Canada: Canadian Counsil @ Gowlings - December 19, 2007

Edited by Christopher Alam

Contents :

• Federal Government Clarifies Rules on Foreign Investment by State-Owned Enterprises

• New Quebec Provisions on Distance Contracts

Federal Government Clarifies Rules On Foreign Investment By State-Owned Enterprises

On December 7, 2007, Canada's Minister of Industry issued guidelines clarifying the application of the Investment Canada Act (ICA), Canada's foreign investment review regime, to proposed investments in Canada by foreign state-owned enterprises (SOEs).

Foreign investment is critical to the Canadian economy. A recent Statistics Canada study found that, among other significant benefits, foreign companies operating in Canada have generated two thirds of Canada's productivity growth over the last three decades. However, foreign investment by SOEs has accounted for a very small percentage - only about 2% - of the substantial total amount of foreign investment in Canada since 1985.

In light of the above facts, an explanation as to the perceived need for the new guidelines is warranted. Over the past several years, several foreign SOEs have acquired control, or have attempted to acquire control, of major Canadian businesses, including Canada's largest nickel producer, and others have expressed an interest in making multi-billion dollar investments in Canada, particularly in the natural resource sector. This trend is expected to grow, as many SOEs are flush with massive amounts of cash and mandates to invest it outside their home countries. Canada's government is concerned that, in some circumstances, foreign SOEs may invest in Canada with non-commercial objectives. In addition, some SOEs have unclear corporate governance and reporting regimes. An investment by an SOE with either of these characteristics may not be of "net benefit to Canada", which is the test mandated by the ICA to determine whether a proposed foreign investment in Canada that exceeds the applicable threshold amount may proceed.

Before the new guidelines were introduced, it was not clear how the net benefit test should be applied in the context of a proposed investment by an SOE. The new guidelines attempt to clarify this by identifying the factors that will be considered. These include: the nature and extent of control of the SOE by its government, the corporate governance, operating and reporting practices of the SOE, and whether the acquired Canadian business would retain the ability to operate on a commercial basis. The new guidelines also provide a non-exhaustive list of undertakings that SOEs may offer to demonstrate net benefit to Canada. These include: appointment of Canadians to boards of directors, employing Canadians in senior management positions, incorporation of a company in Canada and listing of shares on a Canadian stock exchange.

The full text of the new guidelines is available at:
http://www.ic.gc.ca/epic/site/ica-lic.nsf/en/lk00064e.html#state-owned.
By Robert E. Milnes and Ian Macdonald

New Provisions On Distance Contracts

On December 15^th 2007, new provisions concerning distance contracts, contained in the Consumer Protection Act ("CPA"), will come into force. These amendments add new requirements with regards to what are presently called remote-party contracts, which are agreements entered into between a merchant and a consumer without the parties being in each other's presence, neither at the time of the offer nor the acceptance. Hereunder is a summary of the new provisions:

• According to the new provisions, a "distance contract" is an agreement entered into without the merchant and the consumer being in one another's presence and preceded by an offer by the merchant to enter into such an agreement. As is the case now with remote-party contracts, the law will not deal separately with Internet and telephone contracts.

• An offer is deemed to be made if the merchant's proposal comprises all the essential elements of the intended contract.

• The contract is deemed to be entered into at the address of the consumer.

• Unless the consumer can ask for a chargeback, the merchant must perform its principal obligation before collecting payment from the consumer, be it total or partial. The new provisions provide for a chargeback mechanism for transactions paid for by way of a credit card. As a result, the merchant will only be able to collect payment before performance in the event that the payment is being made by credit card. This new system replaces the old bond and exemption system by which merchants were permitted to collect payment before performance of their corresponding obligations.

• The merchant must disclose certain information before entering into a distance contract with a consumer. In the case of a written offer, the merchant must provide the information in a manner which allows the consumer to easily retain or print the information:

• His/her name or any other trade-name under which he/she carries on business;

• Before the contract is entered into, the consumer must have the opportunity to accept or decline the proposal and correct any related errors.

• The contract must be written and must contain the consumer's address, the date of the contract and all the information for which disclosure is required, as mentioned above.

• The merchant must provide the consumer with a copy of the agreement within 15 days of its acceptance, in such a manner that it can be easily retained or printed.

• The consumer may cancel the agreement within 7 days of the receipt of a copy if: (i) the information required to be disclosed was not disclosed by the merchant prior to the contract, (ii) the consumer did not have the opportunity to accept, decline or correct the proposal, (iii) the contract did not provide the required information or (iv) the merchant did not submit a copy of the contract that could easily be retained or printed by the consumer.

• The consumer may also cancel the agreement prior to the performance of the merchant's principal obligation if this obligation is not performed within 30 days of the mentioned date, or, if no date is mentioned, 30 days following the conclusion of the agreement.

• If the consumer wishes to cancel the contract, as mentioned above, he or she must send a notice to the merchant. The contract will be cancelled upon receipt of the notice.

• Within 15 days of the cancellation, the merchant must completely reimburse the consumer of all amount paid including sums paid to a third party. The consumer must also return the goods to the merchant within 15 days of the cancellation. All related costs are the merchant's liability.

• If the merchant does not reimburse the consumer within 15 days and the consumer has paid with a credit card, the consumer may request a complete chargeback from the card issuer, within 60 days following the default.

While these changes are significant when compared to the scarce framework that currently exists for remote party contracts under the CPA, they will not be unfamiliar to clients who conduct remote sales outside of Quebec. Indeed, these changes have in fact been brought in to attempt to harmonize Quebec's regulation regime with those of the other provinces who have adopted the Internet Sales Contract Harmonization Template, approved on May 25, 2001, by the federal and provincial ministers responsible for consumer affairs.
By David Kierans and Douglas Clarke

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.