Federal Tribunal Clarifies When Government Procurements Are Exempt From Review Under Trade Agreements

In Peer Ledger Inc. v. Royal Canadian Mint (Peer), the Canadian International Trade Tribunal concluded that a procurement was outside of its jurisdiction because the procurement fell within the “commercial sale or resale” exception to the Canadian Free Trade Agreement (CFTA). Though its application always depends on the facts, government institutions may be able to rely on the “commercial sale or resale” exception where the goods or services being procured will be used by different end users other than the procuring entity for their own purposes, are associated with products sold for profit to paying customers and relate to a marketplace business activity.

Background

In Peer, the complaint arose from a Request for Proposal that the Royal Canadian Mint (the Mint), a federal Crown corporation, issued to acquire software that can be used as a tracking system for the provenance of gold products, including bullion. After being advised that its proposal was unsuccessful, the complainant commenced a complaint with the Tribunal on the basis that the procurement qualified for protection under the CFTA.

Article 504 of the CFTA defines the scope of the procurements that it covers and includes a “procurement for governmental purposes…of a good, a service, or any combination thereof, not procured with a view to commercial sale or resale, or for use in the production or supply of a good or service for commercial sale or resale” (emphasis added). This is commonly known as the “commercial sale or resale exception” to the CFTA. Substantially similar exceptions are found in other international trade agreements to which Canada is a party.

The Mint asserted that the procurement in issue fell within this exception. As a result, the Mint argued that it was not a “covered procurement” under the CFTA and therefore was outside the Tribunal’s jurisdiction. It moved for an order dismissing the complaint.

The Tribunal’s Decision

The Tribunal granted the motion and concluded that the procurement was outside its jurisdiction. The Tribunal confirmed that Article 504 of the CFTA serves to “carve out” from its jurisdiction a subset of procurements carried out by government institutions “that are undertaken for commercial purposes.” The Tribunal gave examples of when a procurement can be for “commercial purposes,” including where the goods and services:

• Are intended to be acquired by or used by an end user other than the government institution for its own interests and objectives
• Are used in the production or supply of other goods and services for commercial sale or resale
• Relate to activities where the procuring entity is engaged in some marketplace business activity, ostensibly for profit on its own account, which may not be exclusive to the functions of government

Conversely, the Tribunal reasoned that goods and services used “in the course of providing goods, services and delivery programs, in the public interest” may not amount to a commercial purpose.

In considering the facts of the case, the Tribunal accepted the Mint’s evidence and concluded that the procured software “forms part of the Mint’s commercial product offering and is intended to be associated with the bullion products sold by the Mint for profit.” The Tribunal analogized the procured software to a manufacturer’s warranty for a consumer product, which does not form part of the physical product but is “tied to that product such that it forms part of the commercial product being offered for sale.” In reaching its decision, the Tribunal noted the importance of the procured product being “offered and sold” to “paying customers.”

Key Takeaways

This decision clarifies indicators of a public procurement that is for commercial purposes, and therefore more likely to be exempt from the procurement requirements of domestic and international trade agreements and from review by the Tribunal. These include where the procured good or service is ultimately used by end users other than the procuring entity, sold for profit, sold to paying arms-length customers, and generally resembles private sector marketplace activity.

The decision also confirms that procuring authorities seeking to rely upon the commercial sale or resale exception should marshal clear evidence that the procurement in issue was in fact for commercial purposes, and that the Tribunal will closely scrutinize that evidence in its analysis.

Blakes successfully acted as co-counsel for the moving party.

For more information, please contact the authors or any other member of our Procurement and Litigation & Dispute Resolution groups.