Canada: Canadian Ownership "Restored": Federal Court Of Appeal Puts The Wind Back In Globalive's Sails

In a significant decision released yesterday, the Federal Court of Appeal has restored a Federal Cabinet Order that found that Globalive Wireless Management Corp. (Globalive) meets Canadian ownership requirements to operate as a telecommunications common carrier.

As we noted previously, the Federal Court Trial Division had quashed the decision of the Federal Cabinet that found that Globalive, which provides wireless services in Canada under the Wind Mobile brand, met Canadian ownership requirements under the Telecommunications Act.

The Cabinet decision in question had itself overturned a CRTC decision that found that, Globalive, was effectively controlled by a non-Canadian (Orascom Telecom Holding (Canada) Limited -- an Egyptian-controlled company) and was therefore ineligible to operate in Canada (Orascom Telecom Holding (Canada) Limited was subsequently acquired by Russian wireless carrier Vimpelcom Ltd. in April of this year). That CRTC decision was at odds with the government's issuance to Globalive of a spectrum licence, since holders of such licences must meet the same Canadian ownership requirements as telecommunications carriers.

The Federal Court Trial Division found that the Cabinet Order contained two reviewable errors. First, the court found that the Cabinet misdirected itself in suggesting that the ownership requirements should be interpreted in a way that ensures access to foreign capital, noting that there is no policy objective in the Telecommunications Act that encourages foreign investment. Second, the court found that the Cabinet went outside the legal parameters of the Act in stating that its decision applied only to Globalive, since the interpretation must also necessarily apply to others who may find themselves in similar circumstances.

Yesterday's Federal Court of Appeal ruling reveals a fundamentally different reading of the Cabinet Order, finding that the "control in fact" test (used to determine whether a company was controlled by a non-Canadian, notwithstanding meeting minimum levels of Canadian equity ownership) was applied without reference to policy considerations. In the Court's view, the policy considerations discussed in the Cabinet Order were considered only with respect to the question of whether the CRTC's decision should be varied; the conclusion that Globalive was not controlled by a non-Canadian was based solely on an assessment of the structure of Globalive and the rights of its lenders and investors. With respect to the conflict between the Cabinet and CRTC findings, the Court observed that:

The Court further found that the promotion of access to foreign capital, while not itself a policy objective under the Act, would further a number of the other policy objectives enumerated in section 7 of the Act.

The Court of Appeal gave short shrift to the lower Court's finding that the Cabinet exceeded its authority by stating that its Order applied to Globalive only, and not to other similarly-situated companies, noting simply that the argument that the applications judge erred in this respect was not seriously contested by the respondents, and that this recital from the Cabinet Order would not have effected the end result in any case.

In addition to clarifying Globalive's eligibility to operate in Canada, yesterday's decision may have the important side-effect of delaying any Government action to reform Canadian ownership requirements, through possible amendments to the Act, since there is no longer any pressing need to change the rules to provide for a more competitive wireless telecommunications market through the roll-out of service to the public by a new Canadian-owned and controlled company.

In June of 2010, the Government had proposed and sought comments on three possible options for Canadian ownership reform; however, the previous Minister of Industry had indicated that any changes to Canadian ownership rules would be considered in the context of the 700 MHz spectrum auction, which is likely to occur late in 2012. Most recently, the new Minister had indicated that the Government needed more time to determine what changes to the requirements would be appropriate.

Buoyed by this decision of the Federal Court of Appeal, the Minster now has a further option: to point to Globalive as a model for significant participation by non-Canadian investors in an enterprise that will meet Canadian ownership and control requirements.

But the saga may not be over yet: respondent Public Mobile indicated last yesterday that it planned to seek leave to appeal the decision to the Supreme Court of Canada. Stay tuned.

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