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What happens when a government invites investment with the promise of simple and predictable rules but rewrites them mid-game?
The Ontario Superior Court of Justice's decision in Quadrangle v. Attorney General of Canada1 details the consequence under Canadian law. When examined in comparison with the Global Telecom Holding v. Canada[2] arbitration arising out of related acts by Canadian authorities, it also highlights the kind of regulatory conduct that may be addressed through investor-State dispute resolution mechanisms available under international law. At the same time, a comparison of these two related cases reinforces the critical role of factual findings in litigation outcomes.
The Quadrangle Decision
In 2008, Mobilicity, backed by Quadrangle and Obelysk, entered the Canadian wireless market, acquiring mobile spectrum licences in a federal government auction. The government was openly and actively trying to attract new entrants to the Canadian wireless market, and structured the auction accordingly. Mobilicity obtained "set aside" licences, which could not be transferred to an incumbent wireless carrier (Rogers, Bell, or TELUS) for five years. The government represented that, once the moratorium period expired, Mobilicity would be free to transfer its licences to eligible transferees (defined by specific criteria), providing it with an exit strategy if the venture failed.
When the moratorium ended in 2013, however, the federal government introduced a new transfer framework (the 2013 Transfer Framework) that barred Mobilicity from transferring its licences to any incumbent and introduced additional criteria that would need to be considered before a licence could be transferred. The government subsequently rejected Mobilicity's proposed sale of licences to TELUS, in addition to deterring incumbents from pursuing Mobilicity's licences. Ultimately, Mobilicity was acquired by Rogers, but only after the government stipulated that some of its licences first be transferred to another non-incumbent.
The central issue in Quadrangle was whether the government had impermissibly changed the rules after having induced Mobilicity and its partners to invest based on representations regarding its eventual ability to divest its licences.3
The Court found that the imposition of the Transfer Framework replaced clear, objective standards, including the ability to transfer licences to incumbents after five years, with subjective, discretionary criteria that were difficult to interpret or apply.4 These new criteria were so vague and discretionary that even experienced industry participants and regulators "did not understand what they mean," and "had no idea of how to assess whether [they] comply with them, [and] whether a transferee would comply with them."5 making the process unpredictable and inaccessible. The Court determined that the revised rules were not designed for fostering competition and advancing consumer interests, as the government had asserted,6 but rather to favour government priorities regarding certain market participants.7 This was confirmed by fact witness evidence that some of the conduct relating to Mobilicity's licences violated due process and proper regulatory procedures.8
Noting that public authorities are subject to "duty of care ... to ensure that [their] regulatory actions [do] not unreasonably or unnecessarily harm [the plaintiff's] business interests" the Court held that the government had breached the standard of care and was liable in negligence and for negligent misrepresentation.9 It awarded Quadrangle damages of USD $411,352,000, reflecting a reasonable rate of return in an alternative investment scenario had Quadrangle not invested in the spectrum licences and Mobilicity, less amounts actually recovered in the eventual acquisition by Rogers.10 The Court awarded Obelysk CAD $33,301,410, less the amounts recovered following the sale in 2015, plus pre-judgment interest.11 The government has appealed the decision.
Global Telecom Holding v. Canada – similar facts, different avenue, opposite result
If the facts of the Quadrangle case seem familiar, that is because the rule changes regarding the transfer of mobile spectrum licences that were acquired pursuant to the 2008 auction gave rise to various proceedings against the Government of Canada. This included an arbitration started in 2016 by Global Telecom Holding SAE (GTH), an Egyptian company, for how the rule change affected Wind Mobile, which was a joint-venture between GTH and a Canadian operator, in which GTH invested significantly. The arbitration was brought under the bilateral investment treaty between Canada and Egypt (the Canada-Egypt BIT).
GTH claimed (among other things) that Canada violated its obligation under the Canada-Egypt BIT to treat investments of Egyptian investors fairly and equitably. Those violations were alleged to arise from Canada's frustration of GTH's legitimate expectations that spectrum licences would be transferable to incumbents after five years, and unreasonable and arbitrary treatment of GTH out of a politically motivated agenda to champion a fourth player in Canada's wireless market.12
Given that GTH and Quadrangle advanced cases under different legal frameworks, the underlying causes of actions necessarily differed. Yet, there was substantial overlap between them. A key reason for this overlap was some similarity between the relevant standard of care alleged in Quadrangle and the standards of State conduct that can be encompassed by Canada's fair and equitable treatment obligation under the BIT(e.g., the protection of legitimate expectations arising from repeated and specific assurances or active inducement by government officials, guarantees of due process, or prohibitions against arbitrary or non-transparent conduct).
Notwithstanding the overlap between them, the cases ultimately resulted in different conclusions and outcomes. Notably, the Court in Quadrangle found that "the Government promised the Plaintiffs that if they invested in the spectrum licences and complied with their obligations...the licences would be transferable" to incumbents after the five-year moratorium, and that this repeated assurance was central to the investment decision, and created clear, reasonable expectations.13 By contrast, the GTH v. Canada arbitration focused on policy and related documents surrounding the 2008 auction that indicated that licence transfers were always subject to ministerial approval, leading the arbitral tribunal to conclude that there was "no compelling evidence that Canada represented at the time of the AWS Auction that it would unconditionally permit New Entrants to transfer their set-aside licences to Incumbents, or that the Minister would approve all applications to transfer set-aside spectrum to Incumbents automatically after the expiry of the five-year transfer restriction."14
The outcomes in the cases might not have differed so much had the arbitral tribunal's factual findings in the GTH case been closer to those of the Court. Indeed, the Court's detailed findings that the regulatory environment shifted from clear and predictable to vague, subjective, and inaccessible reflect precisely the kind of opaque and unreasonable conduct that can give rise to State liability in investment arbitration.
How McCarthy Tétrault Can Help
The divergent outcomes for the investors in the Quadrangle decision (subject to the government's pending appeal) and in GTH v. Canada highlight two key considerations for investors considering possible avenues of relief to address possible State conduct.
First, State conduct of the kind underlying the Quadrangle and GTH v. Canada cases may give rise to recourse under either domestic or international law (or both). Second, investors should carefully consider which avenue to take in light of the facts, applicable domestic law, and relevant international law, including investment protection treaties. Canadian treaties often require foreign investors to waive their own right to domestic remedies (but not necessarily those of local enterprises affected by the same measures) in order to pursue arbitration, so investors should carefully consider the trade-offs and potential interactions between pursuing relief before a domestic court or an international arbitral tribunal.
Relatedly, the cases highlight that representations made by authorities at the time of investment can play a significant role in shaping investor expectations and understanding risk. Clarifying the precise statements and intentions of government officials during the investment decision process is essential for assessing the legal and commercial risk environment contemporaneously. Such clarification may also serve as the foundation for how risk allocation between the parties will be understood by a court or arbitral tribunal in the future should a dispute or regulatory changes arise. Parties involved in government projects should carefully consider their legal options, under domestic and international law and consult qualified counsel.
Footnotes
1. Quadrangle v. Attorney General of Canada, 2025 ONSC 4526 ["Quadrangle"].
2. Global Telecom Holdings S.A.E. v. Canada, ICSID Case No. ARB/16/16 ["GTH v. Canada"]
3. Quadrangle, para 12.
4. Quadrangle, para 282.
5. Quadrangle, para 307.
6. Quadrangle, para 298.
7. Quadrangle, paras 421, 446-448, 455-462, and 472-475.
8. Quadrangle, paras 375-377, and 379.
9. Quadrangle, paras 104, 768.
10. Quadrangle, para 678.
11. Quadrangle, para 692.
12. GTH v. Canada, paras 449, 508.
13. Quadrangle, para 198.
14. GTH v. Canada, para 540 et seq.
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