Despite uncertainty and slow growth in the USA and Europe, strong demand for Canada’s abundant natural resources, a strong financial sector and a stable political and economic environment have made Canada one of the world's premier locations for business investment. Forbes recently ranked Canada as the best country in the world in which to do business. It is the only country of the 134 surveyed that reached the top 20 in ten separate metrics.
While there have been a number of interesting developments over the past year in Canadian law, below are examples of particular interest.
Foreign investment and state-owned enterprises
The Investment Canada Act (ICA) has gained attention in recent years and was brought into the international spotlight in late 2010 during BHP Billiton’s attempted USD38.6 billion acquisition of Potash Corporation of Saskatchewan. The acquisition was rejected by Canada on the basis that the transaction did not meet the “net benefit to Canada” test under the ICA.
2012 proved to be a highly eventful year in Canadian foreign investment law. Although numerous foreign investments by state-owned enterprises (SOEs) in the Canadian energy sector had received foreign investment approvals in recent years, the summer of 2012 saw the announcement of two multibillion dollar energy transactions involving SOEs, posing an unprecedented test for the Investment Canada Act and for Canadian policymakers. In June, Petronas (the Malaysian state-owned oil company) announced its proposed CAD6 billion acquisition of Progress Energy Resources. This was the largest ever proposed acquisition of a Canadian company by an SOE until July, when China's state-owned China National Offshore Oil Company (CNOOC) announced its proposed CAD15 billion acquisition of Nexen.
The reviews culminated on December 7, 2012, when the federal government announced its approval of both the Progress and Nexen transactions, but at the same time announced a new approach and revised guidelines applicable to investments by SOEs, particularly in the oil sands. Acquisitions by SOEs of controlling interests in the oil sands industry have been largely constrained, and will be found to be of net benefit to Canada only on an exceptional basis going forward. The acquisition by SOEs of non-controlling interests, including joint ventures, however, will continue to be welcome (indeed, acquisitions of non-controlling interests are, generally speaking, not subject to the Investment Canada Act). The exceptional basis test does not apply to sectors other than the oil sands, although the government has noted that it will continue to monitor investment by SOEs throughout the Canadian economy, and in this regard has adopted a somewhat more pointed tone in relation to investment by SOEs.
While a small number of transactions (particularly involving SOEs) will continue to attract intense scrutiny, it is business as usual for the vast majority of foreign investment deals in Canada, and the Canadian government continues to emphasise that it welcomes foreign investment. A number of additional transactions received approval under the ICA in 2012, including resource transactions such as Glencore's CAD6.1 billion acquisition of Saskatchewan-based Viterra, although it should be noted that as part of the announcement of that transaction, Glencore concurrently agreed to sell the majority of Viterra's Canadian assets and certain other assets to Richardson International and Agrium, two of Canada's largest agricultural firms. Other notable examples include KGHM International’s CAD3 billion acquisition of Quadra FNX Mining; the CAD1 billion acquisition by Marubeni and Winsway Coking Coal Holdings (of China) of Grande Cache Coal; and the CAD1.3 billion acquisition by Molycorp of Neo Material Technologies.
Supreme Court of Canada Finds Against National Securities Regulator
In December 2011, the Supreme Court of Canada unanimously held that the proposed Canada Securities Act, which would have implemented a national securities regulator in Canada, was unconstitutional.
The key issue before the court was whether the federal government had authority to regulate securities pursuant to its power over matters of trade and commerce. The SCC answered in the negative, concluding that taken as a whole, the proposed Canada Securities Act was chiefly directed at regulating matters falling within provincial authority over property and civil rights. While acknowledging that historic regulation by the provinces would not necessarily preclude a federal claim to jurisdiction, the SCC was not able to conclude that securities markets had undergone a sufficient transformation so as to fall under a different head of power based on the legislative facts presented to it.
The SCC did not completely shut the door on a national securities regulator in Canada, and provided some advice for the federal government should it choose to move forward with a national securities regulatory scheme in the future. While it refrained from exploring the particulars of what an appropriate arrangement might look like for Canada, it cited jurisdictions such as the United States, Germany and Australia and commented on the "growing practice of resolving the complex governance problems that arise in federations by seeking co-operative solutions that meet the needs of the country as a whole as well as its constituent parts." Various prior Canadian attempts at achieving national securities regulation, the SCC noted, also generally envisaged co-operation between the provinces and the federal government. The SCC stated that such an approach "is supported by constitutional principles and by the practice adopted by the federal and provincial governments in other fields of activities. The backbone of these schemes is the respect that each level of government has for each other’s own sphere of jurisdiction. Co-operation is the animating force. The federalist principle upon which Canada’s constitutional framework rests demands nothing less."
Notwithstanding the above, the result of the decision is that the regulation of securities law in Canada continues to be a matter of provincial jurisdiction.