Docket:
T-809-13
Citation: 2014 FC 263
Ottawa, Ontario, March 19, 2014
PRESENT: The Honourable Madam Justice Gagné
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BETWEEN:
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SELEX SISTEMI INTEGRATI S.P.A.
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Applicant
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and
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ATTORNEY GENERAL OF CANADA
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EADS DEUTSCHLAND GMBH
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Respondents
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REASONS FOR JUDGMENT AND JUDGMENT
Overview
[1]
The applicant Selex Sistemi Integrati S.p.A
[Selex] seeks judicial review of a decision by Public Works and Government
Services Canada [Public Works] to declare its bid in response to the Request
for Proposal number W8475-115110/B [RFP] non-compliant and to instead award the
contract to respondent EADS Deutschland GmbH [EADS]. Public Works found that
the sale of virtually all of Selex’s assets to a newly created sister company,
during the bidding process, was contrary to the non-assignment clause contained
in the RFP.
[2]
Selex argues that since Public Works failed to
provide it with reasons, Public Works’ decision should be reviewed under the
correctness standard. On the merit, it basically argues that the transfer of
its assets had, under Italian law, the same practical effect and operational
consequence as a merger and that, as such, it should not have been considered
as having breached the non-assignment clause.
[3]
Selex seeks various orders, notably an order
declaring the Public Works’ decision invalid or unlawful, an order to terminate
the contract awarded to EADS, and an order that the contract should be awarded
to Selex, or alternatively, an order directing Public Works to re-evaluate
Selex’s bid.
[4]
For the reasons that follow, the application for
judicial review will be dismissed.
Background
[5]
Selex is an Italian aerospace, defence and
security-related electronics manufacturing company with its headquarters in Rome, Italy. It is one of a number of related companies owned by Finmeccanica S.p.A
[Finmeccanica], Italy’s largest hi-tech industrial group.
[6]
EADS is a Dutch registered company, specializing
in military transport and fighter aircrafts, defence electronics and security
systems, and space systems. As of January 2, 2014, it has been rebranded as the
“Airbus Group.” For the purposes of this judicial review, it will be called
EADS.
[7]
Public Works is the Federal Government
Department responsible for the RFP.
[8]
In November 2010, Public Works issued a
Solicitation of Interest and Qualification [SIQ] for the procurement of
integrated Area Surveillance Radar and Secondary Surveillance Radar [the
“Radars”] for six Royal Canadian Air Force [the “Air Force”] military bases and
one training site. These Radars support the Air Force’s general operations in Canada, by providing its air traffic controllers with accurate data on the position of aircraft.
[9]
The purpose of the SIQ was to pre-qualify
vendors who met specified criteria. Through this process, only five companies,
including Selex and EADS, were determined to be qualified to bid on the
contract.
[10]
Public Works issued the RFP on January 26, 2012.
The RFP incorporated by way of reference certain of Public Works’ Standard
Acquisition Clauses and Conditions. The particular clauses which were
incorporated into it, and which bidders expressly agreed to be bound by, were
identified as the “2003 (2011-05-16) Standard Instructions – Goods or Services
– Competitive Requirements.” These Standard Instructions expressly provided at
section 05.8 that “[a] bid cannot be assigned or transferred in whole or in
part.”
[11]
Selex and the other pre-qualified bidders
submitted tenders prior to the closing of the solicitation on May 2, 2012.
Pursuant to the RFP, the bids were to remain open for acceptance until December
28, 2012.
[12]
Upon the completion of Public Works’ evaluation
of the bids in October 2012, only those submitted by Selex and EADS were found
to be compliant with the terms of the RFP. Public Works evaluated the bids in
accordance with its bid evaluation matrix and on the combined technical and
financial scoring system. It found that Selex had submitted a lower price, but
EADS had scored higher on the technical components. As a result, Public Works
scored Selex’s bid at 86.50, while it scored EADS’ bid at 85.74.
[13]
After Public Works had proceeded with this
evaluation, but before it let the bidders know their results, it sought their
approval to extend the bid validity period to March 21, 2013. Selex agreed to
the extension, at the same time asking whether the contract would be awarded in
or after 2012. It did not advise Public Works as to why the timing of the bid
selection mattered.
[14]
On January 1, 2013, Selex underwent a corporate
reorganization, as did a number of its sister companies, all of whom were owned
by Finmeccanica.
[15]
Prior to the corporate reorganization,
Finmeccanica operated its defence and security electronics system business
operations through three Italian companies: Selex, Selex Elsag S.p.A [Elsag]
and Selex Galileo S.p.A. [Galileo]. All three companies were wholly owned by
Finmeccanica and had at least one wholly-owned non-Italian subsidiary. In the
case of Selex, its wholly-owned subsidiary was Selex Systems Integrations Inc.,
a U.S. corporation.
[16]
Finmeccanica consolidated all of its defence and
security electronics companies, with the intention of creating one European
entity, Selex ES S.p.A [Selex ES]. In the case of Elsag and Galileo, they
merged into Selex ES and their respective subsidiaries became subsidiaries of
Selex ES.
[17]
However, the manner by which Finmeccanica
proceeded in its corporate reorganization with regard to Selex forms the crux
of this dispute. Selex contends that its business was “transferred as a going
concern and integrated into Selex ES.” The entirety of the business complex,
including its assets, operations, and personnel and administrative
infrastructure, were transferred to, and integrated into, Selex ES. In the case
of its U.S. subsidiary, it became a wholly owned subsidiary of Selex ES.
According to Selex, the next step will be for it to be wound up. This has yet
to occur.
[18]
By way of letter dated January 9, 2013, Selex
advised Public Works of this corporate reorganization, writing that it had
“transferred its business into” Selex ES effective January 1, 2013, and that
Selex ES had “succeeded” Selex in its bid in response to the RFP. Following
receipt of that letter, Public Works contacted Selex, seeking additional
information regarding the corporate reorganization. There followed a number of
communications between the parties, as Public Works sought to determine whether
the corporate reorganization was a merger or had the practical effect under
Italian law of a merger. The communications were initially between Donna
Kovalsky, the designated Contracting Authority at Public Works for the
procurement, and Selex representative Daniel Tavano. Subsequently,
communications between the parties were primarily through David Holmes,
Department of Justice, counsel to Public Works, and Stefano Pineschi, Selex’s
in-house legal counsel.
[19]
Notably, Selex provided Public Works with a copy
of an agreement made between itself and Selex ES entitled “Sale of Business
Complex,” dated December 13, 2012. The agreement purported to document the sale
of Selex’s “business complex,” made up of, among other assets, the “elements”
identified as being on a “list of commercial bids submitted,” as shown in
Appendix AD. Selex and Selex ES are known in this document as the “Assignor”
and “Assignee” respectively.
[20]
On February 13, 2013, Mr. Holmes advised Mr.
Pineschi that the corporate changes had caused Public Works to “carefully
consider Selex’s status within the bidding process,” and towards that end, he
requested further information, which he broke down into six main questions.
Notably, he asked: “Under Italian law, does the emptying of assets out of
[Selex] and transferring of those assets into [Selex ES] have the same effect
as if [Selex] had merged with [Selex ES]?” and whether Selex’s bid for the
contract was included in Appendix AD to the Sale of Business Complex Agreement
“or otherwise sold or transferred” to Selex ES.
[21]
On February 15, 2013, Mr. Pineschi responded to
Mr. Holmes’ questions, confirming that:
a.
All of Selex’s assets and personnel had been
transferred to Selex ES, but it had been decided, for “a mere technicality,” to
keep Selex “only for the limited purposes to handle some administrative and
legal proceedings. However, [they would] shortly proceed with its winding up”;
b.
“Since there had been the sale of the whole
business complex of [Selex], [they] have substantially the same effects as
if [Selex] had merged with [Selex ES] (the only difference is that [Selex]
remains as legal entity with no assets nor staff). As a matter of fact, from a
legal point of view, [Selex ES] became the ‘natural’ and unique interlocutor of
Public Works, as any and all assets, personnel and liabilities of [Selex]
(including those relevant to the bid to the [RFP]) have been assigned to [Selex
ES]”;
c.
Selex’s bid for the contract was included in two
appendices to the Sale of Business Complex Agreement (Appendices AD and AE);
d.
Selex no longer had the ability to perform
production activities or fulfil the obligations contemplated by the RFP as all
its industrial and technical capabilities had been transferred to Selex ES.
[22]
Mr. Holmes also obtained corporate search
results concerning the status of Selex, Elsag and Galileo, which showed:
a.
As of January 28, 2013, Selex was still
“active”;
b.
As of February 1, 2013, Elsag and Galileo
“ceased” to exist, as they had been incorporated into Selex ES.
[23]
Mr. Holmes then provided to Public Works a legal
opinion on the effect of Selex’s corporate reorganization on the procurement
process - by an order dated September 9, 2013, this Court ruled that this legal
opinion was a solicitor-client privileged document and that, as such, it would
not be communicated to the applicant. Public Works subsequently determined that
Selex’s bid was no longer compliant with the RFP.
[24]
On March 21, 2013, Public Works awarded the
contract to EADS and so advised Selex without providing any further details.
Upon receipt of Public Works’ letter, Selex requested a debriefing from Public
Works, which was scheduled for April 17, 2013. On April 15, 2013, Public Works
advised Selex by way of letter of the results of the bid evaluation, and that
its bid had been determined to be non-compliant “as a result of enquiries
stemming from its January 9, 2013 letter advising Public Works of its corporate
restructuring.”
[25]
On April 17, 2013, the debriefing occurred as
scheduled. Selex’s Vice-President, Antoine Cortezi, took notes, which show:
a.
Selex was the highest ranked bidder, and would
have been awarded the contract. However, as a result of the corporate
restructuring, its bid was determined to be non-compliant;
b.
As a result of the corporate reorganization,
Selex was no longer capable of meeting the Industrial Regional Benefits (IRB), which
were the technical and management requirements of the solicitation (as it no
longer had any assets);
c.
Holmes explained that “Legal” had conducted its
own due diligence, and that the transfer of Selex into Selex ES did not
constitute a “true merger.” Had this situation been discovered after the award,
then “PUBLIC WORKS would have been forced to redo their due diligence and it
would have likely terminated the contract for default”;
d.
Holmes stated that the change in the company was
“never put to us as a merger. It did not look like a merger and there were no
signs of a merger.” A “true merger” is when “two entities were brought together
to become one new entity while in our case [Selex] was not truly merged but
‘sold’ its assets and remained as a shell company which was to be wound down in
the near future”;
e.
Holmes further stated that “you cannot change
bidders in the middle of a competition for legal reasons.” In doing so, he
“refused to point to any regulation or provision in the RFP.”
[26]
Selex filed a Notice of Objection with Public
Works in relation to its decision that Selex’s bid was non-compliant. By letter
dated June 4, 2013, Public Works advised that its decision would stand since:
a.
Selex had transferred its business, including
its industrial and technical capabilities and the bid itself, and was therefore
not able to perform the necessary work contemplated by the solicitation; and
b.
Selex had contravened the explicit prohibition
in the RFP on transfer or assignment of a bid.
The letter further stated:
It was and remains
irrelevant whether the reorganization was a merger under either Canadian or
Italian law. PUBLIC WORKS takes no position as to whether Selex’s bid would
have been rendered non-compliant if Selex had restructured its corporate
affairs differently than it had, including by merger. [Emphasis added]
[27]
Since the award of the contract in favour of
EADS, details regarding contract administration, technical documentation and
security requirement have been confirmed, site surveys and geotechnical
assessments have been completed and the specific location for the Radars has
been determined at each site. While the replacement of all the equipment at the
seven locations is expected to take three or four years, it is anticipated that
some of the Radars will be installed as early as 2014.
Issues and
Standard of Review
[28]
The questions raised by this application for
judicial review are the following:
a.
Did Public Works err in its interpretation of
the assignment clause found at section 05.8 of the Standard Acquisition Clauses
and Conditions?
b.
Did Public Works err in determining that Selex
had rendered its bid non-compliant by its corporate reorganization, and therefore
had breached the anti-assignment clause in the RFP?
c.
Did Public Works breach its duty of procedural
fairness to Selex?
[29]
The parties agree that the standard of review
for the duty of procedural fairness is correctness. However, they do not agree
on the standard applicable to the interpretation of the assignment clause and
the application of that interpretation to Selex’s corporate reorganization.
[30]
The applicant argues that the Decision for both
questions a) and b) should be reviewed on a standard of correctness, as it is
grounded in either an error of law in Public Works’ assessment of what
constitutes a merger and what constitutes a forbidden corporate reorganization
under the terms of the RFP, or an error of law in Public Works’ interpretation
of the RFP’s prohibition on assignments of bids.
[31]
In relation to issue a), the applicant states
that the correctness standard applies when interpreting the terms of an RFP.
For this point, it cites IMP Group Ltd v Canada (Minister of Public Works
and Government Services), 2006 FC 1223 at para 24 (aff’d 2007 FCA 318) [IMP
Group] where Justice Harrington, discussing the three standards of review,
which were applicable prior to Dunsmuir v New Brunswick, 2008 SCC 9,
held that the correctness standard applied to the interpretation of the RFP but
that the patent unreasonableness standard applied to the assessment of the bids
submitted. The appellant acknowledges that a determination as to whether a bid
complies with the terms of an RFP is a mixed question of law and fact, which
normally attracts a reasonableness standard. However, it argues that it would
be impossible for it to meet that standard given the absence of contemporaneous
reasons. A decision must be “transparent and intelligible” in order for the
reviewing Court to review it. This requires that there be reasons for the
decision, and that they are not opaque or otherwise indiscernible. For this
point, Selex refers the Court to Leahy v Canada (Minister of Citizenship and
Immigration), 2012 FCA 227 at paras 119-121.
[32]
Selex further submits that Public Works’ post-facto
explanation for its decision changed from the time of the debriefing to the
present and that it has since attempted to bolster its decision through the
filing of additional reasons by way of the affidavits of Ms. Kovalsky and Mr.
Revitt. Such an approach is not permissible as “[i]n those circumstances, an
applicant for judicial review is being asked to hit a moving target” (Sellathurai
v Canada (Minister of Public Safety and Emergency Preparendess), 2008 FCA 255
[Sellathurai] at paras 46-47).
[33]
As for the respondent, he suggested that issues
a) and b) be combined into a single issue which is whether Public Works had
erred in determining that Selex had rendered its bid non-compliant by its
corporate reorganization and by breaching the non-assignment clause. As a mixed
question of law and fact, it should attract the standard of reasonableness. For
this argument, the respondent mainly relies on Bot Construction Limited v
Ontario (Ministry of Transportation), 2009 ONCA 879 [Bot], St-Lawrence
College of Applied Arts and Technology v Canada, 2009 FC 545 [St-Lawrence]
and Halifax Shipyard v Canada (Minister of Public Works), [1996] FCJ No
682 [Halifax Shipyard].
[34]
I am reticent to apply the correctness standard
to issue a), as Public Works has been given express authority for overseeing
the procurement process. It drafted the RFP, and regularly interprets it during
the course of its procurement processes. The Department of Justice was
specifically called in to provide guidance. Deference then should likely be
owed to Public Works’ interpretation of its Standard Acquisition Clauses and
Conditions. However, the standard of correctness was applied in IMP Group
(2006), which confirmed the standard’s application by the Federal Court of
Appeal in HB Lynch (2005). It was also the standard used in a 2012 case
heard by this Court, which was not cited by either party (Robert v Canada (Attorney General), 2012 FC 1227). There, Justice Pinard said:
[15] This case raises
the following three issues:
1. Did the
applicant’s initial bid meet the requirements of the bid solicitation?
2. Did
the Correctional Service of Canada’s bid solicitation invite only natural
persons to submit proposals?
3. Did the
bid submitted by Multi Options comply with the relevant legislation and
standards governing the practice of dentistry in the province of Quebec?
[16] The
applicant argues that the standard of correctness applies to the respondent’s
decision because the issues involve compliance with the legislative framework
for the awarding of contracts and with Quebec’s statutes and regulations
governing dentists.
[17] The
respondents, on the other hand, argue that the standard of reasonableness
applies to all three issues. Relying on I.M.P. Group Limited v. The
Minister of Public Works and Government Services et al., 2006 FC 1223
(CanLII), 2006 FC 1223 at paragraph 24 [I.M.P. Group Ltd.]
(aff’d 2007 FCA 318 (CanLII), 2007 FCA 318), they submit that considerable
deference is owed when reviewing proposals or bids in the government
procurement process. Below is an excerpt from I.M.P. Group Ltd.:
[Cite omitted].
[18] The Supreme
Court of Canada has since held in Dunsmuir v. New Brunswick, 2008
SCC 9 (CanLII), [2008] 1 S.C.R. 190, at paragraph 47, that “reasonableness
is concerned mostly with the existence of justification, transparency and
intelligibility within the decision-making process. But it is also
concerned with whether the decision falls within a range of possible,
acceptable outcomes which are defensible in respect of the facts and law.”
[19] In my view, reasonableness is the standard applicable
to the first and third issues. However, as the second issue involves the
interpretation of the bid solicitation as such, I am of the opinion that correctness
is the applicable standard.
[35]
Therefore, the standard of correctness will be
applied to issue a) although, as will be seen below, that finding has no impact
on the final outcome since I find that Public Works correctly interpreted the
assignment clause.
[36]
With respect to issue b), I do not agree with
Selex that there was a need to provide reasons for Public Works’ decision, nor
that the reasons given evolved over time. To say that i) as a result of the
corporate reorganization, Selex is no longer capable of meeting the technical
and management requirements of the RFP (as it no longer had assets); ii) that
the corporate reorganization was a sale of assets not a merger, or iii) that it
is not permitted to change bidders in the course of a bidding process, all
amount to the same reality: the bidders were not permitted to assign or
transfer the bid in whole or in part. Selex had sufficient information and knew
very well that it was its corporate reorganization that rendered its bid
non-compliant. It knew of the terms and conditions of the RFP as it had
accepted them by submitting its bid. Therefore, the standard of review for the
question pertaining to the application of the non-assignment clause to the
facts at hand will be that of reasonableness.
Analysis
a. Did Public Works err in its interpretation of the assignment clause
found at section 05.8 of the Standard Acquisition Clauses and Conditions?
[37]
Although the question as to what is a transfer
or an assignment for the purpose of section 05.8 of the RFP is a pure question
of law, it is certainly not a complex one. There are a number of different ways
to undertake a corporate reorganization in order to join two or more business
concerns. However, each possible form of corporate reorganization may affect
the rights and obligations of the entities involved in different ways.
[38]
In brief, in order to transfer or assign assets,
the transferor/assignor and transferee/assignee must be separate identities
(see Envision Credit Union v Canada, 2013 SCC 48 at para 50). The transferred
or assigned assets pass from the hands of the transferor/assignor to the hands
of the transferee/assignee.
[39]
A transfer or assignment of a bid, in whole or
in part, has the practical effect of changing the bidder during the bidding
process. Moreover, a transfer or assignment of virtually all of the bidder’s
assets has the practical effect of rendering the bidder no longer capable of
meeting the technical and management requirements of the RFP.
[40]
In analyzing both the plain and legal meanings
of section 05.8 of the RFP, I am of the opinion that Public Works’
interpretation was therefore correct.
b. Did Public Works err in determining that Selex had rendered its bid
non-compliant by its corporate reorganization, and therefore had breached the
anti-assignment clause in the RFP?
[41]
Selex maintains that for all intents and
purposes, the “transfer and integration” of its business complex to Selex ES
had the “practical effect and operational consequence” of a merger by operation
of Italian law, as Selex ES succeeded Selex in all of the rights, obligations,
contracts, tenders, proposals and offers (including Selex’s bid in relation to
the RFP).
[42]
It further notes that the corporate
reorganization had no impact on its ability to perform the contract since all
of its manufacturing facilities, products, staff, experience, and technical
knowledge remained within the Finmeccanica group of companies and, more
specifically, were in fact located within Selex ES. Selex also raises the point
that, in September of 2012, Finmeccanica had been required, in accordance with
section 06.2 of the RFP, to provide a comfort letter affirming that it
guaranteed the financial capacity of its subsidiaries to fulfill all
obligations arising from any of their contracts for their entire term, and that
the subsidiaries could draw on the credit lines available to Finmeccanica,
which included at that time over 2.4 billion Euros in cash and over 8.5 billion
Euros for guarantees. Public Works thus had no reason to doubt Selex ES’
ability to fulfill the contract.
[43]
For its part, Public Works maintains that it did
consider the nature of the reorganization, and specifically the question of
whether it was a merger, but that it ultimately concluded it was irrelevant
whether the reorganization in question could be considered one. What did matter
were the facts, documents and information, which demonstrated that Selex had
transferred its business and assigned its bid to Selex ES. As such, Selex could
no longer be awarded the contract, as it had become a shell company when it
divested itself of all of its relevant assets and personnel. Nor could Public
Works award the contract to Selex ES, as it had no standing in the bidding
process.
[44]
All of the information and documents available
to Public Works when it had decided to declare Selex’s bid non-compliant,
notably the answers to Mr. Holmes’ questions and the December 13, 2013 Sale of
Business Complex Agreement, confirmed that Selex had transferred or assigned
its bid to Selex ES. The assignment or transfer was the result of an agreement
between Selex and Selex ES, and not simply by operation of the law. The
assignment or transfer had the practical effect of emptying Selex of virtually
all of its assets. Meanwhile, Selex ES is a separate entity from Selex and it
had not been pre-qualified as a potential vendor for the Radars nor did it
continue the existence of Selex, as the latter still exists until it is finally
wound up.
[45]
Although I agree with the respondent that the
question as to whether a merger should have been considered compliant with the
non-assignment clause is not relevant, I note that Selex and/or Finmeccanica
were fully aware of the difference between a merger and a sale of assets. They
made a business decision to merge Elsag and Galileo into Selex ES, but not to
do so in the case of Selex. As is always the case, they must have had good
reasons for proceeding in this fashion, although it is not my role to speculate
as to what those reasons may have been. However, Selex failed to properly
consider the consequences of that decision, as it related to the bid in
question, before signing off on the corporate reorganization. As a result,
Public Works was bound by the RFP to consider Selex’s bid non-compliant (The
Queen in Right of Ontario v Ron Engineering & Construction (Eastern) Ltd,
[1981] 1 S.C.R. 111). The failure by Public Works to have proceeded in this way
could very well be considered unfair toward the other bidders.
[46]
Although Public Works probably would have
wished Selex’s bid to be compliant, as its price was substantively lower than
that of EADS, it could not, in all fairness to EADS, find that to be so. That
decision is not only reasonable, it is, in my opinion, the only one that could
have been taken in the circumstances.
c.
Did Public Work breach its duty of
procedural fairness to Selex?
[47]
Selex lastly argues that it should have been
told, prior to Public Works awarding the contract to EADS, that its bid was
considered non-compliant. That failure breached its procedural rights as it
prevented Selex from obtaining an injunction or a stay order prohibiting the
award.
[48]
For the reasons set forth above, the fact that
Selex could have been advised earlier of the decision would not have changed
the course of events, as Public Works’ decision was compliant with the RFP and
fair to all bidders.
[49]
In addition, Public Works followed its own
published standard practices by not advising bidders of non-compliance before
the contract was awarded. As explained in the affidavit of Mr. William J.
Rivett, contracting officer at Public Works, that standard practice “is
intended to be fair to all bidders” and “to prevent attempts at ‘bid repair.’”
[50]
Accordingly, Public Works did not breach its
duty of procedural fairness in not advising Selex that its bid was
non-compliant before the award of the contract in favour of EADS.
Conclusion
[51]
For all of these reasons, the application for
judicial review will be dismissed. As respondent, EADS did not take a position
in these proceedings and chose not to make representations before the Court, costs
will only be awarded in favour of the Attorney General of Canada.
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