Published in the Financial Post on March 2, 2011
By Larry Herman and Finn Poschmann
There's something bizarre and unsettling about the Globalive wireless business. We're not sure how it squares with good telecom policy or with ordinary constitutional principles of peace, order and good government.
Maybe this can be reconciled, but there are conflicting issues.
In 2008, Globalive purchased radio frequency spectrum at auction and proposed to start business as a telecommunications carrier. The Canadian Radio-television and Telecommunications Commission (CRTC) said no -it found that the company was controlled by a non-Canadian. Under the Telecommunications Act, you have to be Canadian-controlled to operate as a telecommunications carrier. The legislation is remarkably clear and blunt.
However, the act also provides that the Governor-in-Council (meaning federal Cabinet) can "vary or rescind" any CRTC decision. Under this authority, Cabinet overturned the CRTC and said that Globalive could get its frequency and its wireless licence. In the eyes of Cabinet, the fact that most of Globalive's equity and almost all of its large debt financing were to come from a non-Canadian firm did not mean that Globalive was controlled by a non-Canadian.
Now, whatever one might think of the merits of this, Cabinet decisions based on statutory wording as clear as that in the Telecommunications Act would seem to put an end to the matter. Not so.
One of Globalive's potential competitors -one who could be negatively affected by having another player in the wireless sandbox -took the government to Federal Court and successfully argued that the Order-in-Council was invalid.
In the court's reasoning, Judge Hughes said that the Cabinet's reversal of the CRTC -notwithstanding the clear authority in the act -was based on legal errors that made its order reviewable. While the Cabinet could "vary or rescind" the CRTC decision, without any qualification, the judge found that the Cabinet went awry in explaining the policy objectives behind its decision.
Why does that matter, given that Cabinet had generally satisfied the Telecommunications Act's requirements? The act requires that reasons be given for its decision, and the Cabinet's order said, in finding that Canadian control provisions were satisfied, that "when possible, the Canadian ownership and control requirements should be applied in support of the Canadian telecommunications policy objectives set out in the act." Further, said the order, the act "should be interpreted in a way that ensures that access to foreign capital, technology and experience is encouraged."
Trouble is, the act does not say "when possible." It says that Canadian communications carriers cannot be controlled by non-Canadians.
Moreover, in setting out its policy objectives, the language of the act makes no mention of access to foreign capital and technology. In giving its reasons therefore, said Justice Hughes, Cabinet made a legal error. The decision was invalid, and back to square one.
The Harper government is appealing this and we shall have to await the decision of the Federal Court of Appeal on this critical point of judicial review. Depending on the outcome, the case will likely end up in the Supreme Court of Canada.
As it has unfolded, however, the case has unleashed debate about when and at what point can or should the Courts review policy decisions taken by government, when the government is working within its statutory mandate. The second line of debate is the extent to which the courts may peer into the reasoning of a government decision, and hence to say, at bottom, "not good enough," and substitute a different decision.
In this case, while the government had the clear and unrestricted legal right to "vary or rescind" any CRTC decision, Judge Hughes said the reasons given by the government for doing so went beyond the policy objectives of the legislation. In saying that it wanted to encourage foreign investment in the telecommunications business as a policy objective, he said the federal Cabinet was rewriting the act and usurping the role of Parliament.
At first blush, Justice Hughes seems correct. If Cabinet is permitted to justify any decision, within a legislative framework, on policy objectives that simply do not exist within that legislation, then we edge toward government without law.
This is a difficult legal argument that clearly needs settling. As a matter of policy, however, the government's path is straightforward: If it wants to allow foreign direct investment decisions to be made according to criteria that include greater access to foreign capital and technology -a position that most economists and some trade lawyers would enthusiastically support -it should amend the Telecommunications Act to make that clear.
Larry Herman is an international trade lawyer and counsel at Cassels Brock & Blackwell LLP. Finn Poschmann is Vice-President, Research, at the C.D. Howe Institute.
