Canada: R v Durward, a bid-rigging trial by jury

R v Durward, a trial of seven individuals and three corporations charged with 62 counts of bid rigging and conspiracy, began in early September, 2014 before an Ottawa Superior Court Judge and Jury. It ended on 27 April 2015 with all seven accused individuals and three accused corporations being found not guilty of all charges. In total there were 60 not guilty verdicts delivered by the jury. One of the individuals was acquitted of the two charges he faced on a directed verdict at the conclusion of the case for the Crown.

Background

The trial was the culmination of an investigation by the Competition Bureau that had begun 10 years earlier and led to charges in 2009 of bid rigging (section 47 of the Competition Act¹) and conspiracy to bid rig (section 465 of the Criminal Code of Canada) against a number of companies, their principals and employees. All of the companies were suppliers to the federal government of IT contract professionals. The allegations related to requests for proposals (RFPs) issued by Public Works and Transport Canada to renew expiring contracts (most were on behalf of the Canada Border Services Agency (CBSA)). Some companies and individuals were discharged on some counts following a preliminary inquiry held December, 2010 to February 2011. The rest were committed to trial.

After the preliminary inquiry, some of the accused challenged the committal by way of a certiorari application to the Ontario Superior Court of Justice on the single issue of whether the RFPs were, as a matter of law, calls for bids or tenders. It was the defence position that a call for bids or tenders required that the winning bidder receive a contract for work. The RFPs in question provided that the there would be three winners. Although the winners were offered a ‘contract’, it did not guarantee any work. It only permitted them to compete against each other to win task authorisations for actual work ‘as and when required’. The defence argued that a call for bids or tenders must result in the winning bid receiving a contract for work. Since winning the RFP did not result in any guarantee of work, the RFPs could not be calls for bids or tenders.

The preliminary inquiry judge ruled that that there was some evidence that the RFPs were calls for bids or tenders since they contained a number of characteristics of calls for bids or tenders that had been described in the commercial case law. The reviewing judge, Regional Senior Justice Hackland, upheld the committals² on the basis that the RFPs brought into play the Contract A/Contract B paradigm developed by the Supreme Court of Canada in Ontario v Ron Engineering.³ The defence argued that there could not be a Contract A without the prospect of a Contract B being awarded to the winner. However Justice Hackland held that:

The controlling appellate jurisprudence requires the court to make a finding as to whether the parties intended a contract in the sense of creating binding rights and obligations with respect to the procurement process. Such an intention is to be inferred from the terms of the RFP and all other relevant circumstances. A term permitting the party issuing the RFP to retain the discretion not to proceed to call up work or services is but one aspect of the analysis.⁴

The review applicants appealed to the Ontario Court of Appeal, which upheld the committals commenting that it was for the jury to decide, based on all the evidence, whether the RFPs were calls for bids or tenders.⁵

Pretrial ruling

Prior to the trial some of the accused brought a constitutional challenge to section 69(2) of the Competition Act as it applied to criminal prosecutions. The section provides:    

(a)   anything done, said or agreed on by an agent of a participant shall, in the absence of evidence to the contrary, be deemed to have been done, said or agreed on, as the case may be, with the authority of that participant;
(b)   a record written or received by an agent of a participant shall, in the absence of evidence to the contrary, be deemed to have been written or received, as the case may be, with the authority of that participant; and
c)   a record proved to have been in the possession of a participant or on premises used or occupied by a participant or in the possession of an agent of a participant shall be admitted in evidence without further proof thereof and is prima facie proof
   (i)   that the participant had knowledge of the record and its contents,
   (ii)   that anything recorded in or by the record as having been done, said or agreed on by any participant or by an agent of a participant was done, said or agreed on as recorded and, where anything is recorded in or by the record as having been done, said or agreed on by an agent of a participant, that it was done, said or agreed on with the authority of that participant, and
   (iii)    that the record, where it appears to have been written by any participant or by an agent of a participant, was so written and, where it appears to have been written by an agent of a participant, that it was written with the authority of that participant.

A ‘participant’ is defined to include an accused.

It was argued that the section creates a reverse onus that violates section 11(d) of the Canadian Charter of Rights and Freedoms (the right to be presumed innocent). It could, if applied as written, result in a conviction despite the trier of fact having a reasonable doubt – the test established by the Supreme Court of Canada in
R v Oakes.⁶ The provisions of the subsection (particularly paragraph (c)) could result in findings that are completely unrealistic in today’s world of e-mail correspondence. To presume that an accused would have knowledge of all the e-mails in all the e-mail accounts of all the employees of even a small company was completely unrealistic and not only created an unconstitutional reverse onus, but failed to meet the requirement for the application of the exception in section 1 of the Charter that it address a societal problem that was so serious and pressing as to justify overriding a constitutionally protected right or freedom. The trial judge, Justice B R Warkentin accepted the defence submissions and held the subsection to be unconstitutional as it applied to criminal prosecutions.⁷

Trial

Why a jury trial?

Not since the dredging case (R v McNamara⁸) has there been a jury trial in Canada in a bid-rigging case. Several of the individual accused represented themselves. Some were disheartened by the lack of success in the preliminary inquiry and subsequent appeals despite the significant difference in Crown onus between the two proceedings and insisted on being tried by average citizens. The remaining accused were then procedurally required to follow along. The Crown had agreed to sever some accused who were only facing one or two charges. That case was scheduled to be tried by a judge alone at a later date.

A dilemma faced by the Crown, however, was how to join the corporations with the individuals on a jury trial. Section 67(4) of the Competition Act requires corporations charged under the Act to be tried by a Superior Court judge without a jury. The Crown got around this by proceeding only on the companion conspiracy charges against the corporations.

Jury selection

The trial began on 8 September. It was originally estimated to last four to five months. Because of the anticipated length, Justice Warkentin excused anyone who had any reasonable excuse . She also excused anyone who had any connection with any of the government agencies involved in the RFPs. Since the trial was held in Ottawa, this eliminated a significant percentage of prospective jurors. Jury selection lasted two weeks, exhausting several jury panels. In the end the jury was essentially a group of volunteers who didn’t feel dragged unwillingly into the process. Probably because of this, the jury was surprisingly attentive throughout the trial, despite the complexity of the issues and lack of any drama in the evidence.

Documents

The Competition Bureau investigators had executed search warrants at the business premises of the accused in 2006 and seized massive amounts of documents, mostly in electronic form. When charges were laid in 2009, the accused were provided with disclosure of hundreds of thousands of documents (mostly e-mails) containing over a million pages. By the time the case got to trial the Crown had reduced the number of documents to around 5,000. In anticipation of this, the courtroom was reconfigured to accommodate the electronic filing and viewing of the documents.

The Crown’s case was based primarily on e-mail correspondence among the parties. However, the vast majority of the Crown’s documents related to the companies recruiting and sharing subcontractors (referred to as resources). At the beginning of the trial it was a core ingredient of the Crown theory on how the proposals were arrived at by arrangement or agreement. The defence position was that sharing resources was common and accepted practice in the industry and not in issue. In fact, sharing of resources was admitted by the defence in their opening addresses to the jury. Nevertheless, the Crown introduced all of the e-mails, mostly by having an investigator painstakingly read them to the jury from the witness box.

Evidence from the witnesses

The witnesses called by the Crown consisted of three categories: government contracting officers, resources and representatives of other corporations who had been granted immunity in return for their evidence. Two of the accused who had extensive knowledge of and experience in the IT procurement business, also testified for the defence. Almost all of the witnesses from the vendor community, the resources and the government, confirmed that that sharing resources was a common practice within the business. It was known and approved of by the contracting authorities. In fact, most of the technical requirements in the RFPs were so tightly written that only incumbent resources would have the necessary qualifications. Government witnesses confirmed that this was done in the hope that their incumbents would be on multiple proposals.

Most of the charges related to 10 RFPs for resources at CBSA. Three companies formed a consortium (two others joined the consortium for one RFP each) with the aim of recruiting and sharing the incumbent resources. As a necessary corollary they also shared CVs and discussed pay demands. However, all witnesses from the vendor community insisted that each consortium member decided their own financial proposals independently. The only difficulty was that one witness from a company that had been granted immunity described what she called a ‘dovetailing’ strategy where different companies would bid high on some categories and low on others, with other consortium members alternating the high bids. This ultimately became the core issue for the Crown. The facts were, however, that the prices submitted simply did not support the existence of such a strategy.

Investigation

A major issue at trial was the adequacy of the investigation by the Competition Bureau. Although investigators had seized a great number of documents from the targets, they did not do a corresponding search for documents from the various government agencies. This was a significant omission when it came to the Crown proving that any agreement or arrangement had not been made known to the person calling for bids or tenders – one of the essential elements in the offence of bid rigging. The investigators and the Crown had relied on the pre-Charter case, Regina v Lorne Wilson Transportation Ltd,⁹ which had held that it was not sufficient that the caller should have realised from the similarities in the bids that they were the product of an agreement. The Court of Appeal in that case held that the bidders should have directly advised the caller of the agreement.

The evidence in the trial was that there was much communication among the company representatives, the resources and their CBSA managers about the existence of the consortium that the people generating and evaluating the RFPs actually knew about the accused companies working together. In the absence of a thorough search for documents at the government agencies, there was no way of confirming whether the agencies actually knew of the cooperation among the companies. Unfortunately for the Crown, the Bureau had assigned two very inexperienced investigators who focused only on the allegations made by some disgruntled competitors of the accused corporations.

Legal issues

Since R v Durward was a jury trial, there is no judgment and therefore no way of knowing what issues lead the jurors to a reasonable doubt. Although we do not have any quotable jurisprudence, we do have the trial judge’s charge to the jury in which she defined or provided an explanation of many of the broadly worded terms in section 47 of the Competition Act. She left four issues for the jury to decide. A reasonable doubt on any of them would result in acquittal. Those issues were:

Were the RFPs in question calls for bids or tenders?

• Did the accused honestly believe they were not calls for bids or tenders?
• Were the proposals submitted arrived at by arrangement or agreement?
• Were any arrangements or agreements made known to the persons calling for the bids or tenders?

Bids or tenders?

Justice Warkentin began this section with an explanation of the legal requirements for a contract including the necessity of consideration. She then gave a general description of a call for bids or tenders pointing out that the two terms have the same meaning. She explained a call for bids or tenders as:

an invitation by the person making the call for bids or tenders, for offers from vendors or contractors, to enter into a subsequent contract on the terms specified in the invitation, to undertake the services for a price specified by the contractor.

The judge then instructed the jury on the Contract A/Contract B paradigm and continued:

A Request for Proposal (‘RFP’) may or may not be a call or request for bids or tenders. It is important to look at the terms and conditions set out in the RFPs in order to determine if the parties intended to enter into the contractual relations (Contract A-Contract B) that I have described above. You may look to (1) the terms of the agreement(s); (2) the context that the parties were operating within; and (3) the exchange (or lack of exchange) of consideration.

Whether or not the procurement process is a call for bids or tenders will depend on whether the call gives rise to contractual obligations, quite apart from any resulting contract. If it does, then it is a call for bids or tenders. Conversely, where a call or request for bids of tenders lacks contractual intent, the process will not be deemed a call or request for bids and tenders.

Mistake of fact

The defence was able to persuade Justice Warkentin to leave the common law defence of mistake of fact to the jury. There was ample evidence that the accused all believed the RFPs were requests for supply arrangements or standing offers, neither of which lead to a contract for work. The committing judge and the reviewing judge held that there was sufficient evidence for a jury to find that the RFPs were calls for bids or tenders. This was eventually the basis on which the Court of Appeal rejected the appeal of the certiorari decision. The last lines of the judgment read:

[T]here is some evidence on the basis of which a properly instructed trier of fact could find that the appellants had made ‘bids’ in response to ‘a call or request for bids or tenders’ within the meaning of s. 47.¹⁰

The issue was therefore a question of fact, not law, as the defence had argued throughout the earlier proceedings. That being the case, there was evidence from which the jury could find that the accused honestly believed from the facts before them that they were not responding to a call for bids or tenders.

Arrangement or agreement

In her preamble to instructing the jury on this issue, the judge made the following significant comments:

The agreement or arrangement does not have to be in relation to all aspects of the bids to be submitted; however, it must be an impermissible agreement made with the intent to commit the offence of bid-rigging. On the facts of this case, the agreement or arrangement must be between more than one of the accused and their competitors working together as a team to simply recruit the resources needed for their bids. These agreements or arrangements are permissible. The evidence presented in this trial by both PWGSC and CBSA was that the these government departments knew that small- and medium sized companies would not be able to submit compliant responses to the CBSA RFPs without working together to recruit the resources for the categories demanded by the CBSA RFPs. Also the evidence establishes that the government was aware of and permitted prime/sub relationships and permitted subs to submit their own prime proposals. An agreement consisting of a mutual prime-sub relationship in itself is not an impermissible agreement as long as the prime and the sub do not arrive at an impermissible agreement regarding their respective bids to be submitted.

        Since the bids must be ‘arrived at’ by agreement or arrangement, the outcome of the impermissible agreement or arrangement must lead to the bid and not simply relate to steps in the preparation of the bid.

The most important part may be the last three lines. The jury was told that any agreement or arrangement must be with respect to the completed bid and not any intermediate parts. This went a long way to confirming the defence position that an illegal agreement must include agreement on final pricing.

Made known

As noted above, the Crown took the position that Regina v Lorne Wilson Transportation required formal notification to the PWGSC contracting officer of any agreement or arrangement. The defence position was that PWGSC was simply acting as agent for the agencies that had the requirement for the services and wrote the technical specifications. Simply establishing that the contracting officers were not formally advised did not prove that any arrangement or agreement was not made known.

In her instructions Justice Warkentin simply left it to the jury to decide on the evidence who the person was calling for bids or tenders. In explaining how any agreement could be made known, after telling the jury that notification must be express, the judge described how this could be done in the following terms:

Express notification must be notification that is made orally or in writing. You may find evidence of this notification from the direct evidence or the circumstantial evidence. The person calling for bids or tenders must be aware of the impermissible agreement or arrangement.

In this case, implied notification of legitimate teaming relationships between vendor companies may be inferred based upon the evidence at trial.

Justice Warkentin simply came down the middle between the defence and Crown positions.

Conclusion

It remains to be seen whether the Durward trial has shed some light on the rather murky wording of section 47. One fact that should add to the precedential value of Justice Warkentin’s explanation of the terms, is the announcement by the Crown that they will not be appealing the verdicts and a subsequent announcement that they were staying the charges against the remaining severed accused. In addition, the announcements suggest that the Crown and the Competition Bureau have accepted the ruling on the constitutionality of section 69 as correctly decided in relation to criminal prosecutions.

Notes

1. R.S.C., 1985, c. C-34; ‘Bid rigging’, as it applied in this case, is defined under the Competition Act as the submission of a bid or tender in response to a call for bids or tenders which is arrived at by arrangement or agreement that is not ‘made known’ to the person calling for the bids or tenders.
2. R v Dowdall, [2012] O.J. No. 3831.
3. [1981] 1 S.C.R. 111. Ron Engineering held: ‘The significance of the bid in law is that it at once becomes irrevocable if filed in conformity with the terms and conditions under which the call for tenders was made and if such terms so provide....Consequently, Contract A came into being. The principal term of Contract A is the irrevocability of the bid, and the corollary term is the obligation in both parties to enter into a contract (Contract B) upon the acceptance of the tender’. (pages 122– 23).
4. R v Dowdall, [2012] O.J. No. 3831 at paragraph 39.
5. R v Dowdall, [2013] O.J. No. 1456.
6. [1986] 1 S.C.R. 103.
7. R v Durward [2014] O.J. No. 3844.
8. [1981] O.J. No. 3254.
9. [1982] O.J. No. 3590.
10. R v Dowdall, [2013] O.J. No. 1456 at paragraph 7.