LEXPERT MAGAZINE
|
JULY/AUGUST 2016 61
| IN-HOUSE ADVISOR: NATIONAL SECURITY REVIEWS |
issues that are going to make a difference.
e people at ISED are very good, but this
is evolving deal by deal."
With only a dozen or so of 700 pro-
spective foreign sales or investments a
year becoming public due to the need for
Ministerial review, there are presumably
dozens that are turned down on national
security grounds and no one but the parties
involved ever knows. at has led to com-
plaints the process is far too opaque.
John Bodrug, a partner at Davies Ward
Phillips & Vineberg LLP in Toronto,
points out that "nobody knows the full ex-
tent of reviews blocked, or why, because if
it is not a 'reviewable' transaction it never
becomes public."
One that did, though, was a Chinese
company's 2014 plan to invest $30 million
to build a massive fire-alarm manufactur-
ing plant in St. Bruno, Q ue. Almost a year
aer the official ground-breaking ceremo-
ny, attended by high-level local and pro-
vincial officials, La Presse reported Ottawa
had rejected the location as too close to the
Canadian Space Agency.
e deal was too small to require Invest-
ment Canada pre-notification, so the trans-
action had closed before the company was
ordered to find another property if it still
wanted to go ahead.
Another example was China's O-Net
Communications (now O-Net Technolo-
gies), which bought a Saint-Laurent, Q ue.,
firm that specialized in the manufacture of
fibre components and modules.
e government said aer the transac-
tion closed that the $5-million acquisition
was harmful to Canada's national security
and gave O-Net 180 days to divest itself of
the business.
O-Net applied for a judicial review, say-
ing that, for one thing, the previous com-
pany was owned by a French entity, and for
another, that when it went bankrupt "there
were no Canadian investors or investors
from anywhere in North America that
were willing to invest."
Bodrug says sometimes the problem in-
volves only a very small part of the acquirer
or investor's business, "and that maybe
somewhere there could be some room for
dialogue [with
ISED]. Maybe that part of
the business could be spun out.
"It might be helpful to initiate a clear-
ance procedure. In Canada, unless you're
a reviewable transaction or it's considered a
control investment, there isn't a mechanism
to go and get clearance ahead of time."
Oliver Borgers, a partner at McCar-
thy Tétrault
LLP in Toronto, says there is
"absolutely" angst among lawyers like him
when clients are doing transactions involv-
ing a foreign party.
"e uncertainty of a potential outcome
raises concerns so you attempt to mitigate
it to the best of your abilities. But ultimate-
ly, because of the very nature of national
security, much of the decision-making and
even information may not be known to the
advisors or the merging parties — classified
information may be coming to the Cana-
dian intelligence and security community
that gives the reviewing officials informa-
tion and insight that you as counsel may
not even have.
"You don't want to be ambushed on the
eve of closing aer having spent months
and months and millions of dollars on deal
preparation only to find out that you can't
do the deal. So it is critical in any deal where
there is any degree of risk to deal with that
upfront and quickly."
UNANSWERED QUESTIONS
We asked the government some of the burning questions
on behalf of lawyers who advise in the area
Lawyers who work with the Investment Canada Act were asked to provide the one
question they would like to put to senior officials at the Investment Review Division
– which has been putting on a friendlier public face – about providing more guidance
on the national security process.
Shuli Rodal of Osler, Hoskin & Harcourt LLP wondered whether there are plans to
provider greater transparency "now that we have a new government that is quite focused
on transparency." Dany Assaf of Torys LLP wanted to know why Canada can't provide
"a little more guidance on issues or boundaries, like the US provides, to mitigate against
the risk of unnecessary politicization?"
Oliver Borgers of McCarthy Tétrault LLP said he'd ask whether the department plans
to issue "guidelines of processes and procedures for national security reviews," while
John Bodrug of Davies Ward Phillips & Vineberg LLP would like to know whether
the department had considered implementing "a pre-clearance procedure for parties
to propose a transaction?"
The answer? Forget it.
The division's response – after considering the questions for two weeks – was
a written statement that could have been culled from a law school textbook.
"The national security process, in force since 2009, is set out in the Investment
Canada Act (ICA) and its supporting regulations. All foreign investments are subject to
national security review. The timelines within which the Government can order a review,
conduct a review, and impose an order following a review, are prescribed by regulation.
"In many cases, the timeline is initiated by an investor filing a notification
or application. From that point, the Government has up to 45 days within which to notify
an investor that a review may be ordered, and then additional time to order and conduct
any such review. Following a review, the Governor in Council may take any measure that
it considers advisable to protect national security, including disallowing an investment,
ordering a divestment, or imposing conditions for an investment to proceed.
"Foreign investors are encouraged to contact the Investment Review Division
to discuss their investment proposals and, where applicable, to file a notification
or an application for review at least 45 days prior to implementation."
Governments may change, but when it comes to dealing with government
departments, plus ça change, plus c'est la même chose.
IN
HOUSE
INSIGHT
