Globalive wins, but control-in-fact is ‘contextual’ and ‘imprecise,’ appeals court says

Globalive Wireless Management Corp. celebrated a major court victory Wednesday that struck down a lower court ruling and upheld the federal cabinet’s decision that said the company is Canadian-owned. But the decision acknowledged that the court challenge raised important issues about a foreign ownership control-in-fact test that is “contextual” and “somewhat imprecise.” The unanimous ruling, issued by a three-member panel of justices at the Federal Court of Appeal, permits Globalive to continue operating as a Canadian-owned wireless carrier in Canada. The court decision said that cabinet’s order-in-council ruling—which reversed an earlier CRTC decision that said Globalive was controlled “in fact” by a foreign company—did not consider policy objectives in when it applied the control-in-fact test. “It is clear that, in reaching its decision on control in fact, the Governor in Council decided the issue without referring at all to any policy issues,” Justice J. Edgar Sexton wrote in the ruling. The two other justices on the panel, Eleanor R. Dawson and David Stratas, supported the decision. On Feb. 4, 2011, the Federal Court struck down the Conservative government’s order-in-council decision, issued in late 2009. Fellow new wireless entrant Public Mobile Inc. had taken issue with the order-in-council decision and filed a judicial review with the Federal Court. Now that lower court decision has been overturned. Globalive chairman Anthony Lacavera told BNN in an interview Wednesday that the regulatory uncertainty hanging over the company had affected its access to capital markets. “This has gone on way too long and we're happy to see it end,” Lacavera said. “It's never been an issue of foreign investment. It's an issue of degree and scale and this kind of thing. We've always maintained our compliance and we're happy to see the court agree with us.” The CRTC had ruled in 2009 that, due to Globalive’s debt with Egyptian telco Orascom Telecom Holding SAE, the company was controlled “in fact” by non-Canadians. Orascom owns a majority of Globalive’s debt. But the government's subsequent order-in-council decision allowed Globalive to enter the Canadian market with wireless operations under the Wind Mobile brand. The control-in-fact test goes beyond basic legal requirements to look at other ways 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. Globalive passed the standard foreign investment limits under the act, which restrict foreign capital to to 20 per cent direct investment in the carrier and 33 per cent indirect investment in the holding company. Lacavera said now that legal and regulatory risks are “finally off the table,” the company can go back to its investors, particularly Orascom. “We're able to go to them now as strategic investors and truly leverage the strengths that they can bring to the table: handset buying power, equipment buying power, vendor financing. All these things are going to be more accessible to us now that we're through this court decision,” Lacavera said. Public Mobile said in a release Wednesday that it plans to appeal the decision to the Supreme Court, noting that “having access to foreign capital is an advantage that it would also like bestowed upon it.” "There have been five different decision makers in this process with a flip-flopping of the decision each time," Public Mobile CEO Alek Krstajic said in a statement. “Industry Canada, the CRTC, the Governor in Council ... the Federal Court and now the Federal Court of Appeal have reached conflicting verdicts. Today's decision shows us just how clouded this issue has become and demonstrates more than ever the national importance for consistent rules that should be applied equally to all Canadian wireless carriers. If you're going to change the rules, change them equally for everyone, not just for WIND.” Public Mobile pointed out that Sexton's decision acknowledged that the court challenge “clearly raised serious issues relating to the interpretation of the Act as well as the application of the control in fact test in this case.” The company said it wants those issues settled so that they are applied equally for all carriers. Sexton wrote in the court decision that the disagreement between the CRTC and the government came down to a different “appreciation” of the situation. “The divergence between the CRTC and Governor in Council comes in the factual inferences, or conclusions, the Governor in Council drew from the evidence,” Sexton wrote. “The Governor in Council simply had a different appreciation of things, and that appreciation was rational and defensible.” Sexton said the government determined that Globalive “was not controlled by a non-Canadian” before considering whether to vary the CRTC decision, at which point policy considerations “became relevant.” Policy considerations came into the order-in-council decision at paragraph 22, Sexton said, where the government had already determined that Globalive was Canadian. “In my view, 22 provides the clearest indication that policy considerations played a role only at this stage of the Governor in Council’s analysis, and that the Governor in Council, prior to taking into account policy considerations, had already decided that Globalive was not controlled by a non-Canadian,” Sexton wrote. “To be specific, the Governor in Council in effect was saying that Canadians are entitled to a more competitive wireless telecommunications market, and that this would be frustrated by Globalive, a Canadian owned and controlled company, being prevented from operating.” At a hearing on May 19, Public Mobile lawyers told the appeals court justices that the government did not follow the foreign ownership test’s “recipe” because it included a policy objectives in its assessment. Although Sexton wrote that the government did not consider policy objectives in applying the control-in-fact test, it “would have been correct to do so.” He wrote that the government is not limited to assessing control-in-fact the way a corporate lawyer would. “he fact Parliament chose to grant the Governor in Council the right to review the CRTC’s application of the control in fact test implies the decision was intended to incorporate policy concerns when appropriate,” he wrote. “The control in fact test is also necessarily contextual and somewhat imprecise. Determining where control in fact lies may require weighing a number of competing factors. The Governor in Council may legitimately consider the statutory context in deciding how to strike this balance.” news@thewirereport.ca

Globalive wins, but control-in-fact is ‘contextual’ and ‘imprecise,’ appeals court says

News | June 8, 2011

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