Government Operations Committee on May 2nd, 2017

[The Vice-Chair, Liberal, Yasmin Ratansi]

Good morning. We have quorum, so we will start the meeting.

I want to let you know that bells will ring at 10:30 a.m. I understand the witnesses each have 10 minutes for opening statements; if they shorten it that would be good. That will give us one hour and 15 minutes. The clerk needs a few minutes to give us some updates. If we have unanimous consent and you don't mind staying for five minutes after 10:30, I'd appreciate it.

With that, welcome to the witnesses, Mr. James Cox, Mr. Sébastien Grammond, and Mr. Christopher McLeod.

Mr. Cox, the floor is yours.

[James Cox, Fellow, Centre for Security, Intelligence and Defence Studies, Norman Paterson School of International Affairs, As an Individual]

Thank you for your invitation to appear here this morning.

I'm here this morning to help you as much as I can. I have a general expertise in the area of policy and strategy in conflict and war. I have a specific expertise in the theory and practice of intelligence. I have had only a very small and old past experience in the area of acquisition. I had a career in the military, in the army, and I had a job or two in the mid-eighties involved in this area. I remember ordering spears and horses, so I don't know that anything I have in the way of experience is as relevant as you would hope today, although I do have a general understanding of the importance and the role of intelligence.

I understand that you have an interest in the Five Eyes arrangement, so I'm happy to provide as much information as I can on that.

I understand the importance of your questions. At this point I'm here to provide help and I'm keen on your questions.

Thank you.

[The Vice-Chair, Liberal, Yasmin Ratansi]

Thank you, Mr. Cox.

Mr. Grammond.

[Prof. Sébastien Grammond, Professor, Civil Law Section, University of Ottawa, As an Individual]

Thank you very much, Madam Chair.

I will speak in both languages.

I wish to speak to you today about a problem related to the national security exception, particularly the fact that the government seems to interpret this exception as excluding the jurisdiction of courts.

I'm not an expert in national security like Mr. Cox, nor in computer science. I am a lawyer, and that is why I'm addressing you.

Perhaps I could start with a personal example. I was a young lawyer in the 1990s, and I had to work on several bidding cases. Our office represented bidders who had been excluded from a process or were denied a contract.

At that time, the decisions of the courts made it very difficult to challenge decisions, such as those concerning contracts awarded by municipalities. I remember a case where the City of Montreal had awarded a contract to our competitor, despite the fact that there were irregularities in his bid, which had not been a problem. In another case, my client was accused of similar irregularities, and his bid was found to be invalid. I did not understand why the City did one thing in one case and something else in another.

A few years later, the Charbonneau Commission—as you may recall—allowed us to learn a lot about the integrity of the bidding process. The lesson I took away from this was that court oversight is essential to ensure that bidding processes work, that processes are followed, and that people make decisions based on criteria and not on arbitrary considerations or favouritism. As the saying goes, “when the cat's away, the mice do play”. Obviously, the cat is the courts.

I'd like to make an important point. I read the transcript of your last meeting—in February, I think—and the point was made that, well, the national security exception was invoked in a number of cases, but still, it was a competitive process. However, what I've learned shows you that, if you don't have an external control, you can never be sure that it's actually competitive. In the cases I talked about, yes, it was supposed to be competitive. There was a call for tenders and there were criteria, but the City of Montreal, in those cases, was doing what it wanted, essentially.

I want to go beyond that. Beyond protecting competitiveness, I think it's an issue about the rule of law. There's nothing in the act respecting the Canadian International Trade Tribunal, nor in the Agreement on Internal Trade, that ousts the jurisdiction of the tribunal when the national security exemption is invoked.

What the government is essentially asserting is a right to exempt itself from the law as it sees fit, without any statutory basis. That's called a dispensation power, and that was abolished by the Bill of Rights—not Diefenbaker's Bill of Rights, but the Bill of Rights that ended the Glorious Revolution in England in 1689. That's been with us for a long time, the principle that a government cannot exempt itself from the law. That is so, even when national security is at stake.

I don't want to minimize in any way the importance of national security, but the fact that national security is at stake does not mean that we oust the jurisdiction of courts and tribunals. What we do is design processes that reconcile the needs of national security and the need for judicial review, the requirements of the rule of law.

Let me give you a few examples. In the last Parliament there was Bill C-51. There was an important debate about this piece of legislation. Let me just give you an example from it. There were provisions with respect to the no-fly list. What you see is that the bill gave a statutory basis for the no-fly list, but it put into place a process for people to appeal or to contest before a court of justice their possible inclusion on the no-fly list. Even if there is a concern for national security, Parliament found a way to address it in a way that would preserve the individual's right to present his or her case before a court, and the needs of national security, especially with respect to confidentiality.

It's the same thing with respect to the famous security certificates. When you want to deport someone who's a threat to national security, there is a process for that person to challenge the designation in court, and there is a process for keeping information confidential when it relates to issues of national security, so it's possible to combine the two.

It's never done in a blanket way. It's never done in a way that prevents a court from looking at a particular case and asking itself if it is satisfied that there is really a national security concern. If there is one, it will address it; but if there are none, then it'll go public and deal with the case.

I think that gives us an idea of how the courts deal with these issues. The courts are sensitive to national security issues and have all the tools necessary to ensure the confidentiality of information that may pose a risk in this regard. In my view, nothing in the Agreement on Internal Trade that was mentioned earlier allows the government to say that the courts lose jurisdiction when it invokes a national security exception.

Thank you.

[The Vice-Chair, Liberal, Yasmin Ratansi]

Thank you.

Mr. McLeod.

[Christopher McLeod, Head, Commercial Litigation, Mann Lawyers LLP, As an Individual]

Thank you.

Good morning, committee members, my name is Chris McLeod. I'm head of commercial litigation with Mann Lawyers in Ottawa. I have practised in the area of commercial litigation and public procurement law for my entire career. I was the lead counsel in the MD Charlton Co. Ltd. case last year, which was the first time that the invocation of a national security exception has been found to be problematic by the Canadian International Trade Tribunal. I was honoured to receive your invitation here today, and I believe I can provide some context for the committee.

Based on my review of the transcripts of the last session, I thought I would start by providing a bit of an overview and intersection between public procurement and national security exceptions and how we get to some of the issues that we're seeing.

As you know, Canada has committed to various trade agreements, NAFTA, the Agreement on Internal Trade, and the WTO's Agreement on Government Procurement, among others. Included in all of these agreements are commitments with respect to promoting transparency, competition, fairness, and integrity when the Government of Canada is procuring goods and services.

The trade agreements are fairly specific about what these requirements are. There are different requirements and different wording in each agreement, but the general principles are there. There must be open process, such that Canada won't have technical specifications in their procurements that are biased in favour of one bidder or against another bidder. The timing of the procurement must allow bidders to provide a legitimate response to the solicitation. The bidders must know the evaluation criteria they need to meet and the bids must be evaluated against those criteria.

These and more are set out in the trade agreements, and they're the building blocks of this fair, transparent, and open procurement system.

Not all procurements will be subject to the trade agreements and these requirements. Certain goods and services are not subject to the agreements. In order to be subject to the trade agreements, the procurements have to meet certain thresholds that are set out in the agreements. Typically, a monetary threshold is broken down by type of good or service, and it's different depending on which trade agreement we're talking about. It's not uncommon to have one procurement in which multiple trade agreements and the obligations under those trade agreements are triggered.

By way of these trade agreements, Canada has also committed to providing a dispute body, a specialized body that has specialized expertise in dealing with alleged violations of these trade agreement obligations. That's the Canadian International Trade Tribunal, CITT.

If you're bidding on a government contract that is subject to one or more of the trade agreements, and the procurement you're bidding on meets the thresholds under the trade agreements so that they're triggered, and you feel that Canada has violated one or more of its obligations under the agreements, you can complain to the CITT and ask for relief. You can allege that there's an unfair process or unfair conduct and ask that it be addressed.

The CITT has a number of tools to deal with issues. They can recommend that the solicitation be cancelled and resolicited. They can award bid prep costs. They can award loss of profit if they're convinced that the complaining bidder would have otherwise won the bid.

The CITT's procedure is also designed specifically for procurement. Very much unlike a court, the CITT's process happens very quickly. You're talking about days as opposed to months and years. You're inside of 90 to 145 days as opposed to what could be a two-year to three-year process.

From a practical perspective the CITT plays a very important role. Typically, these goods need to be procured at the time they're being purchased, and if the procuring of those goods is tied up in the courts for years, it can set the government back. It's the same for bidders. My clients certainly want these issues resolved quickly as well, and the CITT offers a venue that does that very quickly, using its specialized expertise.

National security exceptions come into play because the trade agreements all recognize that there are instances where there are legitimate national security concerns at play for the Government of Canada, where procuring goods and adhering to these obligations under the treaty agreements just doesn't make sense from a practical perspective.

To give you an example, if you're purchasing military hardware, you may want to do it in secret. You may not want other countries to know what you're purchasing, or the technology that's included. Rather than reaching out to the market in general to procure these goods, you may want to limit it to a couple of trusted suppliers. There are some suppliers that are known for historically providing goods to Canada and our allies.

What's happened over the years is that when Canada has invoked a national security exception—as when my friend said here, deemed itself to have a national security concern that warrants moving away from the obligations under the trade agreements—Canada has done so in a comprehensive way. Canada has taken a position that when a national security concern arises with respect to one of the trade agreement obligations, that it dispenses with all of the commitments under the trade agreements, including dispensing with a bidder's ability to seek recourse to the CITT. That's the jurisdiction issue that's come up.

Canada's position has been and continues to be that where there's an NSE, a national security exception, the procurement is taken right outside of the trade agreements and therefore outside of the purview of the CITT. The CITT no longer has jurisdiction to hear the complaint. For a long time, the CITT agreed with Canada on this. Many bidders tried to challenge it and the CITT would consistently say, look, if a national security interest is triggered, all we can do is look to see whether the national security exception has been properly created—triggered basically. Technically, all they would look at is whether the person with the right authority signed off on it. As soon as you had that, that was it; it was outside of their hands, and off you went.

It came up in the testimony in February. There is other recourse with the courts, but for a lot of reasons it doesn't make sense practically. And frankly, the courts are moving away from administrative remedies for what they consider to be commercial undertakings by the federal government.

Over the years, this has created an environment that was frankly ripe for abuse. That was recognized by the courts and by the tribunal. I'm not suggesting that it was abused in every case, or even in most of the cases, but it would certainly allow the government to ignore its commitments, even if the commitments were not impacted by the national security concerns.

If we go back to the military hardware example, if the Government of Canada has an interest in keeping the procurement secret and maybe limiting the pool of bidders to trusted bidders, what's been happening over the years is that Canada also has taken a position that it can treat—within that small pool of bidders and that small pool of bids—those bidders unfairly, and the bidders have no recourse under the trade agreements or to the CITT.

What we argued in the MD Charlton case, and what the tribunal found for the first time, is that while there are instances where national security concerns would warrant excluding one of the obligations of the trade agreements, it should only be done to the extent necessary in the circumstances. If you can address a national security concern by running the solicitation in secret or limiting the number of bidders, within that pool of bidders, you should be treating them fairly, so that everyone has an equal opportunity to compete for work. It ensures competition and a fairness in the process.

Since that decision, and since your February 23, 2017 sitting, the CITT has followed up on the MD Charlton decision with the Hewlett-Packard decision. If you've had a chance to read that, it sets out in very detailed terms that the tribunal has gone to great lengths, and has done a great job of setting up the entire background, with respect to the issues of national security exceptions in their jurisdiction.

They have taken a new position on it, basically, a position that is consistent with the MD Charlton—

[The Vice-Chair, Liberal, Yasmin Ratansi]

Mr. McLeod, I'll have to thank you now. When the questions are asked, you might be able to expound on it.

We'll go to the first seven-minute round with Mr. Peterson.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Thank you, gentlemen, for being with us this morning.

I'm going to start with a general question to Mr. Cox. I understand you have some expertise with the Five Eyes. With regard to IT, how does our process, our procedure, specifically this blanket exception, compare to our Five Eyes allies?

[James Cox]

I carried out some research over a few days on the policies and other regulations of Australia, New Zealand, the U.K., and the U.S. I found, in general, that our wording on the NSE is reflected in the countries of the Five Eyes in various ways. It's fairly straightforward in Australia because it's a small organization, the same as here in Canada. On the other hand, it's complicated in the American policies and regulations because they have a whack of it.

In terms of the spirit of what we see in ours, it's reflected in the others, so there is a common approach.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Thank you for that.

Professor Grammond, public procurement is fraught, as well. I'm a commercial litigator myself. I've practised a little bit in the procurement field—not in the national security exception, for sure. Even without the national security issues, those types of procurements and contracts often result in litigation. Unhappy bidders don't think they were treated fairly. Their recourse is to the courts or, in some cases, the tribunal.

Do you see the national security exception as being just another layer of that sort of risk to bidders, or do you actually see widespread abuse of that provision in trying to undercut the commercial interest in getting the supplier that perhaps the government wants?

[Prof. Sébastien Grammond]

I have not conducted a thorough investigation that could provide a basis for a conclusion that there has been abuse. What I can say is that, from a principled point of view, the more exceptions you have, the closer you are to the old situation where there was no control at all on decisions of public authorities as to the procurement process. I think there is potential for abuse, certainly, if the position is that there is no review at all once the national security exception is invoked.

I cannot say for sure that there has been abuse. In fact, that's the role of the court or tribunal to decide, but if the court or tribunal has no jurisdiction, then how can we know whether there has been abuse or not?

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

What would you see as ways to improve the use of this?

[Prof. Sébastien Grammond]

I think the recent decision of the Canadian International Trade Tribunal is a positive development in the sense that it says the government has to prove exactly why it thinks that there is a risk to national security if, for example, we allow judicial review of a particular procurement decision.

Then the tribunal would have to ask, “Is there a problem? What's the problem, and how can we solve it?” It could be solved, for example, by saying, “This and this information will be held as confidential”, or “This particular part of the hearing will be held in camera”.

There are many tools to ensure that information is kept confidential. I don't think there's any major problem with the operation of such tools. We have examples with hearings of the Federal Court on security certificates. They have crafted a procedure to ensure that information that is really related to national security is kept really confidential and, in some cases, is not even disclosed to the lawyer for the person who is the object of a certificate.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Okay, thank you.

Mr. McLeod, I want to direct some questions at you.

Do you see—I don't want to call it abuse necessarily—a misuse of the exception when it shouldn't apply and it being used to perhaps achieve commercial or other ends that aren't really the purpose of the exception?

[Christopher McLeod]

Well, we certainly saw it in the MD Charlton case before the tribunal. The tribunal agreed that there were issues with the solicitation. But just on a broader level, I do. This idea of the blanket NSEs and running multiple solicitations under the NSEs and Canada's historical position and Canada's position in the HP decision as well that no justification is necessary is, to me, contrary to the trade agreements. The NSE language in the trade agreements has qualifiers showing that Canada considers it necessary. To me, you have to give some effect to that language. There has to be some ability to test whether or not Canada actually felt it was necessary or whether Canada was using an NSE as a convenient way to avoid going through its other obligations in order to justify sole-sourcing, for example. I think the tribunal is going in that direction certainly.

[Kyle Peterson, Liberal, Newmarket—Aurora, ON]

Okay. To my mind, the default should be an open and transparent process. I think everyone on the panel is in agreement because, among other things, that makes the most competitive process, which would result in the best supplier getting the contract. Generally speaking, I think that's the perspective taken. The exception must an exception, and it shouldn't be used regularly or it's no longer an exception.

Two parties can be hurt by misuse of the exception. With competitive bidders, one bidder can be prejudiced against another. But also I think it's a way to perhaps circumvent trade obligations that Canada, as a country, may have or other countries that use these exceptions—

[The Vice-Chair, Liberal, Yasmin Ratansi]

Mr. Peterson, you've gone over your time. He'll have to answer on your next turn.

Mr. Clarke, go ahead for seven minutes.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Thank you, Madam Chair.

Gentlemen, thank you very much for being here this morning.

Mr. Grammond, you said that courts of justice cannot control the use of a national security exception, but I understand that some can, like the commercial courts.

What I understand is that you want Canadian courts themselves to be able to control the use of this exception. Is that the case?

[Prof. Sébastien Grammond]

Perhaps I didn't express myself properly. In my opinion, the jurisdiction that is otherwise conferred on courts and tribunals cannot generally be removed. The Canadian International Trade Tribunal has been given jurisdiction over certain categories of bids, and that seems to me to be the focus of our discussion today. There may be litigation in common courts, such as the Federal Court or the provincial courts, but in practice, for the reasons Mr. McLeod has expressed, these disputes are before the Canadian International Trade Tribunal.

In my view, we shouldn't conclude, as the government does, that the jurisdiction of the court is discarded as soon as an official signs a certificate that there is a national security exception. I don't think that's desirable. When a court's jurisdiction is called into question, it should be able to exercise some control in this respect. In most cases, it will be the Canadian International Trade Tribunal, but it could be another court if, for example, a disappointed bidder decides to bring the bid before the Federal Court.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

What happens if a Canadian interested in procurement decides to challenge the use of a national security exception in a particular situation? Would the challenge come before a Canadian court?

[Prof. Sébastien Grammond]

A general rule of civil procedure provides that a personal interest is required in order to bring legal action. There are certain exceptions, but generally speaking, in a bidding process, an individual has no personal interest that would allow that person to sue.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

That is what makes you say that, in reality, the government assumes that this process is not subject to the rule of law.

[Prof. Sébastien Grammond]

That's right, yes.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

In essence, no individual could protest. In fact, no one could challenge the use of the exception in the courts, right?

[Prof. Sébastien Grammond]

No, the affected people, that is, the affected companies, can do so.