On March 30 of this year, in response to a question about whether the Canadian government would permit a takeover of Blackberry maker Research In Motion, Canadian Finance Minister Flaherty commented that shareholders of Research In Motion were the “masters of their own destiny”. This comment was widely reported as signalling the Canadian Government’s openness to a foreign takeover of the Canadian icon and was good news for foreign investors.  

On Friday, April 27, the Government turned to placating critics of the process for foreign investment review. Through its Jobs, Growth and Long‐term Prosperity Act, the Government is proposing amendments to the Investment Canada Act (the ICA) that would enhance transparency and facilitate payment of fines in the event a court found a foreign investor had failed to comply with the statute.  

Enhanced Transparency

One of the criticisms levelled against the ICA is that the review process is too secretive and as a result, the Minister cannot be held accountable for his decisions. Among foreign investors the concern is that the review process is unpredictable and political ‐ particularly in the wake of the Government’s failure to explain why it had rejected BHP Billiton’s bid for Potash Corporation of Saskatchewan (PotashCorp.) in November 2010. Under the ICA, there was no requirement to issue a decision because BHP Billiton withdrew its bid following the Government’s provisional rejection of the deal and the current wording of the ICA only mandates the Minister of Industry to issue reasons for a final decision not to approve a foreign investment (the Minister is not required to issue reasons for an approval, but may do so).  

The proposed amendment to the act addresses the transparency concern, although to a limited extent. As an exception to the confidentiality provisions of the ICA, public disclosure would be permitted of notices of provisional disapprovals ‐ following which an investor has 30 days to offer additional representations and undertakings ‐ as well as of reasons given by the Minister for such notice (the ICA already permits disclosure of notices of approval). Such disclosure is a welcome development as it would clarify the factors the government considers in making decisions under the act. However, the Minister would still not be required to issue reasons for a provisional disapproval or for an approval. In addition, it is important to note that disclosure is subject to the limitation that the Minister cannot communicate or disclose “financial, commercial, scientific or technical information” that would prejudice the foreign investor – an important safeguard of commercial confidentiality – although one that advocates of tougher scrutiny of foreign investment in Canada may criticize.  

Security for Payment of Penalties

The Government’s proposed amendment states that the Government may accept security for payment for a penalty under the act and permits public disclosure of the acceptance of such security. The idea of an investor offering a performance bond may stem from BHP Billiton’s proposed undertaking to the Government in connection with its bid for PotashCorp: BHP Billiton offered to provide a performance bond of $250 million to reassure the Government of its commitment to comply with its proposed undertakings.  

The ICA provides that a court may order a penalty of $10,000 for each day of contravention of the act, including a failure to fulfill undertakings given in connection with an investment. Although this provision has never been used, the Canadian Government asked the court for such a penalty in its lawsuit against US Steel for an alleged failure to comply with undertakings given in connection with its 2007 takeover of Stelco (in December 2011 US Steel settled the dispute with the Canadian Government, committing to make additional capital investments in its Canadian facilities and to operate certain Canadian plants until 2015).  

The proposed amendment on security for payment addresses public scepticism that foreign investors are not held accountable for their commitments to the Canadian Government. However, it is a relatively unremarkable step given that enforcement activity against foreign investors is rare. Moreover, there is no guidance regarding the nature of the security that would be acceptable.  

In sum, the Government’s amendments can best be described as a “modest proposal” to allay concerns about the transparency and rigour of the foreign investment review process. As such, they are unlikely to completely mollify critics of the process – neither the sceptics who believe that Canada’s national interests are not being sufficiently protected nor the foreign investors seeking greater predictability and certainty.