Quebec companies barred from bidding on public contracts have little chance of obtaining legal relief

Companies that have been barred from bidding on public contracts stand little chance of obtaining injunctive relief that would temporarily suspend a new law aimed at curbing corruption in the construction industry, following a closely-watched ruling by Quebec Superior Court.

In the wake of allegations of bribes, collusion, influence peddling, and widespread corruption in the construction industry, corroborated by testimony before the Charbonneau commission, the Quebec government passed legislation last December that compels companies to obtain a seal of integrity if they wish to bid on the billion dollars in contracts awarded annually in the Quebec public sector.

Under the Integrity in Public Contracts Act (IPCA), the province’s securities commission is the public guardian responsible for granting authorization to enterprises in a call for tenders or an award process for a contract or subcontract with a public body. The Autorité des marchés financiers (AMF) has sweeping discretionary powers to determine the integrity of enterprises and of its shareholders, partners, directors or officers and of any person or entity that has direct or indirect legal or de facto control over the enterprise.

The AMF works closely with Quebec’s anti-corruption police squad . After an authorization request has been submitted to the AMF, it refers the matter to police, who conduct an investigation and then provides the AMF with an advisory opinion. So far, there have been 250 authorizations that have been submitted, 194 of which have been granted, some thirty-odd are still under study, and four have been refused, according to AMF spokesman Sylvain Théberge.

Les Enterprises Bentech inc., a Montreal numbered company that was refused an authorization by the AMF because it allegedly is a shell company, issued false invoices and failed “meet the high standards of integrity that the public is entitled to expect from a party to a public contract or subcontract,” is challenging the AMF’s interpretation of the integrity law in a case that has yet to be heard by the courts. In the meantime Bentech however sought an injunction that would allow the Montreal firm to complete a contract it was awarded. But Quebec Superior Court Justice Chantal Corriveau refused to provide an injunction that would suspend the AMF’s decision to blacklist Bentech. “Contrary to what Bentech submits, the Court cannot conclude that the decision by the AMF exceeded its competence,” said Justice Corriveau before adding that the legislator granted broad powers to the AMF that allows it to “weigh discretionary factors.”

The ruling underscores the challenges faced by companies who are blacklisted by the AMF, said Sébastien Laprise, a Quebec City lawyer with an expertise in public procurement law and municipal law. The new integrity law “is a law of public order and therefore judges will demand convincing evidence before even considering suspending the effects of the Integrity Act,” said Laprise of Langlois Kronström Desjardins, LLP. “That is going to be very difficult.”

Eric Simard, a Montreal lawyer who leads the construction practice group for Fasken Martineau DuMoulin LLP, asserts that unless the constitutionality of the integrity law is challenged companies will face a formidable task to “protect their interests” as temporary injunctive relief will be rarely granted in light of the ruling in 9129-2201 Québec inc. v. Autorité des marchés financiers 2013 QCCS 4857. “The only way that entrepreneurs who consider that their rights have been violated can protect their interests is to launch a frontal constitutional attack on this law,” remarked Simard.

Some believe that the law is ripe for challenge. Daniel Bouchard, the managing partner of the  Quebec City office for Lavery, de Billy,  believes that the new law grants the AMF far too extensive discretionary powers. Under the Integrity Act, the AMF may take into account a non-exhaustive list of factors in exercising its discretion, including whether an enterprise (or its majority shareholder or one of its directors or officers) has links with a criminal organization, was prosecuted for an offence listed in the Integrity Act, and whether the enterprise is under the direct or indirect legal or de facto control of another enterprise that has in the preceding five years been found guilty of an offense listed in the Act. More controversially, the AMF may also refuse or revoke any authorization if the enterprise fails to meet the “high standards of integrity that the public is entitled to expect from a party to a public contract or subcontract.”

“What does that mean,” asked rhetorically Bouchard.  “Personally I find that the legislator went too far and the risks for abuse are large. It’s difficult for me to say that the law is unconstitutional or illegal but they have given the AMF such large discretionary powers that it will often be questioned.”

Christopher Mostovac, a Montreal lawyer defending Bentech, does not intend to challenge the constitutionality of the law. When the case will be heard sometime next year before Quebec Superior Court, Mostovac will be pleading that the AMF went beyond the scope and parameter set out by the Integrity Act when it decided to blacklist Bentech.

“I am not going to take the position that this law is wrong or unconstitutional,” said Mostovac, who teaches a tax litigation course at the University of Montreal. “I am taking the simple position that in the case at hand the AMF has an absolute obligation to follow the parameters which the law gives it in attempting to determine who has a moral standard or who doesn’t, otherwise it becomes dangerous for all concerned because it exposes you to decisions of a completely arbitrary nature.”

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