The Federal Court of Appeal has refused to examine a claim that Prime Minister Stephen Harper violated federal ethics law in setting up a public inquiry into the Mulroney-Schreiber affair.

The lobby group Democracy Watch had contended that Harper and his cabinet were in a conflict of interest in choosing a judge and establishing the terms of reference for the probe.

Mary Dawson, the federal ethics commissioner, rejected the claim last year. She said there was insufficient evidence for her to launch a formal investigation of whether Harper had broken the Conflict of Interest Act.

The ethics czar retains the discretion to change her mind should new evidence come to light, a three-judge appeal panel said Wednesday.

But the court has no jurisdiction to force Dawson to reverse herself, Chief Justice John Richard said in a brief oral ruling on behalf of the unanimous panel.

"The applicant [Democracy Watch] has no statutory right to have its complaint investigated by the commissioner," Richard said.

Under the legislation establishing Dawson's post, the ethics commissioner can initiate investigations on her own or upon the request of an MP or senator. But she doesn't have to accede to a request from anyone else.

'Outrageous' for a democracy

Duff Conacher, the head of Democracy Watch, described the judgment as a narrow and technical one that doesn't address the underlying issues at stake.

"They didn't comment at all on the evidence," Conacher said. "They just said we can't review this."

The effect, he said, is to shut the door on future complaints by members of the public about cabinet ethics.

"Only politicians can file complaints.…That's an outrageous decision in 2009 in a country that calls itself a democracy."

Conacher said he'll now try to find a multiparty group of MPs and senators to re-file the complaint about Harper, in the hope of forcing Dawson to conduct an investigation.

Democracy Watch is also considering whether to seek leave from the Supreme Court of Canada to appeal the judgment.

Harper appointed Judge Jeffrey Oliphant last year to examine the business dealings between former Tory prime minister Brian Mulroney and German-Canadian arms dealer Karlheinz Schreiber.

Opposition MPs complained at the time that the mandate given to Oliphant, a judge from Manitoba's Court of Queen's Bench, was too narrow for a full airing of the affair.

Democracy Watch, for its part, maintained that Harper was in a conflict of interest because Mulroney had acted as a political adviser to him and was friendly with several members of his cabinet.

The watchdog group also argued Harper had a personal stake in the issue because Schreiber had written to the prime minister outlining his allegations against Mulroney. Harper says the letters were never passed on to him by aides.

Inquiry won't start till late March

Democracy Watch contends that, under the circumstances, the government should have called on an independent authority, such as the federal director of public prosecutions, to decide the terms of any inquiry.

Oliphant is not expected to start hearing witnesses until late March and isn't due to report until the end of 2009 — 25 months after Harper first promised an inquiry.

Mulroney has admitted that after he left 24 Sussex Drive in 1993, he accepted $225,000 from Schreiber to promote the building of German-designed light armoured vehicles in Canada. He says he tried to line up support among foreign political leaders whose countries might buy the vehicles.

Schreiber says the deal was struck before Mulroney left office, although the cash didn't change hands until later. He also claims the payments totalled $300,000 and says Mulroney was supposed to lobby the Canadian government, not foreign leaders.