Higher Foreign Investment Review Threshold expected to be in force by summer of 2017

William Wu - 

In November 2016, the Canadian government announced that it will significantly raise the financial threshold above which foreign investments into Canada are subject to a pre-closing “net benefit” review under the Investment Canada Act (ICA). All legislative amendments required to implement these proposed changes are now before Parliament and are expected to pass and come into force by the summer of 2017.

Currently, for direct acquisitions of non-cultural Canadian businesses by a non-state-owned WTO investor, transactions are subject to a pre-closing “net benefit” review where the enterprise value of the acquired Canadian business exceeds C$600 million. This threshold is scheduled to increase to C$800 million on April 24, 2017, and then to C$1 billion on April 24, 2019 (and indexed annually to GDP growth beginning in January 2021).

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Canadian Merger Control Thresholds for 2017: Competition Act and Investment Canada Act increases

Susan M. Hutton

Both the Competition Act and the Investment Canada Act thresholds for review of acquisitions involving Canadian businesses are expected to increase in 2017. The “size of target” threshold for Competition Act notification, if adjusted pursuant to the formula prescribed in the Act, will increase very slightly to C$88 million (from C$87 million in 2016), although this increase has yet to be confirmed by the Minister and is subject to his discretion.

The Canadian government has also announced that the threshold for review under the Investment Canada Act applicable to direct acquisitions by state owned or influenced WTO investors will increase to C$379 million for transactions closing in the remainder of 2017 (from C$375 million in 2016), based on the book value of assets. Other ICA thresholds remain unchanged at this time, although the government announced in the fall that the review threshold for private WTO investors ‒ based on enterprise value of the Canadian business ‒ will increase in April to C$1 billion rather than C$800 million as previously scheduled.

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Government Releases much-awaited National Security Review Guidelines

Michael Kilby - 

On December 19, 2016, the Minister of Innovation, Science and Economic Development issued Guidelines on the National Security Review of Investments under the Investment Canada Act (ICA).

Overview of the Guidelines

Most significantly, the Guidelines list factors that will be taken into account by the government in determining whether foreign investments into Canada could be injurious to national security. These factors are:

  1. The potential effects of the investment on Canada's defence capabilities and interests;
  2. The potential effects of the investment on the transfer of sensitive technology or know-how outside of Canada;
  3. Involvement in the research, manufacture or sale of goods/technology relating to certain controlled goods noted in the Defence Production Act, including firearms, military training equipment, certain types of aircraft, weaponry and defence systems, etc.;
  4. The potential impact of the investment on the security of Canada's critical infrastructure. Critical infrastructure refers to processes, systems, facilities, technologies, networks, assets and services essential to the health, safety, security or economic well-being of Canadians and the effective functioning of government;
  5. The potential impact of the investment on the supply of critical goods and services to Canadians, or the supply of goods and services to the Government of Canada;
  6. The potential of the investment to enable foreign surveillance or espionage;
  7. The potential of the investment to hinder current or future intelligence or law enforcement operations;
  8. The potential impact of the investment on Canada's international interests, including foreign relationships; and,
  9. The potential of the investment to involve or facilitate the activities of illicit actors, such as terrorists, terrorist organizations or organized crime.
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Canadian Government announces higher thresholds for Foreign Investment Review and more transparency for National Security Reviews

 Michael Laskey and Gideon Kwinter

In its 2016 Fall Economic Statement, the Government of Canada announced forthcoming changes to the review of foreign investments under the Investment Canada Act. Namely, the government intends to significantly increase the financial threshold above which foreign investments are subject to pre-closing “net benefit” review under the ICA, and provide additional guidance regarding the conduct of national security review.

Net Benefit Review Threshold

The ICA applies to every acquisition of control of a Canadian business by a non-Canadian investor. Transactions exceeding certain financial thresholds are subject to pre-closing “net benefit” review; these transactions cannot be completed until the responsible Minister or Ministers determine that the transaction will be of “net benefit” to Canada. Currently, for direct acquisitions of non-cultural Canadian businesses, transactions are typically subject to pre-closing review where the enterprise value of the acquired Canadian business exceeds C$600 million. Until recently, this threshold had been scheduled to increase to C$800 million in April 2017, and then to C$1 billion in April 2019 (and indexed annually to GDP growth beginning in January 2021).

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Investment Canada Act: "privilege" has its limits in US Steel case

Susan M. Hutton and Michael Laskey

On January 26, 2016 the Ontario Court of Appeal held that the confidentiality and privilege protections in section 36 of the Investment Canada Act do not prevent courts from ordering companies to disclose the undertakings they are required to make to the Canadian government in order to obtain ICA approval for foreign acquisitions.

Pre-closing ICA approval is often required for direct foreign acquisitions of large Canadian companies. Foreign investors are typically required to make binding commitments (undertakings) to the Canadian government in order to obtain approval. While these undertakings are usually kept confidential, the Court of Appeal’s decision suggests that courts can order companies to disclose the undertakings in some circumstances (e.g., insolvency proceedings), even when the terms of the ICA may prevent government officials from doing so. Businesses should be mindful of this risk when negotiating and agreeing to undertakings.

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Canadian Merger Control Thresholds for 2016: Competition Act and Investment Canada Act increases

Susan M. Hutton

Both the Competition Act and the Investment Canada Act thresholds for review of acquisitions involving Canadian businesses are expected to increase in 2016. The “size of target” threshold for Competition Act notification, if adjusted pursuant to the formula prescribed in the Act, will increase very slightly to C$87 million, although this increase has yet to be confirmed by the Minister and is subject to his discretion. The Canadian government has also announced that the threshold for review under the Investment Canada Act applicable to direct acquisitions by state-owned WTO investors will increase to C$375 million for transactions closing in the remainder of 2016, based on the book value of assets (other ICA thresholds remain unchanged).

Competition Act:

The Competition Bureau must generally be given advance notice of proposed transactions under the merger notification provisions of the Competition Act, when the “size of the target” exceeds the specified threshold, and when the combined Canadian assets or revenues “in, from or into” Canada of the parties together with their respective affiliates (the “size of parties” test) exceeds C$400 million. Transactions involving Canadian subsidiaries, as well as the direct acquisition of Canadian businesses or assets, and acquisitions of interests of as little as 20% (for public companies) or 35% (for private companies and interests in non-corporate business combinations) can trigger Competition Act merger notifications in Canada.

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Changes to Canadian Foreign Investment Regime: higher bar for review, more burdensome disclosure requirements under the Investment Canada Act

Michael Laskey -

Earlier today, the Canadian government published changes to the Investment Canada Act regulations that will - when they become effective in 30 days (on April 24) - make it significantly easier for many transactions to escape a lengthy review process, while at the same time increasing the disclosure burden for the routine notifications required of all foreign investors in Canada and – effective March 13, 2015 – lengthening the timelines for national security reviews.

The “net benefit” review threshold will be changed from an asset value test to an enterprise value test, and will be increased from C$369 million to C$600 million, for most investors. At the same time, the revised regulations impose invasive and burdensome new disclosure obligations for investments that fall short of the review threshold. These new disclosure obligations will require purchasers to provide, among other things, personal information about their directors, highest-paid officers and significant investors. National security review timelines have been extended, and made subject to potential further extension at the government’s discretion.

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New 2015 thresholds for Competition Act merger notification and Investment Canada Act review

Susan M. Hutton and Mike Laskey -

Both the Competition Act and the Investment Canada Act thresholds for review of acquisitions involving Canadian businesses are expected to increase in 2015. The “size of target” threshold for Competition Act notification, if adjusted pursuant to the formula prescribed in the Act, will increase to C$86 million, although this increase has yet to be confirmed by the Minister and is subject to his discretion. Industry Canada has announced that the threshold for review applying to most direct acquisitions under the Investment Canada Act will increase to C$369 million for transactions closing in the remainder of 2015.

Competition Act:

The Competition Bureau must generally be given advance notice of proposed transactions under the merger notification provisions of the Competition Act, when the “size of the target” exceeds the specified threshold, and when the combined Canadian assets or revenues “in, from or into” Canada of the parties together with their respective affiliates (the “size of parties” test) exceeds C$400 million. Transactions involving Canadian subsidiaries, as well as the direct acquisition of Canadian businesses or assets, and acquisitions of interests of as little as 20% (for public companies) or 35% (for private companies and interests in non-corporate business combinations) can trigger merger notifications in Canada.

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The Canada-China FIPA: Energizing Canadian oil & gas investment in China

Susan Hutton and Erin Dand -

On Friday, September 14, Ottawa announced the ratification of the Canada-China Foreign Investment Promotion and Protection Agreement (the Canada- China FIPA). The Canada-China FIPA, which comes into force on October 1, 2014, is the newest addition to Canada’s growing list of foreign investment protection agreements (FIPAs).

A FIPA is not a full-blown free trade agreement, but rather a bilateral agreement between two signatory states intended to protect and promote foreign investment through legally-binding rights and obligations to protect foreign investors. Specifically, a FIPA grants foreign investors from each signatory state the right to claim damages against the host state when the guarantees contained in the FIPA are contravened. These claims are heard by international arbitration tribunals, which have the power to grant legally binding awards against host states, and whose decisions are not reviewable by domestic courts.

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Investment Canada Act approval for oil sands investment by State-Owned Enterprise

Lawson Hunter and Michael Kilby -

In May 2014, the Minister of Industry issued a net benefit approval for PTTEP’s acquisition of control of the Thornbury, Hangingstone and South Leismer oil sands projects from Statoil Canada. PTTEP is a Thai state-owned enterprise for purposes of the Investment Canada Act.

By way of background, in December 2012 the Prime Minister and the Minister of Industry issued new and revised guidance in relation to State-Owned Enterprises. In relation to the oil sands, the relevant policy provides that acquisitions of oil sands businesses by SOEs will only be approved in exceptional circumstances.  The PTTEP acquisition is significant because it represents the first test of this policy.

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Government agencies to coordinate in Alberta energy markets

Susan M. Hutton and Shannon Kack -

In an effort to coordinate their overlapping mandates, the two agencies charged with ensuring that Alberta power markets remain competitive have signed a Memorandum of Understanding (MOU) calling for continued and more defined cooperation between the agencies.

On March 3, 2014, the Competition Bureau announced that the Commissioner of Competition (head of Canada’s Competition Bureau) and the Market Surveillance Administrator of Alberta (MSA) have signed an MOU, implementing a framework for information sharing and enforcement cooperation and collaboration in matters of mutual interest among the agencies.

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2014 Energy M&A Trends in Canada

Glenn Cameron, Susan Hutton, Keith Miller, Cameron Anderson and Brandon Mewhort -

Whether measured by volume or aggregate value, 2013 was a weaker year for energy-related M&A than 2012, continuing a four-year decline in activity in the sector. There was a noteworthy lack of public company M&A in 2013 and nothing to match the marquee deals of 2012: PETRONAS’ $6B acquisition of Progress Energy or CNOOC Limited’s $20B acquisition of Nexen. In spite of that, 2013 still saw a significant number of large and complex transactions, including Suncor’s sale of its conventional natural gas properties for $1B to Centrica and Qatar Petroleum, Progress/PETRONAS’ $1.5B acquisition of Talisman Energy’s Farrell Creek and Cyprus properties and Exxon Mobil/Imperial Oil’s $750M acquisition of part of ConocoPhillips’ non-producing Clyden oil sands acreage.

Reasons for the decline in M&A activity in 2013 included the following:

  • Asian investors paused to digest what they bought after five years of significant investment in the Canadian energy sector, particularly in the oil sands.
  • Changes to Industry Canada’s State Owned Entity (SOE) guidelines announced in December 2012 under the Investment Canada Act, coupled with the failure of two transactions to pass “national security” reviews, have chilled foreign investment by SOEs.
  • Increased uncertainty about whether regulatory approvals would be obtained for pipelines and other projects needed to expand the capacity to transport Canadian crude oil and natural gas to the U.S. and to provide access to offshore markets contributed to investors’ concerns about the future prospects for Canadian production.

In addition to the absence of major acquisitions, 2013 also saw a decline in financing activity by oil and gas issuers. While a select few were able to raise the equity they required, many others could not – at least until Q4 when a spike in oil and gas-related capital markets activity occurred. The numbers of oil and gas issuers on the TSX and TSXV, the number of financings by those issuers and the aggregate equity capital raised to the end of Q3 of this past year were all significantly lower than over the same period in 2012.

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2014 thresholds for Competition Act merger notification and Investment Canada Act review

Susan M. Hutton -

Both the Competition Act and the Investment Canada Act thresholds for review of acquisitions of Canadian businesses are expected to increase in 2014, to C$82 million and C$354 million respectively, although these increases have yet to be officially confirmed by the Minister, and in the case of the Competition Act merger notification “size of target” threshold, is subject to his discretion.

Competition Act:

The Competition Bureau must generally be given advance notice of proposed transactions under the merger notification provisions of the Competition Act, when the “size of the target” exceeds the specified threshold, and when the combined Canadian assets or revenues “in, from or into” Canada of the parties together with their respective affiliates (the “size of parties” test) exceeds C$400 million. Transactions involving Canadian subsidiaries, as well as the direct acquisition of Canadian businesses or assets, and acquisitions of interests as little as 20% (for public companies) or 35% (for private companies and interests in non-corporate business combinations) can trigger merger notifications in Canada.

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Canada and European Union announce sweeping Free Trade Agreement

Susan M. Hutton and Michael Laskey -

The Canadian and European Union governments today announced an “agreement in principle” to enter into a wide-ranging free trade agreement. The Comprehensive Economic and Trade Agreement (CETA), if it is ultimately completed and ratified, would immediately eliminate 98% of all Canada-EU tariffs and would greatly facilitate trade, investment and the movement of labour between Canada and the EU.

According to a joint Canada-EU study at the launch of negotiations, the CETA could increase bilateral trade by 20% and yield an annual benefit of $12 billion to the Canadian economy. Both the Canadian and EU governments have expressed confidence that the CETA will be completed and fully ratified by 2015.

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Canada creates further uncertainty for investments by State-Owned Enterprises

Lawson A.W. Hunter Q.C., Susan M. Hutton and Michael Kilby -

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:

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Canadian and foreign investment regulation outlook for 2013

Michael Kilby  -

Investment Canada – The Year of the State-Owned Enterprise

2012 proved to be a highly eventful year for foreign investment law in Canada. Although numerous foreign investments by SOEs in the Canadian energy sector had received foreign investment approvals in recent years1, the summer of 2012 saw the announcement of two multi-billion dollar energy transactions involving SOEs that collectively posed an unprecedented test for the Investment Canada Act and for Canadian policymakers. In June, Petronas (the Malaysian state-owned oil company) announced its $6 billion acquisition of Progress Energy. At the time, this was the largest-ever proposed acquisition of a Canadian company by a state-owned enterprise. But that record did not stand for long: just a month later, in July, CNOOC Limited (a majority Chinese state-owned oil company)announced its $15 billion acquisition of Nexen.

These proposed acquisitions became the subject of intense scrutiny in the national media throughout the summer and fall, and indeed attracted attention in the business press globally, particularly in Asia. With few exceptions, large-scale M&A activity in the Canadian oil patch ground to a halt in the fall of 2012 as market participants stood still and held their collective breath pending the outcome of the government reviews of these proposed foreign investments. Tension was only heightened in October when the Minister of Industry rejected the Petronas transaction on a preliminary basis, immediately recalling the rejection of BHP Billiton’s hostile bid for Potash Corporation of Saskatchewan less than two years earlier.

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Increased thresholds for Competition Act merger notification and Investment Canada Act review

Marisa Berswick -

The thresholds for review of acquisitions involving Canadian businesses will soon increase under both the Competition Act and the Investment Canada Act.

The Competition Bureau announced on January 8, 2013 that the “transaction size” threshold for review of acquisitions under the Competition Act will increase from the 2012 threshold of CDN$77 million to CDN$80 million. The 2013 threshold is anticipated to come into effect on or about January 12, 2013.

The transaction-size threshold is based on the book value of assets in Canada of the target (or in the case of assets, of the assets in Canada being acquired), or the gross revenues from sales “in or from” Canada generated by those assets, calculated in accordance with the Notifiable Transactions Regulations under the Competition Act. The Competition Act threshold is indexed annually to account for inflation. The ”size of parties” threshold remains constant at CDN$400 million.

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CNOOC/Nexen and the Future of SOE Acquisitions

Canada's Prime Minister sent a clear message today that the country remains open to foreign investment, including investment on a significant scale by state-owned enterprises (SOEs) in certain circumstances. However, continued acquisitions by SOEs of controlling interests in the oil sands industry has been largely constrained and will be found to be of net benefit to Canada only on an exceptional basis going forward. The acquisition by SOEs of non-controlling interests, including joint ventures, will continue to be welcome.

The Prime Minister's address followed the announcement by the Minister of Industry, which was communicated by way of press release, of:

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Seminar considers recent developments in competition and foreign investment law

Michael Kilby -

On September 12, my colleagues in the Competition & Foreign Investment Group hosted a breakfast seminar at which many of the recent developments in Canadian competition and foreign investment law were discussed and analyzed. As many of you know, there have been a number of important legal changes in the competition field in recent years. For example, a per se criminal offence for cartel conduct and a new civil provision for reviewing certain types of competitor collaborations have been introduced, competition law-related class action lawsuits have proliferated, a US-style two-stage merger review process has been created, penalties and enforcement activities associated with misleading advertising have been enhanced, and amendments to the Investment Canada Act have come into effect.

During the seminar, Paul Collins, having just returned to Stikeman Elliott following a two-year term as Senior Deputy Commissioner – Mergers Branch, spoke of recent developments at the Competition Bureau with a focus on recent enforcement activities and priorities. Litigator Katherine Kay summarized the current state of play of competition law class actions in Canada, while Shawn Neylan emphasized the importance of implementing an effective competition law compliance program in light of the Bureau’s recent enforcement activities. Meanwhile, Susan Hutton provided an update on and explained the significance of recent amendments and proposed amendments to the Investment Canada Act in relation to enforcement, review thresholds and new filing requirements.

A video and booklet of the seminar are available.

Industry Canada issues long-awaited revised draft Investment Canada Regulations

Ashley Weber and Bessie Qu -

On June 1, 2012, Industry Canada published long-awaited draft amendments to the Investment Canada Regulations. This is the Canadian government's second attempt to implement amendments to the Investment Canada Act passed in March 2009, which raised the review threshold for WTO investors and introduced a new metric threshold for valuing Canadian businesses based on "enterprise value". The amendments also introduce additional notification disclosure requirements that, if implemented, will significantly increase the burden on foreign investors for what has historically been an otherwise straight-forward, administrative post-closing filing.

The switch to "enterprise value" was ostensibly designed to better capture the value of a business as a going concern. However, as discussed in our previous post on May 28, devising a workable definition of "enterprise value" proved more difficult than anticipated when the legislation was amended in 2009. In response, the new draft Regulations establish a more rigorous methodology for calculating enterprise value, addressing some of the concerns raised by the Canadian Bar Association in response to the 2009 amendments. The recommendations that were adopted include:

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Canada announces further changes to foreign investment review regime

Susan M. Hutton and Robert Mysicka -

In the wake of the Canadian government’s announcement that it plans to make targeted changes to the Investment Canada Act (ICA), the Honourable Christian Paradis, Minister of Industry, announced on May 25 that additional amendments will be made to the  ICA and the foreign investment review process.  Other proposed amendments, including the publication of reasons for interim decision, and enabling the Minister to accept the posting of security for the performance of undertakings, had already been announced on April 27, 2012.

The latest proposed changes include:

  • Implementing the increase in the review threshold from C$330 million (based on book value of assets of the Canadian business) to C$1 billion (based on enterprise value) for WTO member countries(part of the 2009 amendments, the implementation of which had been stalled – see below);
     
  •  A new guideline for mediation procedures under the ICA for resolving disputes in relation to compliance with undertakings.
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Federal government announces targeted changes to the Investment Canada Act

D. Jeffrey Brown & Robert Mysicka

On April 26, 2012 the Minister of Finance, Jim Flaherty, introduced the budget implementation legislation, Bill C-38—the Jobs, Growth and Long-term Prosperity Act—which provides for significant amendments to federal legislation in line with the objectives set out in the government’s 2012 Budget Plan

In addition to the government’s budget implementation measures, Bill C-38 includes proposed changes to the Investment Canada Act designed to increase transparency in the foreign investment review process while preserving commercial confidentiality for investors supplying information under the Act. The proposed amendments will also authorize the Minister of Industry to accept security for payment of any penalties ordered by a court as a result of any contravention of the Act, including breach of undertakings given by a foreign investor to secure approval of investments under the Act.

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Supreme Court puts to rest question of Wind Mobile's Canadian ownership - just as feds poised to change the rules

David Elder -

The Supreme Court of Canada has refused to hear an appeal relating to the scope of the authority of the federal cabinet to overturn a CRTC decision concerning whether a telecommunications carrier has met Canadian ownership obligations.

In doing so, the Court has essentially affirmed the eligibility of wireless new entrant Wind Mobile to operate, as well as implicitly endorsed the authority of the federal cabinet to take into account broad policy questions in determining whether to overturn CRTC decisions.

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Government tables foreign ownership amendments to Telecom Act

David Elder -

With the introduction of the federal government’s latest budget bill, Canada is a step closer to lifting foreign ownership restrictions for some telecommunications providers.

In mid-March, the Minister of Industry announced planned changes to the current foreign ownership restrictions that are intended to provide greater access to capital and expertise for new entrants and smaller telecommunications carriers.  Last week’s budget bill, which amends over 50 statutes, contains amendments to the Telecommunications Act that are designed to put these changes to the Canadian ownership rules into effect.

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Ottawa wouldn't block foreign takeover of RIM

Susan M. Hutton and Kim Lawton

On March 30, 2012, Federal Finance Minister Jim Flaherty said his government would not block a foreign takeover of Research In Motion, and RIM would be the master of its own destiny.  The Minister of Finance is not responsible for the Investment Canada Act (that is the purview of the Minister of Industry), and the comment was made without reference to precisely what kind of deal would be on the table, nor presumably what impact such a takeover would have on Canada. That being said, it was welcome news to investors as the share price reportedly rose 7% on the news.

Ottawa did intervene to stop a bid by Australian mining giant BHP Billiton for Potash Corporation of Saskatchewan Inc. in late 2010 following stiff opposition by Saskatchewan Premier Brad Wall, several other provinces and even business leaders. Stikeman Elliott acted for PotashCorp in that transaction.

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Canadian government to loosen foreign ownership restrictions in telecommunications sector

Susan M. Hutton, T. Gregory Kane & David Elder -

As part of its plan to auction rights for the 700 MHz spectrum band, the Canadian government announced yesterday that it plans to amend the Telecommunications Act to lift foreign investment restrictions for telecommunications companies holding less than a 10 per-cent share of the total Canadian telecommunications market.

The Honourable Christian Paradis, Minister of Industry, announced the following commitments designed to provide Canadians with greater choice and lower prices in the market for wireless services

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Increased 2012 thresholds for Competition Act notification and Investment Canada Act review

Susan M. Hutton -

The thresholds for review of acquisitions involving Canadian businesses will soon increase under both the Competition Act and the Investment Canada Act.

The Competition Bureau (Canada) announced on February 7, 2012 that, effective February 11, the pre-merger notification transaction-size threshold for 2012 will increase to Cdn$77 million from the 2011 threshold of Cdn$73 million. The threshold is based on the book value of assets in Canada of the target (or in the case of assets, of the assets in Canada being acquired), or the gross revenues from sales “in or from” Canada generated by those assets, calculated in accordance with the Notifiable Transactions Regulations under the Competition Act. After February 11, 2012, the Competition Bureau must generally be given advance notice of proposed transactions when the acquired assets in Canada or revenues generated in or from Canada exceed $77 million, and when the combined Canadian assets or revenues “in, from or into” Canada of the parties together with their respective affiliates exceed $400 million.

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U.S. Steel agrees to settle Investment Canada enforcement action

Susan M. Hutton and Robert Mysicka -

On December 12, 2011, Canada’s Minister of Industry, Christian Paradis, announced that the federal government has reached an out-of-court settlement in its case against U.S. Steel Corp. for its alleged failure to abide by various undertakings that were conditional to the government’s approval of its acquisition of Stelco, a Hamilton-based steel manufacturer, under the Investment Canada Act.

In September, 2007, U.S. Steel sought to acquire Stelco, and submitted the required application for ministerial review and approval under the Act. The statute requires the Minister of Industry to review a foreign acquisition of control of a significant Canadian business and to approve the change in control only if persuaded that the transaction is likely to be of “net benefit” to Canada, based on prescribed - largely economic - criteria. On October 29, 2007 the Minister approved the transaction, subject to 31 binding undertakings which U.S. Steel agreed to abide by as part of its obligations under the Act. 

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Prime Minister says free market principles will be tempered by reality

Shawn Neylan -

Bloomberg News reported yesterday that in an interview given on September 21, Canada's Prime Minister Harper confirmed that capital from China and other countries is welcome provided that acquisitions of Canadian businesses are “economic in nature and don’t have other strategic or political objectives”.  Bloomberg quoted the Prime Minister as saying "[a]s much of an advocate as I am of free markets, I don’t think that governments realistically can just make the assumption that everybody else is operating on a market basis."

With respect to the BHP-Potash transaction that was rejected under the Investment Canada Act the Prime Minister stated: "If it had been in Australia, to put the shoe on the other foot, I don’t believe that takeover would have been approved. ... I think the objectives of BHP, in fairness, probably were beyond merely what we would consider good business in a market sense, but probably more an issue of strategic positioning, and that strategic positioning was obviously not in the interest of the Canadian economy.”

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Canadian ownership "restored": Federal Court of Appeal puts the Wind back in Globalive's sails

Greg Kane and David Elder -

In a significant decision released yesterday, the Federal Court of Appeal has restored a Federal Cabinet Order that found that Globalive Wireless Management Corp. (Globalive) meets Canadian ownership requirements to operate as a telecommunications common carrier.

As we noted previously, the Federal Court Trial Division had quashed the decision of the Federal Cabinet that found that Globalive, which provides wireless services in Canada under the Wind Mobile brand, met Canadian ownership requirements under the Telecommunications Act

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Federal Court of Appeal affirms constitutional validity of monetary penalties under s. 40 of the Investment Canada Act

Susan M. Hutton and Edwin Mok -

On May 25, 2011, the Federal Court of Appeal released its decision in Canada (Attorney General) v United States Steel Corp. In this decision, the FCA dismissed the appeal of US Steel, affirming the decision of the lower court to the effect that s. 39 and 40 of the Investment Canada Act (ICA) do not violate s. 11(d) of the Charter and s. 2(e) of the Bill of Rights. Accordingly, the constitutional validity of monetary penalties issued by a court under s. 40 of the ICA, in response to a breach of undertaking, has once again been upheld.

By way of background, on July 17, 2009, the Minister of Industry asked the Federal Court to impose retroactive penalties against US Steel under s. 40 of the ICA for allegedly breaching two undertakings made by US Steel as conditions for the Minister’s approval of the 2007 acquisition of Stelco, one of the last Canadian-owned steel companies in Canada. The Act allows for fines of $10,000 per day per breach, until such a time that US Steel complied with the undertakings. US Steel opposed the penalties, arguing that ss. 39 and 40 of the Act violated s. 11(d) of the Charter (the presumption of innocence for persons charged with an offence) and s. 2(e) of the Bill of Rights (the right to a fair hearing in accordance with the principles of fundamental justice). In its June 14, 2010 decision, the Federal Court rejected US Steel’s arguments. It ruled that the s. 40 penalties fell outside the ambit of s. 11(d) because, following the Supreme Court of Canada in R. v Wigglesworth, the penalties were not criminal in nature, nor did they impose true penal consequences. Further, the Federal Court rejected the Bill of Rights argument because US Steel had not been denied natural justice or procedural fairness in this case. US Steel appealed to the FCA, leading to the decision just issued.

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Canada's Merger Control and Foreign Investment Regimes - selected recent developments

Shawn C.D. Neylan and Michael Kilby -

In March 2009, significant amendments to Canada’s Competition Act and Investment Canada Act were passed, with important implications for the regulatory review of mergers and acquisitions. 

Merger Control – Competition Act

Following the amendments of March 2009, Canada now has a “two-stage” merger review process. The merits and demerits of this new regime were never thoroughly debated among competition law practitioners or in Parliament, because the amendments were included in a budget implementation bill drafted in response to the global economic crisis of 2008. The bill moved through the legislative process in a matter of weeks, with the clear focus of parliamentary debate being on economic stimulus measures, rather than amendments to the Competition Act and other statutes. In any event, the new merger review process shares many similarities with the US process under the Hart-Scott-Rodino Act1. More particularly, the submission of the required notification filings by the purchaser and the target company triggers a 30 calendar day waiting period during which the transaction may not proceed, unless the Commissioner of Competition (the Commissioner) issues a positive clearance for the transaction and/or terminates the waiting period. If the 30 calendar day waiting period expires without the issuance by the Commissioner of a supplementary information request (a SIR), then there is no legal impediment to the parties closing the transaction. However, if the Commissioner issues a SIR within the 30 calendar day waiting period, the transaction may not close until 30 days after the parties have complied with the SIR, unless the Commissioner issues a positive clearance for the transaction and/or terminates the waiting period.

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Foreign investment review in Canada: "Be careful what you wish for".

Lawson A.W. Hunter, Q.C. and Susan M. Hutton -

In February, 2011, a Canadian Parliamentary committee began reviewing the Investment Canada Act (ICA) with a view to recommending measures to increase the transparency and effectiveness of the statute. The review was terminated by the federal election called in late-March, but may well recommence in the next Parliament. This article examines recent events leading to the statutory review as well as the various decision-making models under consideration and asks: “Will reforms be of “net benefit” to Canada?”

The ICA applies to the acquisition of control of existing Canadian businesses and to the commencement of new Canadian businesses by non-Canadians. In the case of most such transactions, the foreign purchaser or investor is merely required to file a short notification within 30 days following completion of the transaction, and there is no discretion on the part of the Canadian Government to block the deal from closing or to re-visit it after the fact to impose conditions. Acquisitions of control of large Canadian businesses, however, by persons controlled in WTO-member states (and smaller acquisitions if the business has a “cultural” aspect or neither party is controlled in a WTO-member state) generally require the approval of the Minister of Industry on the grounds that he or she is satisfied that the transaction is likely to be of “net benefit” to Canada, according to a prescribed set of criteria. 

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New Ministers for Investment Canada

Susan M. Hutton -

Canada's Prime Minister, Stephen Harper, unveiled his new Cabinet on May 18, 2011, after winning a majority in Parliament in the May 2 election. Christian Paradis, an MP from Quebec serving since 2006 and former Minister of Public Works and Government Services, has been appointed Minister of Industry Canada, replacing Tony Clement who moved to Treasury Board (to oversee federal government spending). James Moore, an MP from northern British Columbia serving since 2000, was re-appointed to his post as Minister of Canadian Heritage and Official Languages.

The Minister of Industry is responsible for deciding whether to allow foreign takeovers of certain Canadian businesses, either himself on the basis of whether the investment will be of "net benefit to Canada", or (with the ultimate decision being that of the Governor in Council, ie, the federal Cabinet) on national security grounds. The Minister of Canadian Heritage is responsible for "net benefit" reviews of foreign takeovers of Canadian businesses with activities (no matter how dry and seemingly "uncultural") in certain cultural industries (books, magazines, periodicals, newspapers, film, video or audio recordings, music scores, radio, TV, cable or satellite broadcast distribution).

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2011 Investment Canada Act review threshold confirmed

Susan Hutton

The Investment Canada Act threshold for the review of direct acquisitions of control of Canadian businesses (other than those involved in cultural activities) by investors controlled in countries that are members of the WTO (or where control is acquired from sellers controlled in WTO-member countries) has now been officially raised to C$312 million for transactions closing in 2011. The threshold is indexed annually to account for inflation. Legislative amendments passed in 2009 would see this threshold increased to $600 million (rising incrementally over 3 years to $1 billion, and indexed for inflation thereafter), based upon the "enterprise value" of the Canadian business.  These amendments have not been declared in force, however, as regulations defining the meaning of "enterprise value" have not been finalized.

Is Canada still open to foreign direct investment?

Shawn Neylan

As we discussed late last year, the Canadian government recently rejected BHP Billiton's proposed acquisition of PotashCorp. The government's actions have put the Investment Canada Act (ICA), and the process for government approval of proposed transactions, back into the spotlight. On that note, we thought that we'd take this opportunity to answer some frequently asked questions about the legislation.

Q: Is Canada still open to foreign direct investment?

A: Absolutely. Although a recent high profile transaction received a heightened level of public and political attention, and there is also some uncertainty whether there may be a general policy and/or legislative change on the horizon, there is no doubt that the Canadian government is generally supportive of foreign direct investment. Since the ICA came into force a quarter of a century ago, over 99% of reviewable transactions have been approved. As discussed in more detail below, only two transactions were rejected and they each had unique circumstances.  

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Investment Canada says "no" to BHP Billiton takeover of PotashCorp

Susan M. Hutton

On November 3, 2010, Canada's Minister of Industry announced his conclusion that the proposed acquisition by BHP Billiton plc of Potash Corporation of Saskatchewan Inc. was not likely to be of "net benefit to Canada". Although provided a further 30 days to try to convince him to change his mind, BHP Billiton announced on November 14, 2010 that it would withdraw its bid. The Minister's announcement marked only the second time Canada has rejected a foreign takeover under the Investment Canada Act, the first being its rejection of the proposed acquisition by Alliant Techsystems Inc. of the information systems division of MacDonald, Dettwiler and Associates Ltd. in 2008. 

The Minister said that he felt the takeover would not have a beneficial effect on three of the six criteria listed in the Act: Canada's ability to compete in world markets; productivity, efficiency and innovation in Canada; and the country's overall level of economic activity. The proposed takeover had also been vocally opposed by Saskatchewan Premier Brad Wall and generated an unprecedented degree of public commentary and controversy. Following his decision, the Minister said that he would support a review of the 25-year old statute to see how it could be improved in terms of transparency and enforceability. He also indicated that, in the meantime, he would clarify how he interprets the factors he is required to consider in coming to his conclusions on the "net benefit" test. Stikeman Elliott's Lawson Hunter, Susan Hutton and Michael Kilby represented PotashCorp with respect to the Competition Act and Investment Canada Act aspects of the transaction.

Heritage Canada continues review of book publishing policy

Susan Hutton and Megan MacDonald

On July 20, 2010, the Department of Canadian Heritage announced that it would undertake a review of its Revised Foreign Investment Policy in Book Publishing and Distribution (the Book Policy). The Book Policy, which governs foreign investment in the Canadian book industry, was introduced in 1985 and last revised in 1992. The review specifically seeks to determine whether the Book Policy continues:

  • to provide opportunity for healthy competition in the book publishing, distribution and retail industries; and
  • to contribute to the broader government objective of ensuring that Canadian cultural content is created and accessible in Canada and abroad.

To initiate the review process, the Department of Canadian Heritage released a discussion paper in July entitled Investing in the Future of Canadian Books. The paper outlined the motivations for the review, described the structure of the Canadian book industry and discussed the impact of existing foreign investment policies on a variety of cultural industries. The Department accepted responses to a questionnaire included in the discussion paper until mid-September 2010, and these submissions will be posted on the Canadian Heritage website for public comment throughout the month of October. The final consultation phase will involve roundtable discussions to be held in late 2010.

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Foreign investment update - Investment Canada Act filings in the second quarter of 2010

Shawn Neylan and Michael Kilby

In the second quarter of 2010, the Investment Review Division of Industry Canada (IRD) received approximately 142 notifications in respect of the acquisition or establishment of Canadian businesses pursuant to the Investment Canada Act (ICA).  In addition, three Ministerial decisions based on applications for review were made in the second quarter of 2010.  By way of contrast, in the full 2007 year, likely a high water mark for foreign investment in Canada, approximately 676 notifications and 62 Ministerial decisions based on applications for review were made.  Meanwhile, only seven Ministerial decisions based on applications for review have been made in the first half of 2010.

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Court denies stay to US Steel

Shawn Neylan

On July 23, 2010, the Federal Court of Appeal dismissed US Steel’s application for a stay of the Attorney General of Canada’s proceeding against it to enforce Investment Canada Act (ICA) undertakings with respect to Ontario steel mills it acquired in 2007.  The Minister is seeking enforcement of undertakings regarding employment and production levels, and a fine for non-compliance.

The court decided that while US Steel could show that its appeal from a trial level dismissal of its constitutional challenge of the enforcement provision in the Investment Canada Act was not frivolous or vexatious, it had not shown irreparable harm or that the balance of convenience favoured a stay of the enforcement proceeding.

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Foreign investment update - Investment Canada Act filings in the first quarter of 2010

Shawn Neylan and Michael Kilby

In the first quarter of 2010, the Investment Review Division of Industry Canada (IRD) received approximately 115 notifications in respect of the acquisition or establishment of Canadian businesses pursuant to the Investment Canada Act (ICA).  In addition, 4 Ministerial decisions based on applications for review were made.  By way of contrast, in the full 2007 year, likely a high water mark for foreign investment in Canada, approximately 676 notifications and 62 Ministerial decisions based on applications for review were made.

 The key distinction between an application for review and a notification is that an application for review requires that a foreign investor establish for the Minister of Industry  (or the Minister of Heritage in the case of cultural businesses) that a proposed investment is of "net benefit to Canada".  This is usually achieved by providing binding undertakings to the Minister in respect of the future conduct and management of the Canadian business.  A notification does not trigger any approval requirement but is largely an administrative formality.  Applications for review are usually triggered by large, direct acquisitions of Canadian businesses.

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Higher Investment Canada Act threshold still not in force

Shawn Neylan and Michael Kilby

On March 12, 2009, the Government of Canada enacted extensive changes to the Investment Canada Act as part of Bill C-10, the budget implementation bill passed in response to the global economic crisis.  The bill was introduced in Parliament on February 6, 2009 and received royal assent only five weeks later.

In light of the speed with which the amendments were passed, it was expected that it would take some time to prepare implementing regulations that would allow the new law to come into force. Draft regulations were published one year ago, on July 11, 2009. Extensive comments were made on the draft regulations. However, final regulations have not come into force.

The amendments in question, once implemented by regulations, will change the Investment Canada Act review threshold for direct acquisitions by WTO investors from $299 million in gross assets, measured on the basis of current book value (2010 threshold), to $600 million in “enterprise value”, rising progressively to $1 billion in enterprise value over a four-year period.  The clear intent of Parliament was to lessen the number of foreign investments in Canada that would be subject to review and Ministerial approval (usually granted on the basis of binding undertakings).

While it is clear that the calculation of enterprise value raises some difficult technical questions that must be addressed in the final regulations, the amount of time this is taking is delaying the implementation of Parliament’s intent to liberalize Canada’s foreign investment regime and, to the extent this was the case, Parliament’s intent that Bill C-10 be a key part of Canada’s response to the global economic crisis.

US Steel applies for a stay of ICA enforcement proceeding

On July 6, 2010, United States Steel Corporation (USS) filed a notice of motion with the Federal Court of Appeal seeking a stay of the Attorney General of Canada’s (AGC) enforcement proceeding under s. 40 of the Investment Canada Act (ICA), pending determination of the appeal brought to the court by USS in respect of a decision upholding the constitutional validity of s. 40.   The Federal Court issued its decision upholding the constitutionality of section 40 of the ICA on June 14, 2010, and USS filed its notice of appeal on June 24, 2010.

The AGC’s enforcement proceeding seeks the enforcement of undertakings given in 2007 by USS under the ICA in relation to its acquisition of Stelco as well as the imposition of a fine of $10,000 for each day of alleged non-compliance.  The undertakings in question relate to Canadian employment and production levels.  The United Steelworkers and Lakeside Steel have intervened in the AGC’s proceeding to seek damages for lost wages and the divestiture of the former Stelco operations.

USS argues that the possibility of a forced divestiture puts in jeopardy USS’s entire investment in Canada (despite the fact that the Minister has not sought this remedy).  It also argues that if a stay is not granted the hearing of the AGC’s enforcement proceeding will be nearly or fully completed such that USS will be deprived of its right to appeal the order upholding the constitutionality of s. 40.  USS argues that the AGC’s proceeding is fundamentally a retrospective effort in light of the fact that the undertakings are due to expire in October, 2010 and that there would therefore be no prejudice to the AGC if a stay is granted.

Another Chinese oilsands investment approved

On June 25, 2010, the Minister of Industry, Tony Clement, announced that he had approved Sinopec’s acquisition of a 9% interest in Syncrude under the Investment Canada Act.  The Minister stated that he had considered Sinopec’s plans, undertakings and other information and emphasized that the transaction would not change the level of Canadian ownership of Syncrude which will remain at 56%.

Heritage Committee grills Icahn re Offer for Lions Gate Entertainment

The House of Commons Standing Committee on Canadian Heritage has released transcripts of its June 1, 2010 hearing during which representatives of Icahn Enterprises and Heritage Canada testified regarding Icahn’s proposed acquisition of control of Lions Gate Entertainment Corp. (“Lionsgate”). While declining to give evidence with respect to the Investment Canada Act review process, the Icahn representative explained the business rationale of the transaction.  Among other things, Committee members asked whether the Icahn representative was a Canadian and whether he could name a Quebec film.

The June 3, 2010 Heritage Committee hearing transcripts have also been released.  Representatives of Lionsgate testified at this hearing regarding their view that the transaction would not be of net benefit to Canada and should therefore not be approved by the Heritage Minister under the ICA. A Lionsgate representative stated that “I think we have been a very loyal partner to Canada, and Canada has been a very loyal partner to us, and together Canada and Lionsgate have built a major media giant.” Among other things, Committee members asked for the address on his business card.

As noted in an earlier post, the Minister of Heritage approved  the transaction on June 9, 2010 based on commitments given by Icahn in relation to Canadian cultural activities.

Court upholds Investment Canada Act enforcement provision

On June 14, 2010, the Federal Court of Canada released its decision dismissing US Steel’s constitutional challenge of the Investment Canada Act provision providing for enforcement of undertakings that may be given by investors to obtain Ministerial approval of transactions that are subject to the ICA.  The challenge was brought as an application in proceeding commenced by the Attorney General of Canada (“AGC”) for an order enforcing certain employment and capital expenditure undertakings given by US Steel in respect of its 2007 acquisition of Stelco, and for the imposition of a penalty of $10,000 for each day of alleged non-compliance.

The court found that the potential monetary penalty was not penal in nature, but was rather intended by Parliament to promote and ensure the legislative objectives of the Investment Canada Act.  Therefore, section 11 of the Charter, which provides rights to persons who are charged with an offence, did not apply.

The court also found that the procedural rights that were available in the proceeding brought by the AGC were sufficient to conclude that US Steel’s right to a fair hearing in accordance with the principles of fundamental justice under s. 2(3) of the Bill of Rights was not violated.

Industry Minister moots removal of foreign ownership limits for telecoms

The Minister of Industry, Tony Clement, today announced the launch of a public consultation on foreign investment restrictions in the telecommunications sector. The Minister issued a consultation paper that calls for consideration of three options:

  • Increasing the limit for direct foreign investment in broadcasting and telecommunications common carriers to 49 percent;
  • Lifting restrictions on telecommunications common carriers with a 10-percent market share or less, by revenue; or
  • Removing telecommunications restrictions completely.

The consultation period will end on July 30, 2010.
 

Heritage Minister approves acquisition of Lions Gate Entertainment

On June 9, 2010,  the Honourable James Moore, Minister of Canadian Heritage and Official Languages, announced the approval of the Icahn Group’s acquisition of Lions Gate Entertainment Corp.  The Minister stated that his decision “will result in Lions Gate maintaining or increasing Canadian film and television production and protect and preserve Canadian jobs.”  The Minister referred to undertakings being given with respect to employment and film production in Canada, film production in Quebec, distribution rights for Lions Gate films, “providing financial support to organizations that help less fortunate Canadians experience Canadian culture”, and support for cultural events.

The Minister’s decision was announced after the House of Commons Standing Committee on Canadian Heritage had commenced a study on the transaction.

Finance Minister tells China it will continue to have a partner in Canada

A Ministry of Finance news release issued on June 3, 2010, reported that Jim Flaherty, Minister of Finance, addressed a symposium in Beijing. Minister Flaherty was quoted as saying “[a]s we work to ensure a fledgling [global] recovery takes root, [China’s] contribution will become even more important. And, in playing an increasingly important role in the global economy, I’m here today to tell you that you will continue to have a friend and partner in Canada.”

While the news release does not mention recent Chinese investments in Canada, it noted that Minister Flaherty welcomed growing investment and trade between Canada and China.

National Security Notice issued in uranium transaction

On August 18, 2009, the Minister of Industry issued a notice to George Forrest International Afrique S.P.R.L. (GFI), pursuant to section 25.2(1) of the Investment Canada Act (ICA), that its proposed acquisition of Forsys Metals Corporation (Forsys) could be injurious to national security, and that an order for a national security review could be made under section 25.3(1) of the ICA. Forsys is engaged primarily in the development of a uranium deposit in Namibia and has no productive assets in Canada.

The effect of this notice was to prohibit the completion of GFI's acquisition of Forsys, unless and until the Minister issued a further notice that would have the effect of removing the prohibition on closing. The notice letter was only recently made public in the context of litigation between the parties to the transaction. This is believed to be the first national security notice issued under the Investment Canada Act since the national security provisions were enacted in March, 2009.

Investment Canada: threshold watch

Michael Kilby

The Investment Canada Act threshold for review of direct acquisitions of control by WTO investors in non-cultural industries has now been officially lowered to C$299 million for transactions closing in 2010. Draft amendments to the Investment Canada Act regulations that would change the C$299 million (book value of assets) threshold to C$600 million (enterprise value) have yet to be issued in final form, as the government continues to consider comments on the draft.

Lower thresholds for both Competition Act and Investment Canada Act in 2010

Susan M. Hutton

Unless changed by regulation, the "size of target" threshold for advance notification under the Competition Act of transactions involving Canadian businesses will likely be reduced to C$67 million, in accordance with the GDP indexing provisions which were introduced in amendments to the Act last March. The amount will be official once published by the Minister in the Canada Gazette, and until then the previous C$70 million threshold continues to apply.

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Industry Minister Clement Approves PetroChina-Athabasca Oil Sands Corporation Transaction

Today, the Honourable Tony Clement, Minister of Industry, made a statement regarding his approval of an Investment Canada Act application for review made by PetroChina International Investment Company Limited (PetroChina) concerning a proposed purchase of an interest in properties owned by Athabasca Oil Sands Corporation (AOSC). The Minister stated that the transaction is likely to be of net benefit to Canada and described undertakings given by PetroChina regarding expenditures, employment and other matters.

Investment Canada update: National security review regulations promulgated

Susan M. Hutton

The National Security Review of Investments Regulations, establishing the process for national security reviews under the Investment Canada Act (ICA), came into force on September 17, 2009. While the new ability of the Canadian government to screen foreign investment on the basis of national security reflects similar legislation elsewhere (e.g., the so-called Exon-Florio Act in the United States, pursuant to which many investments in the United States are reviewed by the Committee on Foreign Investment in the United States, or CFIUS), the procedure and time-lines are quite different.
 

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Draft Investment Canada regulations released: Details on national security regime and new review threshold

On July 11, 2009, Industry Canada released draft regulations (the Draft Regulations) that will implement certain amendments to the Investment Canada Act (ICA) introduced with the passage of Bill C-10 in March of this year. The Draft Regulations provide prescribed information necessary to implement amendments to the ICA raising the monetary threshold for the review of investments and establishing a process for national security reviews under the ICA, in addition to setting out new information requirements for ICA filings. As there is a 30-day comment period, the Draft Regulations could come into effect as early as mid-August.

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Canadian Competition Bureau unveils Revised Merger Review Process Guidelines and filing requirements

Susan M. Hutton

The Canadian Competition Bureau recently unveiled draft new Guidelines for The Revised Merger Review Process, as well as a proposed Regulation Amending the Notifiable Transactions Regulations1.Both documents are in draft form, with comments requested by May 29, 2009 in the case of the draft Guidelines, and by June 3, 20092 in the case of the proposed Regulation. The sudden implementation of a U.S.-style two-stage merger review process on March 12, 2009 left the Bureau rushing to update the filing requirements, not least because the current Regulation speaks of a choice between a short-form and a long-form notification that no longer exists. The Bureau's draft process Guidelines seek to answer questions concerning "supplementary information requests," the equivalent of so-called "second requests" for documents and information in the United States. The issuance of such a request triggers the second stage of merger review and suspends the waiting period while the parties supply the additional information requested.

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Primer on amendments to Canada's Competition Act and Investment Canada Act

Susan M. Hutton and Kevin Rushton

On March 12, 2009, the Canadian government enacted the most significant amendments in over 20 years to Canada's competition and foreign investment regimes, as part of Bill C-10, the Budget Implementation Act, 2009. The amendments to the Competition Act result in fundamental changes to the way that business operates in Canada, and provide the Competition Bureau with unprecedented enforcement tools and/or penalties in all areas. Fewer foreign investments in Canada will meet the increased thresholds for Ministerial review and approval under the changed Investment Canada Act, but all such investments will face potential scrutiny under a new "national security" test. The most significant amendments to both these laws are discussed below.

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Bill C-10 Competition Act and Investment Canada Act amendments enacted

Jeffrey Brown and Kevin Rushton

On March 12, 2009, the most significant amendments to Canada's competition and foreign investment regimes in more than 20 years were enacted when Bill C-10, the Budget Implementation Act, 2009, received Royal Assent. The amendments were described in detail in the February 20, 2009 edition of The Competitor.
 

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Massive amendments to Competition Act and Investment Canada Act tabled today

Susan M. Hutton

The Canadian Competition Bureau will be pleased today, as significant and far-reaching amendments to the Competition Act and the Investment Canada Act were included in the Budget Implementation, 2009 bill (C-10), which was tabled today in the House of Commons by the Canadian government (see Parts XII and XIII).

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Throne speech promises big changes to Canada's competition and foreign investment regimes

Susan M. Hutton

Canada's 40th Parliament opened on Wednesday, November 19, 2008 with the traditional Speech from the Throne, outlining the government's legislative priorities. In keeping with the turbulent economic times and with calls for greater supervision of business, the throne speech promised to "proceed with legislation to modernize our competition and investment laws, implementing many of the recommendations of the Competition Policy Review Panel."

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Competition Policy Review Panel urges Competition Act, Investment Canada Act reforms

On June 26, the blue-ribbon Competition Policy Review Panel issued its report to the federal Industry Minister on how to raise Canada's standard of living through greater competition and productivity, calling for urgent action to improve Canada's competitive position.

The report, "Compete to Win," is wide-ranging and thought-provoking, canvassing issues ranging from education, immigration, taxation, and securities regulation to specific proposals to amend Canada's competition and foreign investment review laws.  Implementation of all, or even many, of the Panel's sixty-five recommendations would result in fundamental changes to the way business operates in Canada.

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State-owned investors face greater scrutiny in Canada

On December 7, Canada's Industry Minister announced that the Government would apply special guidelines (the Guidelines) to the review of Canadian investments by state-owned enterprises (SOEs) under the Investment Canada Act (the ICA), Canada's foreign investment review legislation.  In brief, the Guidelines:

  • Focus on the governance and commercial orientation of SOEs;
  • Outline factors that the Government will use to assess adherence to Canadian standards of corporate governance;
  • Identify considerations for determining whether the SOE will operate the Canadian business according to commercial principles;
  • Offer examples of the types of binding commitments that SOEs may be required to provide.
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Amended gift card legislation in Ontario

As we approach the holiday season, recent changes to the laws in Ontario around gift cards should be borne in mind.  In particular, since October 1, 2007 gift cards can no longer be issued in Ontario with an expiry date, with very limited exceptions.  In most cases, if gift cards are issued with an expiry date, the law now requires that the expiry date be ignored.

Additionally, as a result of the amendments, gift cards must be issued for the full value of the payment by the consumer - no charge can be levied for the issuance of the card. Furthermore, any permitted fees and all restrictions, limitations and conditions that the supplier imposes must be set out in writing.

Click here to view the amended regulations to the Consumer Protection Act.

Canada considers changes to foreign investment review

Kevin Rushton, Susan M. Hutton

On October 9, 2007, Canada's Minister of Industry, Jim Prentice, announced that, this fall, the Canadian government "will examine the need for guidelines on takeovers by state-owned enterprises" and will "carefully consider the creation of an explicit national security test" in the context of foreign investment review under the Investment Canada Act.1

Speaking before the Vancouver Board of Trade in a widely-anticipated address, Minister Prentice emphasized that "Canada is open for business", but said that safeguards must be put in place to protect Canadian interests.  With respect to investments by entities owned or controlled by foreign governments, Minister Prentice explained that the "government's concern is not with the ownership of the foreign capital being invested", but rather with "ensuring that state-owned enterprises in Canada are operating under the same standards as any other commercial enterprise operating in Canada, including those related to transparency, good governance practices and whether they operate according to free market principles."  With respect to national security considerations, Minister Prentice noted that several countries have the means to review and block foreign investment on national security grounds, and commented that the lack of a national security test in Canada for foreign investment is "an oversight that should be addressed."

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Bill C-11: Changes to the Canada Transportation Act

Susan M. Hutton and Ian Disend

Bill C-11, An Act to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other Acts, received Royal Assent on June 22, 2007. Bill C-11 changes the merger review regime for all transactions involving transportation undertakings which transactions otherwise are required to be notified under Part IX of the Competition Act.

According to the new provisions of the Canada Transportation Act, when notification is required under s. 114(1) of the Competition Act, parties to a proposed transaction involving any "transportation undertaking" (as opposed to only air transportation undertakings, as before) must now give notice to the Minister of Transportation (the Minister). The requirement that the Canadian Transportation Agency (the Agency) must also be given notice for air transportation undertakings remains unchanged.

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Canada considers Investment Canada Act amendments: Potential focus on foreign state-owned investors

The Investment Canada Act (the Act) has returned to the national spotlight. As part of the long-term economic plan released in late November called Advantage Canada: Building a Strong Economy for Canadians,iCanada's Minister of Finance announced, among other things, his intention to review the Act "with the aim of maximizing the benefits of foreign investment for Canadians, while retaining our ability to protect national interests." While identifying screening procedures under the Act as a factor that restricts foreign investment in the Canadian economy (and stating unequivocally that "both inward and outward foreign direct investment bring substantial benefits to Canada"), the report also noted concerns arising from the "rare" occasions when take-overs of Canadian businesses might damage Canada's long-term interests.

The only example cited was that of investment in Canada by a foreign state-owned enterprise (SOE) with "non-commercial objectives and unclear corporate governance and reporting." As has recently been the subject of some discussion in Canada (see below), the acquisition by a foreign SOE of a significant stake in Canada's natural resources might trigger a concern that such resources would simply be funnelled back to the investor's home country and not sold on the open market. One could also imagine, however, that investment in a defence-related industry by a hostile government might not be in Canada's "long-term interests." Moreover, in the highly charged post-9/11 world of international politics, other grounds may also be raised in opposition to certain investments.

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Proposed amendments to the Canada Transportation Act: Uncertainties exacerbated

Jeffrey Brown and Alexandra Stockwell

On May 4, 2006, the Honourable Lawrence Cannon, Minister of Transport, Infrastructure and Communities, introduced amendments to the Canada Transportation Act (CTA). Minister Cannon promotes the changes as balancing the interests of communities and consumers with those of air and rail carriers, leading to "a transportation framework that can better meet future economic . challenges." However, the amendments, if enacted, could also present unforeseen challenges to some Canadian businesses, especially in terms of mergers and acquisitions.

Bill C-11, An Act to Amend the Canada Transportation Act and the Railway Safety Act, is similar to Bill C-44, brought forward by the previous government in its dying days. The amendments are described by the government as introducing a public interest review process for mergers and acquisitions of all federally regulated transportation services. At present, the CTA's provisions relating to merger and acquisition review are found in Part II of the Act, and apply only to air transportation undertakings. The amendments would move the provisions to Part I of the Act, making most of them applicable to all transportation undertakings. Canadian control and ownership requirements, however, would not extend to all forms of transportation, but rather would continue to apply exclusively to air transport services.

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Canada's Foreign Investment Review Threshold Increased

While foreign investment review thresholds have been increased, the scope and application of Canada's foreign investment legislation remains unchanged.

The Canadian government has increased the foreign investment review threshold in respect of all transactions closing in 2006 that involve acquisitions of control of Canadian businesses. Specifically, the monetary threshold for review of investments by WTO investors based in WTO-member countries has been increased from $250 million1 to $265 million, unless one of the exceptional circumstances discussed below applies.

The increased threshold is thanks to the inflationary indexing formula prescribed under the Investment Canada Act (the ICA), rather than a liberalization of Canada's foreign investment policy per se. In fact, the "rules" of foreign investment review have not changed. All acquisitions of control of a Canadian business (i.e., a business carried on in Canada that has a place of business in Canada, an individual or individuals in Canada who are employed or self-employed in connection with the business and assets in Canada used in carrying on the business) by a "non-Canadian" are subject to the provisions of the ICA - even where the Canadian business is already foreign-controlled (e.g., a Canadian subsidiary of a U.S. corporation). One common misconception is that the use of a Canadian-incorporated acquisition vehicle takes the transaction outside the scope of the ICA. This is not the case; the nationality of the persons ultimately controlling the acquisition vehicle is determinative for ICA purposes.

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Bill C-19 Dies as Canadian Federal Election is Called

With the fall of Canada's Liberal minority government on November 28, 2005, Bill C-19, An Act to Amend the Competition Act and to Make Other Consequential Amendments, died on the order paper. While the outcome of the January 23, 2006 federal election is unclear, re-introduction of the Bill in 2006 seems likely. Meanwhile, on October 6, 2005, the Government had announced amendments that would have increased the criminal fines for anti-competitive conspiracies from a current maximum of CDN$10 million to a maximum of CDN$25 million per indictment. The new proposals would also have provided the Commissioner of Competition with the authority to conduct broad-ranging studies of competition in a market - even when she does not believe there are grounds for an order pursuant to the Competition Act.

Bill C-19 was originally introduced to Parliament in the Fall of 2004, and was under review by the House Standing Committee on Industry, Science and Technology since that time.

The newly introduced amendments were in addition to those initially proposed in Bill C-19, which included, among other things, proposals to:

  • repeal the existing criminal provisions in the Competition Act dealing with price discrimination, predatory pricing and discriminatory promotional allowances; and

  • enable the Competition Tribunal to order the payment of an administrative monetary penalty up to a maximum of CDN$10 million (first order) or CDN $15 million (subsequent orders) under the abuse of dominance provisions of the Competition Act.

 

 

Proposed Amendments to the Investment Canada Act: Protection or Protectionism?

The Honourable David L. Emerson, Minister of Industry, announced on June 20, 2005 that the Government of Canada is introducing legislation "to update Canada's foreign investment legislation." Although Minister Emerson has indicated that the proposed amendments reflect ".an update of our security system, not a change in our investment policy," they could, if enacted, present a significant hurdle to foreign investors.

Bill C-59, An Act to Amend the Investment Canada Act, would enable the Governor in Council (upon the recommendation of the Minister of Industry) to review any foreign investment that, in the opinion of the Governor in Council, "could be injurious to national security," regardless of the value of the assets of the target Canadian business. In contrast, generally speaking, foreign investments in Canadian businesses are currently reviewable only if the asset value of the Canadian business exceeds an established financial threshold.1

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Amendments to Canada's Competition Act Could Pass this Spring

Susan M. Hutton and Patricia Martino

As reported in the March, 2005 edition of this newsletter, the House of Commons Standing Committee on Industry, Natural Resources, Science and Technology resumed consideration of Bill C-19 on March 9, 2005, after a hiatus of several months due to political skirmishing between opposition parties and the minority government members of the Committee. Further witnesses appeared on March 23, 2005. Although more witnesses may appear, it is still possible that Bill C-19 may become law this spring. So far, the Bill appears to have general all-party support, despite the opposition of some witnesses to certain aspects of the Bill.

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Bill C-249: The Efficiencies Debate Continues

The amended Bill C-249 would significantly restrict application of the ''efficiency defense'' for mergers under section 96(1) of the Competition Act.

As reported in the March 2003 issue of The Competitor, the Federal Court of Appeal, in a January 31, 2003 decision, upheld the Competition Tribunal's determination that efficiencies to be generated by the merger of Superior Propane Inc. with ICG Propane Inc. would outweigh its  anticompetitive effects, thereby "saving" the merger pursuant to section 96(1) of the Competition Act, the so-called "efficiencies defence."  On March 31, 2003, the Commissioner announced that he would not seek leave to appeal the decision from the Supreme Court of Canada.

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