Canada: Controlling Canadian Control Tests: Court Supports Cabinet’s Power To Decide

Last Updated: June 29 2011
Article by Richard A. Wagner

Various statutes in Canada impose varying degrees of Canadian control of businesses engaged in certain industries, such as banking, transportation and broadcasting.  Decisions on whether the statutory tests for control are met are usually made by officials or commissions responsible for administering the statute. Their decisions are subject to appeal to the courts.  Some statutes, such as the Telecommunications Act,1 also provide an appeal route to the Governor in Council (federal cabinet).  

A June 8, 2011 decision of the Federal Court of Appeal2 held that the federal cabinet did have the power to overrule a decision of the Canadian Radio-television and Telecommunications Commission (CRTC) and impose its own final decision on whether a company was Canadian-controlled for the purposes of the Telecommunications Act. The federal cabinet's decision that Globalive Wireless Management Corp. was not "controlled in fact" by a non Canadian—notwithstanding that a non-Canadian held 99% of the debt of Globalive—was therefore allowed to stand.  

Although limited to the Telecommunications Act, the decision is of interest to Canadian telecommunications and broadcasting corporations because it may indicate a willingness of the federal government to soon allow more foreign investment in Canada's telecommunications and broadcasting sectors.  Although governed by different acts, the test for Canadian ownership and control for telecommunications and broadcasting companies is the same.

The decision may also affect decisions regarding "control in fact" tests contained in various statutes concerning specific industries, as well as more general legislation governing foreign investment, such as the Investment Canada Act.

One party to the case has already stated that it will seek leave to appeal the decision to the Supreme Court of Canada, so further judicial scrutiny of the issue may yet take place.

Background

In 2007 and 2008, Globalive and other new entrants to the wireless telecommunications market successfully bid on licences allowing telecommunications companies to operate on certain frequencies in Canada. Globalive is wholly owned by Globalive Investment Holdings Corporation: 66.68% of the voting shares of the holding company are owned by AAL Holdings Corporation, a Canadian corporation, and 32.02% of the voting shares are owned by Orascom Telecom Holding (Canada) Limited, a subsidiary of an Egyptian company.

In March 2009, the minister of industry issued spectrum licences to all successful bidders, including Globalive. The CRTC then held a hearing on the issue of Globalive's ownership structure, and whether or not it met the Canadian ownership and control requirements of the Telecommunications Act. The Telecommunications Act requires that telecommunications common carriers operating in Canada must be Canadian-owned and controlled, and provides that three requirements must be met.  First, at least 80% of the corporation's board members must be Canadians; second, Canadians must beneficially own at least 80% of the corporation's voting shares; and third, the corporation must not be otherwise controlled by non-Canadians, also known as the "control in fact" test.

The CRTC found that Globalive was owned by a Canadian company, but that Globalive was otherwise controlled by a non-Canadian. The CRTC was primarily concerned that Orascom held 99% of Globalive's debt.  Because Globalive was "controlled in fact" by a non-Canadian, the CRTC decided on October 29, 2009 that Globalive was not eligible to operate as a telecommunications company in Canada.3

The Telecommunications Act allows the federal cabinet to review and vary CRTC decisions.  The Governor in Council called for submissions on the issue and reviewed the facts de novo. On December 10, 2009, the Governor in Council issued an Order in Council which stated that Globalive was not controlled by a non-Canadian, and that while Orascom controlled much of Globalive's debt, the lending instrument restricted Orascom's rights and control over Globalive.  The Order in Council thus varied the CRTC's decision and allowed Globalive to operate as a telecommunications company in Canada.4

Federal Court decision

Public Mobile Inc. then sought judicial review of the Order in Council in the Federal Court of Canada.  The Federal Court found that the Order in Council contained two errors of law.  First, the Governor in Council inserted a "previously unknown" policy objective5 into the Telecommunications Act—thereby considering a factor it should not have.  Second, the Governor in Council "acted outside the legal parameters of the Act" by restricting its decision to Globalive. The Federal Court quashed the Order in Council, which had the effect of reinstating the CRTC's decision.6

Federal Court of Appeal decision

The Federal Court of Appeal decision dealt with three main issues: Public Mobile's standing, the standard of review to be applied to the Governor in Council's decision, and whether or not the Governor in Council came to a reasonable decision and reasonably varied the CRTC's decision.

Public Mobile's standing

The Federal Court of Appeal disagreed with the Federal Court's reasons on the issue of Public Mobile's standing, or ability to apply for judicial review of the Governor in Council's decision, but agreed with the result. Public Mobile was granted public interest standing because:

  • there was a serious issue;
  • it had a genuine interest in the outcome of the litigation; and
  • there was no other reasonable or effective way of bringing the issue before the court because neither Globalive nor the Attorney General of Canada would reasonably challenge the Order in Council.  The court held that without granting Public Mobile public interest standing, the Order in Council would "effectively be immune from judicial review" and this case was one where "the interests of all Canadians are involved to an unusual degree."

Standard of review

The Federal Court of Appeal emphatically stated that "all aspects of the Order in Council are subject to judicial review."  After reviewing case law, the Court stated that the Order in Council would be reviewed on a reasonableness standard, as opposed to the correctness standard applied by the Federal Court. The Court must give some deference to the Governor in Council, because Parliament gave review powers to both courts and to the Governor in Council. The reasonableness standard allows for a range of possible outcomes that would be reasonable in light of the factual and legal context.

Public Mobile argued that the standard of review for the Governor in Council's consideration of the Telecommunications Act policy objectives required a standard of correctness.  The Federal Court of Appeal stated that it was not clear which standard applied, but that it did not have to decide the point because the Governor in Council did not consider the Telecommunications Act's policy objectives when it applied the "control in fact" test.

Governor in Council's decision

Public Mobile agreed that Globalive met the first two requirements of the Telecommunications Act.  The issue was whether or not Globalive was controlled in fact by a non-Canadian.

Public Mobile argued that the Governor in Council improperly made reference to the Telecommunications Act's policy objectives when making its decision.  The Court disagreed, stating that although the Governor in Council made statements regarding policy, it did not rely on policy when making its decision.  Rather, the Governor in Council reached its decision by considering the same facts and law as the CRTC, but came to a different conclusion.  The Court held that the policy objectives referenced in the Order in Council only played a role in the Governor in Council's decision when it considered whether or not to vary the CRTC's decision.  Decisions of the CRTC can be varied with policy objectives in mind. The Governor in Council's decision was reasonable.  This alone was enough to allow the appeal.

The Federal Court of Appeal continued, however, and stated that the Governor in Council was not restricted in the manner in which it reviewed the CRTC's application of the "control in fact" test.  This test is highly factual, and depends on many competing factors.  Further, reference to the policy objectives can be relevant when interpreting the "control in fact" test.

The Federal Court of Appeal held that the Governor in Council acted properly in finding that Globalive met the Canadian ownership and control requirements and in varying the CRTC's decision, and the Court thus restored the Order in Council which allows Globalive to operate as a telecommunications company in Canada.

The author wishes to thank M. Stephen Nattrass, articling student, for his help in preparing this bulletin.

Footnotes:

1 Telecommunications Act, SC 1993, c 38.

Globalive Wireless Management Corp. v. Public Mobile Inc., 2011 FCA 194.

3 CRTC, Telecom Decision 2009-678, 29 October 2009; and CRTC, Telecom Decision 2009-678-1, 4 November 2009.

4 Order-in-Council PC 2008-2009, 10 December 2009.

5 The Telecommunications Act policy objectives are set out in section 7.

Public Mobile v. Canada (Attorney General), 2011 FC 130.

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