010 SCC 4 at para 71,  1 SCR 69 [Tercon].
(9) Double N Earthmovers ltd v Edmonton (City), 2007 SCC 3 at para 3,  1 SCR 116 [Double N].
(10) MJB, supra note 6, at para 55.
(11) Federal Courts Act, RSC 1985, c F-7, s 17.
(12) Cardinal v Director of Kent Institution,  2 SCR 643 at para 14, 1985 CanLII 23 (SCC) [Cardinal]; Nicholson v Haldimand-Norfolk Regional Police Commissioners,  1 SCR 311, 1978 CanLII 24 (SCC).
(13) Baker V Canada (Minister of Citizenship and Immigration),  2 SCR 817 at paras 23-28, 174 DLR (4th) 193.
(14) Dunsmuir v New Brunswick. 2008 SCC 9 at para 47,  1 SCR 190 [Dunsmuir].
(15) Rapiscan FC, supra note 3; Rapiscan FCA, supra note 3.
(16) Rapiscan FC, supra note 3 at paras 32 36; Rapiscan FCA, supra note 3 at paras 57-62.
(17) Rapiscan FC, supra, note 3 at paras 57-62.
(18) Irving Shipbuilding Inc v Canada (Attorney General), 2009 FCA 116,  2 FCR 488 [Irving Shipbuilding].
(19) Air Canada v Toronto Port Authority et al, 2011 FCA 347 at para 60,  FC] No 1725 [Air Canada].
(20) Irving Shipbuilding, supra note 18 at para 24.
(21) Rapiscan FC, supra note 3 at para 115.
(22) This is a result with which 1 take no issue. Public law review should always be available to challenge explicit statutory and regulatory violations arising out of government decisions, whether or not they involve private contracting. 1 take issue, however, with the use of public law remedies deriving from the common law and the prerogative jurisdiction of the courts as a means of avoiding the ordinary law of contract. I will return later in this comment to the subject of when it is appropriate to apply public law principles.
(23) Rapiscan FCA, supra note 3 at para 14.
(24) Ibid at paras 57-59.
(25) Ibid at para 62.
(26) Dignam v New Brunswick Liquor Corp, 2014 NBBR 109 at 35, 2014 NBQB 109 [Dignam]; Tribute Resources Inc v Parks Canada Agency, 2012 ONSC 5480 at para 18,  OJ No 4812.
(27) Water's Edge Resort Ltd v Canada (Attorney General), 2014 BCSC 873 at para 80, 241 ACWS (3d) 701.
(28) AYC Pharmacy Ltd v Canada, 2009 FC 554 at para 14, 95 Admin LR (4th) 265.
(29) Airbus Helicopters Canada Ltd v Canada (Attorney General), 2015 FC 257 at para 90, 472 FTR 97.
(30) McNeely, supra note 1 at 76.
(31) (1987), 58 OR (2d) 432,  OJ No 89 (QL) (Div Ct).
(32) Ibid at 6. See also Raney v Ontario (1974). 4 OR (2d) 249, 47 DLR (3d) 533 (CA); Peter Kiewit Sons Co v Richmond (City) (1992), 1 CLR (2d) 5, 7 Admin LR (2d) 124 (BCSC); Paul Sandori & William M Pigott, Bidding and Tendering: Wl-iat is the Law? (Markham: LexisNexis Canada, 2015) at 262.
(33) See e.g. Thomas C Assaly Corp v R (1990), 34 FTR 156, 44 Admin LR 89 (TD).
(34) Shell Canada Products Ltd v Vancouver (City),  1 SCR 231,  3 WWR 609 [Shell].
(35) Ibid at para 52.
(37) Ibid at paras 56, 69.
(38) Roncarelli v Duplessis,  SCR 121,  SC] No 1 [Roncarelli].
(39) Shell, supra note 34 at para 55.
(40) See e.g. IP Towing Service and Storage Ltd v Toronto Police Service Board,  OJ No 3959. 180 DLR (4th) 160; Oil Sands Hotel (1975) Ltd v Alberta (Gaming and Liquor Commission), 1999 ABQB 218, 148 ACWS (3d) 1022; Sivulliik Development Corp v Iqaluit (Town of),  NWTR 326, 74 ACWS (3d) 498.
(41) Supra note 14.
(42) One helpful discussion of this aspect of Dunsmuir and the cases following it can be found in ] Gareth Morley, "Sovereign Promises: Does Canada Have a Law of Administrative Contracts?" (2010)23 Can ] Admin L& Prac 17, although I do not agree with the author's ultimate conclusion on the value of administrative law review of government contracting.
(43) Knight v Indian Head School Division No 19,  1 SCR 653, 69 DLR (4th) 489 [Knight].
(44) Dunsmuir, supra note 14 at para 82.
(45) Ibid at para 97.
(46) Ibid at para 103.
(47) Ibid at para 104.
(48) Ibid at para 110.
(49) See e.g. TransAlta Generation Partnership v Balancing Pool, 2012 ABQB 2 at para 68,  AWLD 2883; Dignum, supra note 26 at para 33.
(50) 2010 SCC 62,  3 SCR 585.
(51) Ibid at para 40.
(52) Roncarelli, supra note 38 at para 41.
(53) A V Dicey, Introduction to the Study of the Law of the Constitution, 10th ed (London: Macmillan & Co, 1959); Lon L Fuller, The Morality of Law (New Haven: Yale University Press, 1964).
(54) Lisa Austin & Dennis Klimchuk, "Introduction" in Lisa Austin & Dennis Klimchuk, eds. Private Law and The Rule of Law (Oxford: Oxford University Press, 2014) at 14.
(55) Henry E Smith, "Property, Equity, and the Rule of Law" in Lisa Austin & Dennis Klimchuk, eds. Private Law and The Rule of Law (Oxford: Oxford University Press, 2014) at 2.
(56) Dunsmuir, supra note 14 at para 104.
(57) Martel Building, supra note 7 at para 88.
(58) Tercon, supra note 8 at para 62.
(59) Double N, supra note 9 at para 123.
(60) Tercon, supra note 8 at paras 115-123.
(61) Ibid at para 97.
(62) In Tercon, Justice Binnie rightly articulated a restrained view of the doctrine of public policy. Justice Binnie held that in order to use this "ultimate power" (borrowing a phrase from Stephen Waddams) courts must be satisfied that the conduct complained of is sufficient to override the public interest in freedom of contract. His examples include nullifying exclusion clauses invoked in favour of companies knowingly selling defective plastic resin to a gas pipeline manufacturer: see paragraph 119. To be sure, this is a high standard, but one which can serve to restrain government attempts to establish fundamentally deceptive or irrational bid processes while not subjecting government tendering decisions to undue scrutiny.
(63) Ibid at para 74.
(64) Airbus Helicopters Canada Ltd v Canada (Attorney General), 2015 FC 257, 254 ACWS (3d) 257 [Airbus Helicopters].
(65) Cardinal, supra note 12 at para 14.
(66) Federal Courts Act, RSC 1985, cF-7, s 18.1(1).
(67) Stephen M Waddams, The Law of Contracts, 6th ed (Aurora, ON: Canada Law Book, 2010) at 479.
(68) Sue Arrowsmith, Government Procurement and Judicial Review (Toronto: Carswell, 1988), at 14, cited with approval by justice McLachlin in Shell, supra note 34.
(69) Nicholas Seddon, Government Contracts: Federal, State and Local, 5th ed. (Sydney: Federation Press, 2013), at 394 [Seddon]; Margaret Allars. "Administrative Law, Government Contracts and the Level Playing Field", (1989), 12 UNSWLI 114 at 148 [Allars].
(70) Rapiscan FCA, supra note 3 at para 62.
(71) Competition Act, RSC 1985, c C-34, s 47.
(72) The test for establishing misfeasance in public office was set out by the Supreme Court of Canada in Odhavji Estate v Woodhouse, 2003 SCC 69 at para 32,  3 SCR 263.
(73) See generally Hunt v Carey Canada Inc,  2 SCR 959,  1 W.DCP (2d) 523: Al Enterprises Ltd v Brum Enterprises Ltd, 2014 SCC 12,  1 SCR 177.
(74) Shell, supra note 34 at para 55.
(75) Sue Arrowsmith, "Government Contracts and Public Law" (1990) 10:3 LS 231 at 234.
(76) I Gareth Morley, "Sovereign Promises: Does Canada Have a Law of Administrative Contracts?" (2010) 23 Can I Admin L & Prac 17 [Morley],
(77) Rapiscan FCA, supra note 3 at para 14.
(78) Hogg, Monahan & Wright, Liability of the Crown, 4th ed (Toronto, ON: Carswell, 2011) at 305.
(79) Double N, supra note 9 at para 73.
(80) Allars, supra note 69 at 151.
(81) Seddon, supra note 69 at 394.
(82) Rapiscan FCA, supra note 3 at para 1.
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|Publication:||University of Toronto Faculty of Law Review|
|Date:||Sep 22, 2016|
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