Nov. 5 (Bloomberg) -- Northrop Grumman Corp. can’t challenge Canada’s award of a $140 million contract for weapon- targeting equipment to Lockheed Martin Corp. because it isn’t a Canadian company, the nation’s highest appeals court ruled.

Only domestic companies can file complaints based on the country’s internal free-trade agreement, known as AIT, the Supreme Court of Canada ruled unanimously today.

Allowing non-Canadian suppliers to bring complaints based on the AIT would lead to “problematic results,” Judge Marshall Rothstein wrote for the nine-member court. Los Angeles-based Northrop “would gain rights under the AIT despite its government not being a party.”

In 2007, Canada’s government awarded Bethesda, Maryland- based Lockheed a contract to supply Canadian Forces CF-18 aircraft with targeting pods that give pilots infrared displays and the ability to use lasers to guide missiles. The contract was valued at $89.5 million for the targeting systems and $50.4 million for maintenance and training.

A Northrop affiliate bid on the contract and sought to challenge the government’s decision to award it to Lockheed based on Canada’s internal free-trade agreement. Northrop said the government failed to clearly identify the criteria used to evaluate the bids.

Before the challenge was heard by the Canadian International Trade Tribunal, the government sought to have the complaint dismissed, because Northrop is based in the U.S. The tribunal agreed to hear the complaint. Its decision was overturned by the Federal Court of Appeal in a 2-1 ruling.

Canada and the U.S. are part of the North American Free Trade Agreement, with Canada having negotiated the exclusion of military equipment under the deal.

The case is Northrop Grumman Overseas Corp. v. Attorney General of Canada. File No. 32752. Supreme Court of Canada (Ottawa).

To contact the reporter on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net.

Last Updated: November 5, 2009 11:38 EST