Lawyers argue whether government ‘applied the recipe’ for Globalive decision

OTTAWA--The federal cabinet rewrote “the recipe” of the foreign ownership test when it included an interpretation of the Telecom Act in its decision to overturn a CRTC ruling on Globalive Wireless Management Corp., lawyers for Public Mobile Inc. told the Federal Court of Appeal Wednesday. Public Mobile legal counsel John Laskin told the court that there’s a “mandatory recipe” to determine foreign control set out by Parliament in section 16 of the Telecom Act. “he Governor in Council was not entitled to take that recipe and rewrite it by introducing ingredients that have nothing to do with ownership and control,” he said. The “ingredient” under scrutiny Wednesday is contained in what lawyers commonly referred to as “the 11th recital,” a “whereas” clause in the preamble to the federal cabinet’s order-in-council decision last year, which cleared the way for Globalive to operate as a Canadian wireless carrier under the Wind Mobile brand. The 11th recital clause says the Telecom Act restricts the ownership of voting shares by non-Canadians but does not limit foreign investment, and that the act “should be interpreted in a way that ensures access to foreign capital, technology and experience is encouraged …” On Feb. 4, 2011, the Federal Court struck down the Conservative government’s order-in-council decision, which in late 2009 had overturned an earlier CRTC ruling. The CRTC had ruled that, due to Globalive’s debt with Egyptian telco Orascom Telecom, the company was controlled “in fact” by non-Canadians. Orascom Telecom owns a majority of Globalive’s debt. Globalive and the federal cabinet were in a hearing Wednesday to appeal the Federal Court decision. Public Mobile, Telus Corp. and a coalition of cultural groups are also involved in the proceeding, arguing that the Federal Court decision should stand. Laskin said cabinet erred and exceeded its jurisdiction “in proceeding on the basis of an interpretation that the words of Parliament do not permit.” Lawyers for both Globalive and the government strongly disagreed with Public Mobile’s argument and much of the court’s time Wednesday was taken up with whether the 11th recital coloured cabinet’s application of the control-in-fact test. The control-in-fact test goes beyond basic legal requirements to look at other ways that a foreign entity can influence a Canadian company, such as the amount of debt lent by a holding company or the number of non-voting but participating shares. Representing the government, counsel Robert MacKinnon said cabinet applied a two-step process when it overturned the CRTC decision. First, it applied the control-in-fact test; second, it decided whether to vary the decision. Policy considerations only entered during the second step, he said. Justice J. Edgar Sexton noted the sequence of the order-in-council decision, in which the 11th recital appears before the ruling. “hat appears first is the reference to the policy, and the finding on control appears much later,” he said. But MacKinnon said cabinet addressed the question of ownership before deciding to vary the CRTC ruling. “They didn’t vary in any way the legal requirements for the control-in-fact test,” he said. Globalive counsel Thomas Heintzman added that the cabinet applied the “Canadian Airlines test” to determine ownership, the same test the CRTC used, and that the sequence doesn’t matter. The question is not the order-in-council ruling’s schedule, he said, which everyone agrees contains the reasons for the decision. “It’s not a matter of how the governor-in-council got to Canadian Airlines,” he said. “It got to it. It applied it to Canadian Airlines and I respectfully submit that that’s the end of the matter.” Public Mobile counsel Michael Ryan said that while the issue of control is analyzed in the decision, the 11th recital demonstrates that cabinet’s “thinking about these issues is influenced by something that’s an extraneous consideration.” Following an analysis of Globalive’s debt to Orascom, the order-in-council states in paragraph 20 of that “the debt financing provided by Orascom does not enable it to control in fact either the strategic or operational decisions of Globalive.” Justices David Stratas and Eleanor Dawson pressed Ryan on whether the order-in-council decision satisfied the control-in-fact test. “If you ignore the recitals and look solely at paragraphs 18 and 20, is there an error in law in factors considered by the governor-in-council?” Dawson asked. Ryan said that there wasn’t. Laskin added that was not a fair exercise. “The problem is that having been obliged to give reasons and setting out reasons that incorporate a flawed view of the statute, one can’t then just set that aside and read 18 and 20 in isolation,” he said. The paragraphs must be read as flowing from the recitals, he added. In a closing argument, Heintzman honed in on the justices’ interrogation. “I respectfully submit the refusal of the respondent to answer the question, ‘Did the governor in council apply the recipe?’” he said. “Three times in argument Mr. Ryan was asked that question and finally he acknowledged, ‘Yes, the GiC applied the recipe.’ That can be the only conclusion. That’s what the governor in council says in the recitals. That’s what the governor in council says in the schedule.” The government agreed. MacKinnon said the objections are based on a misreading of the order-in-council and that cabinet had not imported a policy component into the control-in-fact test. The court justices did not issue a decision Wednesday. Some lawyers also addressed what may be next for Globalive if it loses the appeal. Telus counsel Kenneth Jull said Globalive could return to the CRTC and demonstrate what it’s done to meet the ownership requirements. But Heintzman said Globalive would be ineligible to do business in Canada and that it’s too late to return to the commission. He said the case should be referred back to cabinet if not set aside entirely. mburgess@thewirereport.ca

Lawyers argue whether government ‘applied the recipe’ for Globalive decision

News | May 19, 2011

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