Tuesday, January 11 2022

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On August 6, 2021, the Governor in Council issued an Order in Council under the Investment Canada Act (ICA) requiring a Chinese state-owned telecommunications company to divest or liquidate the operations of its Canadian subsidiary within 90 days (the “OrderThis followed a national security review that began in early 2021. On September 7, 2021, the company filed for judicial review challenging the order.

Key points to remember

This is the second contentious challenge to a national security review under the ICA. As the Canadian government conducts national security reviews for about 1% of foreign investment transactions per year, the number and percentage of interventions is increasing. This case raises three important points for businesses to consider:

  1. The government can begin a national security review any time up to 45 days after an investor has submitted a completed notification under the ICA.
  2. The government appears to take a wide range of factors into account when performing a national security assessment, particularly when the Canadian company does not own or operate any physical or technical infrastructure.
  3. The government may not be providing investors or Canadian companies with complete information on the government’s case, but this issue will likely be the subject of the ongoing litigation.

Additional context

In 2015, China Mobile Communications Group Co., Ltd. (“China mobile“) established its activities in Canada through a Canadian subsidiary, China Mobile International (Canada) Inc. (“CMI Canada“). CMI Canada provides prepaid calling plans, mobile communication services and business support services (eg with access to the Telus network.

China Mobile did not file an ICA notification when it created CMI Canada and did not file its notification until five years later after being contacted by the government. Within three months of submitting the notification, the minister issued inquiries, and on January 28, 2021, informed China Mobile that a national security review was underway. The review ended on August 9, 2021, when China Mobile received the order.

This ruling highlights the government’s power to review incoming foreign investments when they involve changes in control or the establishment of a new Canadian business. The CIA is considering a 200-day review process, but the process can be extended with the investor’s consent. In fact, the examination of the CMI Canada case lasted approximately 300 days.

As this case progresses through the courts, investors can learn more about the Minister’s reasoning and the evidence that led to the order. Typically, the Minister does not provide detailed reasons to the investor on the grounds for a national security review or the grounds for an order. The court process could change disclosure practices and reveal factors beyond more conventional security concerns that inform government decisions to block or unwind inbound investments into Canada. The only previous national security review case challenged in court has not resulted in a decision.

The foregoing is only an overview and does not constitute legal advice. Readers are cautioned not to make a decision based on this document alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2021

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