Canada: The International Comparative Legal Guide To: Project Finance 2013 - Canada


1.1 What are the main trends/significant developments in the project finance market in Canada?

There is robust demand for P3 in Canada with a steady pipeline of projects reaching financial close, primarily in the provinces of Ontario, Québec and British Columbia (BC). Projects are moving ahead in the roads, courts/detention centres, healthcare, schools and other sectors. The federal government also embraces the P3 model as evidenced by the recent closing of the Communications Security Establishment's headquarters and the RCMP 'E' division headquarters. With the continuing difficulties in the foreign bank credit markets, the expanding pool of project sponsors are finding it more difficult to arrange long term bank financing and prefer debt funding via the mini-perm (or short repayment term) for the construction period with long term project bond financing provided by life insurance companies, pension funds and similar investors. One reason may be the developed system for rating project bonds in Canada. A good example is the C$764 million issue of senior secured bonds for Québec's McGill University Health Centre and the C$1.37 billion senior secured bonds for Québec's Centre Hospitalier de Université de Montréal, Canada's biggest P3 bond deal to date. The McGill University Health Centre is mixed bank short term financing and long term bond financing.

Now that many P3 projects have reached commercial operations, investors are seeking attractive levels of return to be found in Canada's secondary market. Reasons include the need for investors to liquidate their current investments to enable them to invest capital in new projects domestically and abroad, the growing reputation of Canada as a stable marketplace and the substantial demand from specialised infrastructure funds, and life insurance companies and pension funds seeking stable yields in excess of what can be achieved in the bond market.

Due in part to advantageous governmental renewable energy policies in some provinces, installed wind energy capacity has grown rapidly and with record increases in development in 2011 and 2012, industry experts believe that Canada is on target to surpass 10,000MW of total installed capacity by 2015.

The construction of the C$2.6-billion Lower Mattagami Project (Ontario) has commenced and is estimated to produce approximately 440MW of new hydro power. In British Columbia, BC Hydro is in the RFP process for the C$1.35 billion replacement and upgrade of the existing 126MW John Hart generating station. The Lower Churchill project, the largest undeveloped hydroelectric source in North America (3,000MW) continues through the development phase.

1.2 What are the most significant project financings that have taken place in Canada in recent years?

There has been significant investment in the transportation sector in BC, including the $1.9 billion Canada Line and the $1.4 billion Evergreen line. In highways, in addition to the $600 million improvement to the Sea-to-Sky highway linking Vancouver with Whistler and the C$130 million Kicking Horse Canyon highway replacement, there have been several bridge projects: the C$808 Golden Ears financing; the Kelowna C$144 million financing; and the Port Mann Bridge at C$2.5 billion, linked in a perimeter plan to the South Perimeter Road at C$658 million.

In 2010, Infrastructure Québec closed its first healthcare sector P3, the $470 million Centre Hospitalier de Université de Montréal Research Centre. It was followed by the McGill University Health Centre, in Montreal. In early 2011, Infrastructure Québec brought to financial close the Centre Hospitalier de Université de Montréal hospital project. In 2012, Infrastructure Québec awarded a project for the design, construction and financing of new buildings for the Centre Hospitalier Universitaire Sainte-Justine and Infrastructure Québec received submissions for the detention centre in Tracy- Sorel, Québec. The successful proponent is expected to be announced in spring 2013.

In Ontario, recent projects included the new state-of-the-art, Durham Consolidated courthouse, the Toronto South Detention Centre and the Ontario Provincial Police modernisation.

Several renewable energy project financings reached financial close in 2012, notably, the non-recourse project notes and bank financing for the 135.7MW Des Moulins Wind Farm.


2.1 Is it possible to give asset security by means of a general security agreement or is an agreement required in relation to each type of asset? Briefly, what is the procedure?

The Personal Property Security Act (PPSA) is the standardised provincial legislation governing the procedures for taking and perfecting a security interest in personal property collateral in Canada. Asset security is generally taken in a registrable general security agreement (GSA) which secures all types of present and future tangible and intangible personal property in which the debtor has rights, including machinery, equipment, inventory, intellectual property, investment property (which, depending on the jurisdiction, includes certificated and uncertificated securities, securities accounts and security entitlements), instruments, documents of title, chattel paper (including leases and conditional sales contracts), accounts, rights in contracts, money and fixtures. Some provincial variations exist, and Québec, a civil law jurisdiction, has a different regime.

To enable them to control the project, project lenders often require a pledge of equity in the project entity. While the GSA may be used to charge the equity, the recommended practice is to enter into a separate pledge agreement to obtain the best priority over property. If the securities are uncertificated or held indirectly through an intermediary, a control agreement with the issuer or intermediary should also be obtained.

While most GSAs purport to create a security interest in intellectual property rights, a separate security agreement may be more suitable, accompanied by appropriate registrations under the applicable intellectual property legislation.

In Québec, security over real and personal property, present or future, is taken by way of hypothec. The security regime under the Civil Code of Québec is similar to the PPSA and does provide effective security over project assets to secured creditors.

2.2 Can security to be taken over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground)? Briefly, what is the procedure?

Typically, a GSA would not include a security interest in real property. If a charge on real property is created, registering it under the PPSA will not create a secured interest against real property. Further steps are needed to register the interest against title, and a specific registrable mortgage registered in the appropriate land title or land registry office will usually be required.

For securing plant, machinery and equipment which are not fixtures or are not on land owned by the debtor, the GSA is the correct tool. See question 2.1.

2.3 Can security be taken over receivables where the chargor is free to collect in the receivables in the absence of a default and the debtors are not notified of the security? Briefly, what is the procedure?

Yes. See question 2.1. Under the PPSA or the Québec Civil Code, account debtors for the receivables are only obligated to pay the secured party after receiving notice of the assignment of the receivables from the secured party.

If a significant part of the collateral is debt owed by the federal government to the debtor, the assignment of which is governed by the Financial Administration Act (Canada) a provision should be included under which the debtor assigns the debt absolutely to the secured party so that, upon a default, the secured party is free to complete the formalities required to make an assignment of Crown debts fully enforceable. The prescribed classes of assignable debt are narrow. No precisely equivalent regime governing assignment of Crown debts exists under Québec, Ontario or British Columbia law, but the Alberta legislation has a similar regime.

2.4 Can security be taken over cash deposited in bank accounts? Briefly, what is the procedure?

See question 2.1. Under the PPSA and the Québec Civil Code, security interests in bank accounts are perfected by registering a financing statement, not by control. In project financing, it is common that project accounts are subject to account control agreements and control arrangements when funds are invested in financial instruments.

2.5 Can security be taken over shares in companies incorporated in Canada? Are the shares in certificated form? Briefly, what is the procedure?

See question 2.1. Priority is given to the secured creditors which have control (possession) over the shares.

2.6 What are the notarisation, registration, stamp duty and other fees (whether related to property value or otherwise) in relation to security over different types of assets (in particular, shares, real estate, receivables and chattels)?

Each province and territory in Canada has a personal/moveable property registration service which is either accessed electronically, through paper registration or via authorised agents. The process is quick and straightforward. Costs depend on which service is used with higher costs resulting, if it is necessary, to instruct an agent to prepare and file forms. If electronic registration is available, costs are relatively modest, increasing with the length of the registration period.

Costs of registering real/immoveable property security are higher but based on a fee rather than a percentage of the property value.

Hypothecs in Québec granted over immovable property or in favour of a collateral agent must be signed before a Québec notary. While the form of the notarial hypothec must respect certain formalities, there is no additional material costs.

Security in intellectual property may have to be registered in multiple jurisdictions (and possibly at the Canadian Intellectual Property Office) so registration costs may be high, and should be considered case-by-case.

2.7 Do the filing, notification or registration requirements in relation to security over different types of assets involve a significant amount of time or expense?

Please see question 2.6.

2.8 Are any regulatory or similar consents required with respect to the creation of security over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground) etc.?

If the project entity leases federal or provincial Crown land, the consent of the relevant government ministry is required to create security over it. In Québec, the secured creditors' rights are often included in the lease, and the secured creditor need only send notice to the government to these rights.

To obtain the right to exploit natural resources, a project entity would apply for surface rights and/or mining rights (they are applied for separately or can be attached). If the relevant lands are "patented" and no longer owned by the Crown, the Crown's consent is not required to grant security rights; however, if they remain Crown lands then the relevant government ministry consent is required.

Aboriginal treaty and other rights or specific Aboriginal legislation may affect the land development, project construction and operation. To reduce the risk of opposition by Aboriginal groups, project sponsors typically enter into participation or collaboration agreements with the affected Aboriginal communities.


3.1 Regardless of whether Canada recognises the concept of a "trust", will it recognise the role of a security trustee or agent and allow the security trustee or agent (rather than each lender acting separately) to enforce the security and to apply the proceeds from the security to the claims of all the lenders?

Where there are multiple secured parties, it is customary to appoint a security agent to hold the secured interests for the secured parties. The benefit is that the security interest need not be assigned to a new secured party, and secured parties may transfer their participation without disturbing the security priority.

3.2 If a security trust is not recognised in Canada, is an alternative mechanism available (such as a parallel debt or joint and several creditor status) to achieve the effect referred to above which would allow one party (either the security trustee or the facility agent) to enforce claims on behalf of all the lenders so that individual lenders do not need to enforce their security separately?

Please see question 3.1.


4.1 Are there any significant restrictions which may impact the timing and value of enforcement, such as (a) a requirement for a public auction or the availability of court blocking procedures to other creditors/the company (or its trustee in bankruptcy/liquidator), or (b) (in respect of regulated assets) regulatory consents?

Under Canadian law, a secured creditor intending to enforce its security interests must afford the insolvent project entity a minimum of a 10-day grace period following notice of its intention to take action. Canadian insolvency laws allow debtors to make proposals to their creditors which may result in a stay of proceedings while the proposal is made and considered.

In rare cases, the enforcement of security is subject to regulatory consent.

There is no automatic requirement for a public auction. Creditors may freely sell assets if done in a commercially reasonable manner. There may, therefore, be circumstances where an auction is the most appropriate method for sale.

4.2 Do restrictions apply to foreign investors or creditors in the event of foreclosure on the project and related companies?

Please see question 6.1.


5.1 How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the security?

Other than the limited stay provisions while the trustee confirms the validity of security, or a debtor makes a proposal to creditors, subject to any contractual intercreditor provisions, the secured creditor is generally free to enforce its security.

5.2 Are there any preference periods, clawback rights or other preferential creditors' rights (e.g., tax debts, employees' claims) with respect to the security?

In a bankruptcy, secured and preferred creditors have priority over unsecured creditors and may include in their claims, the costs of the bankruptcy, the trustee's fees, employees' claims, municipal taxes and landlord claims. Claims by the Crown are not preferred claims (except in limited instances discussed below) and, with some significant exceptions, are unsecured. Unsecured creditors may share pro rata in the realisation of the bankrupt's assets after payment of preferred creditors and are subject to claims of secured creditors.

Legislation permits debtors to remain in possession of its assets during the restructuring and provides for interim financing to the debtor. This debtor-in-possession financing is only permitted by court order and existing secured lenders are notified. Lenders providing this financing may be eligible for "super priority" security over the debtor's assets and so take priority over existing creditors.

There are new super priority claims created in Canadian legislation for wages and pension arrears and government plans to provide for the payment of wage arrears. Statutory deemed trusts also create certain priority claims for, among other amounts, arrears of source deductions and customs duties.

Regarding clawback rights, there are rules governing the ability to attack payments made to creditors within a certain period after bankruptcy (fraudulent preferences).

5.3 Are there any entities that are excluded from bankruptcy proceedings and, if so, what is the applicable legislation?

Federally-incorporated banks, insurance companies and trust corporations are excluded from the normal insolvency legislation, and are dealt with under the Federal Winding-up and Restructuring Act (WURA). Also excluded are railways, savings banks, loan companies and building societies.

5.4 Are there any processes other than court proceedings that are available to a creditor to seize the assets of the project company in an enforcement?

In provinces other than Québec, privately appointed receivers are usually afforded broad powers under the security agreements, including the power to carry on the business and to sell the debtor's assets by auction, tender or private sale. It must seek the maximum recovery for the creditor which appointed it. A court appointed receiver is provided for under bankruptcy legislation and is often the preferred route where there are several creditors with conflicting interests.

Under the PPSA statutes, secured creditors have self-help remedies to seize and sell collateral and to collect receivables upon default. The Civil Code of Québec provides secured creditors with hypothecary remedies to take the charged assets under administration, to take the charged assets in payment (extinguishing the debt), to sell the charged assets privately or to sell the charged assets under court supervision.


6.1 Are there any restrictions, controls, fees and/or taxes on foreign ownership of a project company?

A foreign sponsor acquiring control of a project entity or establishing a new Canadian project entity may be subject to notification or review procedures under the federal Investment Canada Act (ICA). Its purpose is to encourage foreign investment on terms that are beneficial to Canada.

Notification is simple, and involves completion of a form to provide basic information about the foreign investor and the Canadian business and can be submitted within 30 days following closing.

A review is required only where the foreign sponsor meets the statutory threshold test. If it does, the sponsor must submit more detailed information about itself and the Canadian project entity before closing, including its plans for the project entity, and may only complete the investment if the Minister of Industry determines it is of "net benefit to Canada".

A typical newly-incorporated project entity would not meet the test for review, but sponsors acquiring a controlling interest in a project entity in the secondary market, or indirectly via the acquisition of a foreign parent, should consider whether they meet the test.

In early 2009, the ICA was amended to give the government the right to review any investment that, "could be injurious to national security". This right not only applies to the acquisition of control of existing businesses, but also to minority investments, internal reorganisations and the establishment of new businesses. It can also apply to investments with tenuous links to Canada, as a review can be ordered for an investment in a business if "any part" of its operations is in Canada. There is no minimum investment size for reviewable investments, and the government provides no guidance as to what kind of investment constitutes a threat to national security. The national security provision empowers the government to prohibit any proposed investment, impose conditions on its completion or require divestiture of a completed investment. It is likely that this power will be conservatively used.

In addition to the ICA, special rules apply to mining uranium by non-residents to ensure a minimum level of resident ownership in individual properties.

Sponsors are otherwise generally not subject to foreign exchange limitations or other currency controls. Realisation of project assets by the sponsor, following enforcement or otherwise, is exempt from the ICA. In addition, there are no restrictions on receiving foreign loans and, subject to the tax rules (see section 7), and any contractual restrictions, all project entity profits may be freely distributed outside Canada and investments may be repatriated.

6.2 Are there any bilateral investment treaties (or other international treaties) that would provide protection from such restrictions?

In Canada, Bilateral Investment Treaties (BITs) are called Foreign Investment Protection and Promotion Agreements (FIPAs). Canada is a signatory to 21 FIPAs. Their purpose is to provide strong protection to foreign investors and to Canadian investors investing overseas and to ensure uniform and predictable treatment by host governments. Each FIPA applies to local, provincial and federal governments. Provisions nearly identical to those in BITs have also been written into bilateral free trade agreements as investment chapters alongside other trade provisions (e.g. the North America Free Trade Agreement's Chapter 11).

6.3 What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected?

The provinces have primary responsibility for property law. There is no constitutional protection for property rights. Consequently, property can be expropriated by government and quasigovernmental authorities, subject to appropriate compensation being paid.


7.1 What are the relevant government agencies or departments with authority over projects in the typical project sectors?

PPP Canada was created federally to improve infrastructure through P3. It reports directly to the Ministry of Finance. There are also dedicated government agencies in some provinces which oversee project procurement, most notably, Infrastructure Ontario, Partnerships BC and Infrastructure Québec.

Most of the minerals rights on Canadian lands (90%) are publicly owned and as such the regulation of mining activities on such rights is allocated to the relevant provincial or territorial governments. In Ontario, the Ministry of Natural Resources is responsible for mineral rights leases and exploration licences.

7.2 Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable?

Please see questions 2.1 and 2.2, respectively.

7.3 Does ownership of land, natural resources or a pipeline, or undertaking the business of ownership or operation of such assets, require a licence (and if so, can such a licence be held by a foreign entity)?

Some Canadian industries are closely regulated. A project entity wishing to develop a mineral resource must obtain a licence from the relevant provincial or territorial ministry. Provincial licences will be required for project companies undertaking certain public infrastructure activities such as electricity transmission.

Please see question 6.1 for comments on foreign ownership in the uranium industry.

7.4 Are there any royalties, restrictions, fees and/or taxes payable on the extraction or export of natural resources?

No specific taxes are levied against the actual extraction of natural resources; however, a Canadian resident project entity must pay income tax on its profits from the sales of such extraction both in Canada and abroad. Any foreign sponsors carrying on, or deemed to be carrying on, a business in Canada during the year, or disposing of "taxable Canadian property", must pay income tax on that portion of their taxable income earned in Canada. As noted in question 17.1, subject to the preferential terms of an applicable tax treaty, foreign sponsors will also be subject to withholding tax on passive income like dividends, rent and royalties from Canadian sources.

Royalties are generally payable by the project entity for the extraction of natural resources. The amount, frequency and conditions of such payments differ from province to province and within specific industries. Some royalty payments and fees are subject to contractual negotiation.

7.5 Are there any restrictions, controls, fees and/or taxes on foreign currency exchange?

Please see question 6.1.

7.6 Are there any restrictions, controls, fees and/or taxes on the remittance and repatriation of investment returns or loan payments to parties in other jurisdictions?

Under the federal Income Tax Act (ITA), a withholding tax is payable on the gross amount of dividends paid or credited to non-residents, subject to applicable tax treaties. On the repatriation of funds by a Canadian subsidiary to its non-resident shareholder by dividend, the ITA generally imposes withholding tax at a rate of 25%. This rate may be reduced by a treaty. This tax must be deducted or withheld by the Canadian subsidiary on behalf of its shareholder.

A Canadian subsidiary of a non-resident shareholder may distribute capital without triggering dividend withholding tax, even if it has undistributed earnings and profits, if the amount being distributed is less than the corporation's paid-up capital.

Subject to specific exclusions set out in applicable tax treaties (such as the Canada-United States Income Tax Convention) which may reduce or eliminate the withholding tax rate, the debtor project entity is required to withhold tax on certain interest payments, royalties and certain management or administration fees, which are "paid or credited" to a foreign sponsor in respect of, the project entity's business in Canada or Canadian property.

7.7 Can project companies establish and maintain on-shore foreign currency accounts and/or off-shore accounts in other jurisdictions?

Yes. Project companies can establish and maintain on-shore foreign currency accounts, as well as off-shore accounts in other jurisdictions.

7.8 Is there any restriction (under corporate law, exchange control, other law or binding governmental practice or binding contract) on the payment of dividends from a project company to its parent company where the parent is incorporated in Canada or abroad?

Restrictions are typically agreed contractually with the lenders or among the sponsor group. A lender may restrict the frequency or timing of a dividend, and only permit a sponsor to receive dividends once certain conditions are met, for example, no default exists, financial threshold tests are satisfied or a minimum level of reserves exists. Sponsors may agree to restrictions under the shareholder or partnership arrangements. Please also see question 7.6.

7.9 Are there any material environmental, health and safety laws or regulations that would impact upon a project financing and which governmental authorities administer those laws or regulations?

Protection of the environment is legislated both federally and provincially. Municipal governments also play a role. In addition to government-created law, environmental obligations may be incurred pursuant to contract and common law. The extent to which each applies depends largely on the applicable industry and jurisdiction.

Several typical project finance industry sectors would be caught under Canada's primary environmental regulatory statute, the Canadian Environmental Protection Act, 1999. The Canadian Environmental Assessment Act may apply to projects involving federal lands, or where certain federal approvals are required, in which case, an environmental assessment (EA) of the project is required. Provincial legislation may also require an EA. In Ontario, the Green Energy Act establishes a specialised EA process for renewable energy projects.

Under the Fisheries Act (Canada), and of particular concern to projects in the power, refinery and mining sectors, the federal government has regulatory authority over water pollution and water quality. With a virtual zero tolerance for unapproved water discharges and disruptive water works, this Act includes provisions concerning the deposit of deleterious substances into fish habitat.

Matters under provincial jurisdiction relevant to a typical project finance industry sector include: air emissions; water and wastewater treatment and discharges; protection of animals (in particular endangered species); waste management; and the release of contaminants, including issues relating to contaminated lands and brownfield redevelopment.

7.10 Is there any specific legal/statutory framework for procurement by project companies?

No. While certain industry-specific procurement guidelines may be followed (please see question 7.1), there are no specific legal or statutory frameworks for procurement by project companies.


8.1 Are there any restrictions, controls, fees and/or taxes on insurance policies over project assets provided or guaranteed by foreign insurance companies?

Insurance is regulated in Canada, and insurance companies wishing to carry on business in Canada should hold a licence from a federal or provincial regulator. In the unlikely event that an insured project entity buys insurance from an insurance company which does not hold a licence, such company would be liable to pay to Canadian tax authorities a percentage of the premium which varies province to province.

8.2 Are insurance policies over project assets payable to foreign (secured) creditors?

In a typical project financing, the secured parties will ask to be noted as a loss payee or additional insured on certain insurance policies. The proceeds of such insurance policies are usually charged by way of security to the secured creditors.


9.1 Are there any restrictions on foreign workers, technicians, engineers or executives being employed by a project company?

Generally, no person except a Canadian citizen or permanent resident may work in Canada without valid authorisation from Canadian authorities. If a project entity requires specific expertise from outside Canada, the foreign worker must obtain a work permit which will be valid for a limited time. To obtain a work permit, the project entity must first apply to Service Canada to obtain a Labour Market Opinion (LMO), allowing employment to be offered to a foreign national instead of a Canadian citizen or permanent resident.

There are a number of potentially useful LMO-exempt work permit categories which may apply to a project entity seeking to bring foreign workers to Canada. Subject to satisfying certain eligibility rules, the transfer of managerial or specialised personnel to Canada from a related foreign entity is permissible. The North American Free Trade Agreement (NAFTA) Professional category may be used by eligible American and Mexican citizens for professions such as geologists. Canada also has free trade agreements with Peru and Chile, with work permit provisions that are relatively similar to NAFTA's Professional category. A government programme for skilled workers, offering expedited work permits, may also be available. Canadian provinces have Provincial Nominee Programs (PNPs) in place, which differ, but generally PNPs facilitate the recruitment of foreign skilled workers who can address skills shortages within the nominating province.

In addition, the foreign workers may also require a temporary resident visa to permit entry, and for workers who have been previously located in specified jurisdictions, an immigration medical may be required.


10.1 Are there any restrictions, controls, fees and/or taxes on importing project equipment or equipment used by construction contractors?

Customs duties are levied on imported goods that are classified under the Schedule to the Customs Tariff in accordance with the harmonised system of customs classification. Based on the WTO's Customs Valuation Code, the amount payable is based on the rate of duty provided under the Customs Tariff for that particular classification of goods as applied to the value of the goods - the price actually paid or payable for the goods sold.

In addition to customs duties, imported goods and some services are subject to the federal Goods and Services Tax (GST) and provincial sales tax. A duty relief may apply to certain goods. Preferential rates of duty are accorded to products that originate in countries with which Canada has a free trade agreement like NAFTA. Whether a product "originates" so as to benefit from a trade agreement is determined by rules of origin, which may involve complex calculations and analysis of both the tariff classification and value of the components that make up an imported product.

10.2 If so, what import duties are payable and are exceptions available?

Please see question 10.1.


11.1 Are force majeure exclusions available and enforceable?

Yes. Typically, the parties take out insurance for business interruption to mitigate the force majeure risks.


12.1 Are there any rules prohibiting corrupt business practices and bribery (particularly any rules targeting the projects sector)? What are the applicable civil or criminal penalties?

As a member of the Organisation for Economic Co-operation and Development (OECD) and signatory to the OECD Anti-Corruption Convention, Canada has statutory anti-corruption safeguards. Under the Corruption of Foreign Public Officials Act and the related provisions of the Criminal Code, it is illegal to bribe foreign public officials by obtaining (or retaining) an advantage in the course of business by giving, offering or agreeing to give a "loan, reward, advantage or benefit of any kind", to a foreign public official or to any person for the benefit of a foreign public official or knowingly launder the property and proceeds of bribery.

A breach of the relevant legislation may result in substantial fines for businesses, and the imprisonment of up to five years for any individual involved in such activities.

Contractual anti-corruption provisions are not uncommon. If it is providing the funding for a project, Export Development Canada (and other similar agencies) will likely require anti-corruption and bribery covenants from the project entity as a condition to disbursement. Concession and other government contracts will typically include a specific prohibition against corrupt practices. Companies that do not comply risk being ineligible for future government tenders. For example, the main federal procurement agency has "no bribe, gift, inducement" clauses in its general terms and conditions for all types of procurement. In addition, the MERX electronic procurement system was developed to safeguard against domestic corruption by offering contracts for tender on a fully competitive basis.


13.1 What law typically governs project agreements?

Project agreements are typically governed by the law of the province or territory in which the project is located and applicable federal laws.

13.2 What law typically governs financing agreements?

The financing agreements (other than security documents) are typically governed by the law of the jurisdiction in which the project is located and applicable federal laws. Security documents are generally governed by the law of the jurisdiction in which the collateral is located.

13.3 What matters are typically governed by domestic law?

Please see questions 2.1 and 13.2 respectively.


14.1 Is a party's submission to a foreign jurisdiction and waiver of immunity legally binding and enforceable?

The State Immunity Act provides an exception to waiver of immunity clauses. Waiver of immunity is typically agreed between the parties as a matter of contract.

Enforceability of any contractual submission to jurisdiction is subject to the court's discretion.


15.1 Are contractual provisions requiring submission of disputes to international arbitration and arbitral awards recognised by local courts?

Yes. They are recognised by local courts.

15.2 Is Canada a contracting state to the New York Convention or other prominent dispute resolution conventions?

As a contracting state under The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1959 (the "Convention"), Canada has the right to declare that it will only recognise and enforce foreign arbitral awards made in other states that have ratified the Convention.

Various provinces in Canada have arbitration acts which govern international arbitrations, where one party to the arbitration is situated outside Canada. For example, Ontario enacted the International Commercial Arbitration Act (Ontario) which incorporates the UNCITRAL (United Nations Commission on International Trade Regulation) Model Law, international arbitration rules. In addition, Canada has developed a number of arbitral institutions mandated to resolving disputes between private parties.

Canada is also a signatory to the ICC (International Chamber of Commerce) and ICSID (International Centre for the Settlement of Investment Disputes). For a number of reasons, including Canada's acceptance of the arbitral process and modern arbitration laws, Canada is seen as an acceptable venue for international arbitrations.

15.3 Are any types of disputes not arbitrable under local law?

It would be difficult to submit a dispute to arbitration without the parties' agreement or where contractual parties have agreed to submit disputes to court.

15.4 Are any types of disputes subject to mandatory domestic arbitration proceedings?

Submission to arbitration is typically a matter of contract.


16.1 Has there been any call for political risk protections such as direct agreements with central government or political risk guarantees?

We are not aware of any beyond the customary direct agreement with the government project counterparty permitting step-in rights to the secured creditors following the project entity's default.

17 TAX

17.1 Are there any requirements to deduct or withhold tax from (a) interest payable on loans made to domestic or foreign lenders or (b) the proceeds of a claim under a guarantee or the proceeds of enforcing security?

There are no restrictions on payments made to domestic lenders. Subject to specific exclusions set out in applicable tax treaties which may reduce or eliminate withholding tax rates, the project entity is required to withhold tax on certain interest payments, royalties and rents, which are "paid or credited" to a foreign lender in respect of the project entity's business in Canada or Canadian property. However, withholding tax on interest (with some exceptions) paid at arm's length to the foreign lender is not payable. Regarding deductibility "thin capitalisation", rules apply with respect to related party debt, such as sponsor subordinated lending.

To the extent a foreign lender receives proceeds of a guarantee claim or security enforcement, it will generally be subject to the same tax treatment set out above (i.e. withholding taxes on the portion of the guarantee claim pertaining to interest).

17.2 What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?

Canada's favourable corporate tax rates offer a significant incentive to foreign investors. In addition, Canada has a comprehensive network of tax treaties which may reduce or eliminate the tax rate or, most significantly, reduce the risk of double taxation.

The costs involved in the statutory security registration regime are more fully explained in question 2.6.


18.1 Are there any other material considerations which should be taken into account by either equity investors or lenders when participating in project financings in Canada?

The main issues are dealt with above.

18.2 Are there any legal impositions to project companies issuing bonds or similar capital market instruments? Please briefly describe the local legal and regulatory requirements for the issuance of capital market instruments.

There are no impositions directed specifically at project company vehicles. The issuance of bonds and other types of securities is regulated by provincial or territorial regulations with each province (and territory) having its own securities commission or equivalent authority to oversee compliance with legislation. In Canada there is a developed system for rating project bonds. Question 1.1 highlights examples of recent successful project finance bond issuances.


With thanks to the following for their insight.

Peter Fairey, Paul Harricks, Ian MacDonald, John McKernan, Thomas J. Timmins, Mike Todd, James Tumbridge, Robin D. Walker, Q.C., Steven Willard and Jim Wilson.

This article appeared in the 2013 edition of The International Comparative Legal Guide to: Project Finance; published by Global Legal Group Ltd, London.

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.

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Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

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You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

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Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

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We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.