Digital Brain
digital brain
digital brain

China Mobile Case Raises National Security Hang-up

October 25, 2021 Foreign Investment and International Trade Bulletin 2 minute read

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

Key Takeaways

This is the second litigated challenge of a national security review under the ICA. While the Canadian Government conducts national security reviews for around 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 commence a national security review at any point until 45 days after an investor submits a completed notification under the ICA.
  2. The Government appears to be considering a broad range of factors when it makes a national security assessment particularly where the Canadian business does not own or operate any physical or technical infrastructure.
  3. The Government might not provide investors or Canadian businesses with complete information about the Government’s case, but that issue will likely be the subject of the ongoing litigation.

Additional Background

In 2015, China Mobile Communications Group Co., Ltd. (“China Mobile”) established its Canadian operations through a Canadian subsidiary, China Mobile International (Canada) Inc. (“CMI Canada”). CMI Canada supplies pre-paid call plans, mobile communication services, and business support services (e.g., marketing) but does not own or operate any telecommunications network facilities or infrastructure. Instead, CMI Canada partnered with Telus to provide CMI Canada customers with access to the Telus network.

China Mobile did not file an ICA notification when it established CMI Canada and only filed its notification five years later after being contacted by the Government. Over the three months following submission of the notification, the Minister issued requests for information, and, on January 28, 2021, informed China Mobile that a national security review was underway. The review concluded on August 9, 2021, when China Mobile received the Order.

This decision highlights the Government’s authority to review inbound foreign investments when they involve changes of control or the establishment of a new Canadian business. The ICA contemplates a 200-day review process, but the process can be extended on consent of the investor. Indeed, the review in the CMI Canada matter lasted approximately 300 days.

As this case progresses through the courts, investors may 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 about the grounds for conducting a national security review or the reasons for an Order. The court process could change the practices around disclosure and reveal factors beyond more conventional security concerns that inform Government decisions to block or unwind inbound investments in Canada. The only prior national security review case challenged in court did not result in a decision.

Please reach out to us, or to your usual McMillan contact, if you have any questions about these developments, or in connection with a new investment in Canada.

by Joshua Krane, Stephen Wortley, and Connor Campbell

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2021

Insights (5 Posts)

Featured Insight

Corporate Counsel Webinar | Beyond the Basics: Tools and Strategies to Create a More Inclusive Legal Work Environment

Join our guest speaker, Jodie Glean-Mitchell, Executive Director of Equity, Diversity and Inclusion, from the University of Toronto as we invite participants to dive deeper into the intricacies of intersectional identities and experiences with (micro)aggressions and their implications for the legal work environment.

Details
Tuesday, December 13, 2022
Featured Insight

The Exclusion of Intrusion Upon Seclusion: Ontario Court of Appeal definitively determines that “Database Defendants” cannot be held liable for intrusions committed by third-party hackers

The Court of Appeal for Ontario released a trio of decisions that materially impact the viability of class actions following a data breach.

Read More
Dec 1, 2022
Featured Insight

20 More Years of Copyright Protection Starting December 30, 2022

The extension of general copyright protections from 50 years to 70 years after the life of the author shall come into force on December 30, 2022.

Read More
Nov 30, 2022
Featured Insight

Canada Embraces the Indo-Pacific: New Canadian Strategy Expands Opportunities for Two-way Trade and Investment

Canada announces new Indo-Pacific Strategy, applies to join Indo-Pacific Economic Framework, and what it all means for Canadian businesses.

Read More
Nov 30, 2022
Featured Insight

Reporting Issuers Need to be Factual and Balanced, Striving for Accurate and Comprehensive ESG reporting

The CSA cautions issuers against overly promotional "greenwashing" language in continuous disclosure in its biennial report - Staff Notice 51-364.

Read More
Nov 30, 2022