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

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

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

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

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

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

Background

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

In March 2009, the minister of industry issued...