Canada: Canada Creates Further Uncertainty For Investments By State-Owned Enterprises

On April 29, 2013, the Government of Canada tabled its budget implementation bill, the Economic Action Plan 2013 Act, which includes proposed amendments to the Investment Canada Act (ICA), particularly in relation to state-owned enterprises (SOEs). Given that the amendments are contained in the budget bill, it again appears that there will be little or no opportunity to debate substantively the merits of the amendments or to revise them before they become law. This is not the first time amendments to the Investment Canada Act have been made within the budget bill. In 2009, extensive amendments were made to both the Investment Canada Act and the Competition Act in that year's budget bill, and were passed without revision. The significance of both the Investment Canada Act and the Competition Act to the Canadian economy is such that the practice of amending these statutes without the opportunity for full consultation and reflection from all stakeholders increases the risk of unfortunate and unintended consequences.

The proposed amendments follow the Government's December 7, 2012 announcements in relation to SOEs in the context of its approval of CNOOC/Nexen and Petronas/Progress. As outlined in detail in our previous blog post on the subject, the December 7 announcements set out several new concepts, including:

  • a special policy specific to the oil sands, pursuant to which acquisitions of control of oil sands businesses by SOEs will now only be found to be of "net benefit to Canada" on an exceptional basis;
  • the widening of the previous definition of an SOE to include entities that are merely influenced directly or indirectly, by a foreign government. The term "influenced" is not defined in the ICA, unlike the term "controlled", which has a specific meaning under the ICA;
  • different review thresholds for SOEs vs. non-SOEs, with SOEs being subject to a lower threshold for review;
  • a clarification of the factors to be considered by the Government when reviewing an SOE-investment, which include the degree of control or influence of the foreign state over the SOE, the degree of control or influence of the SOE over the Canadian business, and the degree of control or influence of the SOE over the industry of the Canadian business operates

The effect of these changes has become the subject of considerable debate amongst foreign investment law specialists in Canada, with a key area of focus being whether they are likely to reduce or "chill" foreign investment by SOEs in Canada. On the one hand, they set the bar higher for SOEs (particularly in the oil sands, where it would appear future acquisitions of control are prima facie prohibited, barring undefined "exceptional circumstances"). On the other hand, the Government was careful to note that "investments to acquire minority interests proposed by foreign SOEs, including joint ventures, continue to be welcome in the development of Canada's economy."
This debate is an important one given the capital-intensive nature of Canada's resource industries, and the oil sands in particular. It is estimated that hundreds of billions of dollars will be needed to develop the oil sands and as such it is certainly arguable that a policy restricting foreign investment in the very area where it is most necessary is fundamentally misguided, particularly where there seems be no evidence at all that previous SOE investments in the oil sands have been unsuccessful.

The key changes to theInvestment Canada Act contained in the budget bill are set out below. In summary, the overall thrust of the amendments is clear: the Government is seeking to maximize its discretion in dealing with SOEs. While this approach may be understandable from the Government's perspective, it is not clear whether the Government fully appreciates the potential "chilling effect" of significantly changing the rules for SOEs twice in a matter of months. Stikeman Elliott's firm view continues to be that Canada remains open for foreign investment, including large-scale foreign investment, and including large scale foreign investment with substantial SOE involvement, but the current draft bill risks undermining that message.

  • SOE Definition. An SOE will be defined very broadly to include an entity that is controlled or influenced, directly or indirectly, by a foreign government or government agency, and also individuals who are acting under the direction or direct or indirect influence of such a government or agency. This potentially captures companies with tenuous connections to foreign governments, certainly falling well short of control. Given calls for reciprocity, are Canadian banks, for example, to be considered to be SOEs (albeit Canadian SOEs) simply because the Minister of Finance calls asking them to rein-in consumer lending? Is there not a risk that defining SOEs so broadly will cause foreign governments to react by treating less favourably various Canadian firms, including an array of Canadian pension plans seeking to diversify their portfolios internationally?
  • SOE Deeming – Canadian Status. An entity that satisfies the Canadian status rules set out in the Investment Canada Act can nonetheless be deemed by the Minister to be non-Canadian if the Minister determines that it is controlled-in-fact by an SOE. Indeed, the Minister can deem any entity to be controlled-in-fact by an SOE if he so determines.
  • SOE Deeming – Acquisition of Control. An investment by an SOE that falls underneath the acquisition of control threshold can nonetheless be deemed by the Minister to amount to an acquisition of control-in-fact by the SOE if the Minister so determines. This amendment may turn out to be highly significant because it deprives investors of the certainty of the long-standing "acquisition of control" rules that currently govern the Investment Canada Act (which, for example, clearly establish that an acquisition of less than one-third of the voting shares of a corporation is not an acquisition of control) and imports an uncertain control-in-fact test for some types of investors. This proposed amendment (unintentionally, we hope) calls into question the Government's previous assertion that minority interests and joint ventures will in fact be welcome, as they may instead be subject to review. Although similar control-in-fact tests exist in various contexts, including the Telecommunications Act and the Canada Transportation Act, they are certainly not without controversy (see, for example, the Wind/Globalive saga described elsewhere on this blog, in which various branches of the federal government issued fundamentally contradictory "control in fact" decisions) and can lead to highly uncertain results. While we note that the Government concluded that it would not review the Encana / Petrochina Duvernay joint venture (50.1% / 49.9%) announced in mid-December 2012, following the approval of the CNOOC / Nexen and Petronas/ Progress transactions, and also that the Government has in fact yet to block an SOE transaction, inclusion of this "control in fact" test for SOE acquisitions may potentially chill foreign direct investment by SOEs in Canada, even by way of minority positions in joint ventures.
  • Thresholds. The bill re-iterates proposed changes previously announced in March 2009 to the manner in which the threshold for review is calculated for WTO investors. The threshold will be altered from a "book value" test (currently set at C$344 million for transactions closing in 2013, indexed to inflation) to an "enterprise value" test (starting at C$600 million and then moving to C$1 billion over 4 years, and indexed to inflation thereafter). These changes cannot take effect, however, until regulations containing the specific details of the calculations are implemented. Although several draft regulations have previously been issued, they were flawed in that they would have introduced considerable ambiguities and complexities into the calculation of the threshold value (which is currently a very simple matter). The most recent draft was issued almost a year ago, and it is unclear whether it will be passed in its current form or amended to address these concerns. Moreover, the proposal announced in late 2012 to make the new threshold inapplicable to SOEs necessitated legislative amendments to define SOEs and make them subject to different thresholds – previous rules regarding SOEs had not been legislated but merely adopted as a policy matter. In terms of the impact of the different threshold on SOEs, the existing "book value" threshold will be reserved for SOEs, with the result that the determination of whether an entity is indirectly influenced by a foreign state could mean the difference between a review being required or not. Moreover, the difference between "book value" and "enterprise value" is such that it is not at all clear that C$344 million in "book value" is necessarily less than C$600 million in "enterprise value", with the result that in some cases an SOE might in fact benefit from a more favourable threshold depending on the financial health of the target.
  • National Security. The national security provisions of the ICA (themselves introduced without debate in the 2009 budget bill) set out various timeframes within which certain processes are to be completed where a transaction raises potential national security concerns (e.g., the time period for ordering a review, the time period for referring a review to the Governor-in-Counsel, the time period for the Governor-in-Council to make a decision). The 2013 budget bill would extend several 5 day periods to 30 day periods and also provide that certain periods can be extended on agreement between the Minister and the foreign investor. Given that only one transaction, to our knowledge, has ever been subject to a national security notice (and it collapsed within a few days of a national security notice being issued), the practical implications of these extensions are likely not great. The overwhelming majority of foreign investments will not be impacted, and the national security review process is already highly discretionary. For those rare cases where a national security notice is issued, however, the latest amendments make it clear that the process will likely be protracted, and essentially indefinite.
  • Ministerial Opinions. The ICA currently requires the Minister to provide an opinion regarding whether an entity is Canadian under the ICA, if requested by that entity, and if complete information is provided. The bill would limit this requirement to transactions involving cultural business, only. In all other contexts, the Minister may choose to give the opinion, but is not required to do so. In practice, the route of seeking a Ministerial opinion was little-used but it did afford an entity the opportunity to attain a degree of certainty as to whether the ICA would apply to it. This route is apparently not necessarily going to be available to non-cultural SOE minority investments, even as the proposed amendments make them subject to considerable ambiguity and uncertainty in the absence of such advice.

In summary, the overall thrust of the changes is unquestionably that the Government is reserving for itself a great deal of discretion in how it will handle future investments by SOEs. The manner in which the Government will exercise that discretion is not yet known. While we continue to believe the doors to foreign investment in Canada – even by SOEs - are open, Bill C-60 risks sending the message that they are in fact closed – or closing – for significant new sources of global capital investment.

View Stikeman Elliott's Investment Canada Act FAQ summary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions