Published: October 2016Contents
i) What are the hot topics?
Canada’s prime minister, Justin Trudeau, has positioned Canada as being open to foreign investment. Indeed, his mandate letter to the Minister of International Trade instructed the Minister to ‘attract job-creating investment to Canada, focusing on expanding trade with large fast-growing markets, including China and India. His Minister of Finance told reporters in August 2016 that Canada may consider relaxing its restrictions on state-owned enterprise (SOE) investment. However, after one year in office, Trudeau has not formally changed Canada’s approach towards certain foreign investments – most notably, the policy of the previous Conservative government discouraging further controlling investments in Canada’s oil sands made by SOEs. With both oil prices and the Canadian dollar remaining depressed, the economic conditions are ripe for further significant acquisitions of Canadian businesses by non-Canadians (including, potentially, SOEs), which may test the prime minister’s commitment to encouraging foreign investment in Canada.
ii) Tell us about any key legal developments – recent or pending – and their international impact.
The most high-profile ongoing enforcement matter under the Investment Canada Act concerns an application for judicial review by a non-Canadian investor, O-Net Communications Group Ltd (O-Net), which acquired a Canadian optical communications business, ITF Technologies Inc (ITF), in January 2015. After closing, O-Net received an order requiring it to divest ITF within 180 days on the basis that the investment would be injurious to national security. On 10 August 2015, O-Net filed an application for judicial review, challenging the lack of information that it had received regarding the national security review process (the government had not provided any reasons explaining why O-Net’s investment would be injurious to national security, nor had it afforded O-Net an opportunity to respond). A decision on the ability of investors to access government information regarding a national security review will be of interest to any foreign investor looking to acquire a Canadian business.
iii) What are the biggest opportunities and challenges for practitioners and clients?
Investment in Canadian businesses remains a significant opportunity for non-Canadian investors, and the vast majority of reviewable investments by non-Canadians continue to be approved under the Investment Canada Act.
Historically, foreign investors have focused on natural resources in Canada. However, controlling investments in Canada’s oil sands by SOEs have been chilled by the government’s 2012 policy statement indicating that, going forward, such investments will only be approved in exceptional circumstances. The current Liberal prime minister’s implications that he is more open to foreign investment could be a renewed opportunity for SOEs to test how flexible the government will be in applying this policy.
The most significant challenge for practitioners remains obtaining approval of reviewable investments in a timely manner and subject to commitments made to the government that are acceptable to the relevant non-Canadian investors.