But, I Want to Play Too! The Future of WIND Mobile: Public Mobile v AG of Canada Globalive Wireless, Bell Canada, Rogers, Shaw and Telus Communications Companies (Respondents)
A short time ago, in Canada, there were three bungling giants in the telecommunications industry: Bell, Rogers, and Telus. By many accounts, when it came to customer service and satisfaction, each was as bad as the other: they forced customers into non-negotiable and eternal contracts, riddled their bills with unexpected charges, and as a final insult, they made it difficult to switch providers or access real customer support.
In this land of the three giants, the spectrum of wireless electromagnetic waves are owned and administered by the Federal Government, who determines what waves may be used by whom, and for what purpose. In 2008, an auction was held for licenses in the Advanced Wireless Services (AWS) spectrum for telecommunication common carriers (TCC). This auction allowed the smaller TCCs to bid first, to have their chance to challenge the giants.
Globalive (the company responsible for WIND Mobile), a hip, new TCC with no-fixed-term-contracts and the financing of an Egyptian giant called Orascom, paid over $440 million for what they thought was their piece of the pie. Before they could slice into the unsatisfied Canadian market, however, they faced hurdles of red tape. Three years on, Globalive is still fighting for approval to keep their share of the Canadian market, which is growing every day.
This post will review the history of Globalive’s entry into the Canadian telecommunications market, focusing on the recent decision of the Federal Court to quash Cabinet’s grant of an operating license.
The Macro View of this Judicial Review
For clarity, here is an overview of how the issue of WIND Mobile’s continued existence in Canada has played out so far:
1. The Free Market: (2008) – Globalive purchases licenses to transmit over the AWS for $440 billion, but requires approval from the:
2. Minister of Industry: (2009) – who , applying s. 10 of the Regulations of the Radiocommunications Act and Regulations, decides that Globalive meets the requirements. Globealive requires further approval from the:
3. Canadian Radio-television and Telecommunications Commission (CRTC): (2009) – which, applying s. 16(3) of Telecommunications Act (TCA) decides that Globealive is not “Canadian controlled in-fact.” This decision is reviewed pursuant to s. 12(1) of TCA by the:
4. Governor in Council: (2009) – who decides that Orascom has avenues of influence, but not “control in fact.” This decision is subject to judicial review, it is later decided, on a standard of correctness by the:
5. Federal Court: (2011) – which finds that the Governor in Council made errors of law and quashes the decision. The Federal Court’s ruling is appealed to the FCA.
Globalive obtained a license from the Minister of Industry Tony Clement, who was satisfied that the company was “Canadian-owned and controlled” as per s. 10 of the Regulations (which uses identical language to s. 16(3) of the TCA . Public Mobile, another small TCC vying for market share, was also granted a license by the Minister. Both companies then had to demonstrate to the CRTC that they were within the ownership and control parameters set by the TCA. The CRTC decided that Globalive was controlled in-fact by Orascom Telecom Holding (Canada) Ltd., its Egyptian financer. As a result, according to the CRTC, Globalive did not meet the requirements of s. 16(1) and was not considered eligible to operate as a common carrier in Canada. It also decided that Public Mobile had to make certain structural changes before it could receive a license.
As a result of this decision, the Minister of Industry brought a motion to review, relying on the rule in the TC which states that within a certain period of time, the TCA grants the power to the Governor in Council (read: Cabinet) to vary or rescind a CRTC decision, or send it back for reconsideration (s. 12). The parties then made submissions to the Governor in Council, who varied the CRTC decision and determined that Globalive was not controlled in-fact by a non-Canadian (or, in other words, that Globalive was controlled in-fact by Canadians). It is this decision by the Governor in Counil that is the subject of the judicial review before us, dated February 4th 2011, from the Federal Court.
At the Federal Court, Mr. Justice Hughes found that Cabinet’s holding that Globealive is Canadian-controlled was based on errors of law and quashed the decision, subject to a forty-five day stay. On February 15th, the Minister of Industry announced that the government would be appealling the Federal Court’s ruling, stating that:
“Globalive is a Canadian company that meets the Canadian ownership and control requirements under the [TCA]… The policy of our government is to encourage choice and competition in wireless and Internet markets…new entrants mean more competition, lower prices and better quality services for Canadians.”
Read more here.
The Minister’s reading of the TCA as embracing competition and choice by welcoming carriers like Globalive, financed by foreign TCCs, was of top concern to the Federal Court, who relied heavily on that skewed interpretation to quash the Governor in Counsil’s decision.
Clement’s in Denial: The CRTC’s Decision (“The Decision”)
The CRTC found that Globalive is controlled by Orascom, the Egyptian company, and as such fails the requirement of s. 16(3) of the TCA, which states:
16. (1) A Canadian carrier is eligible to operate as a telecommunications common carrier if
(a) it is a Canadian-owned and controlled corporation incorporated or continued under the laws of Canada or a province…
16. (3) For the purposes of subsection (1), a corporation is Canadian-owned and controlled if
(a) not less than eighty per cent of the members of the board of directors of the corporation are individual Canadians;
(b) Canadians beneficially own, directly or indirectly, in the aggregate and otherwise than by way of security only, not less than eighty per cent of the corporation’s voting shares issued and outstanding; and
(c) the corporation is not otherwise controlled by persons that are not Canadians.
Both (a) and (b) describe legal control. Globalive met these requirements by having Canadians sit as board members and own more than 80% of the voting shares. It is the last category, (c) which refers to “control in fact.” According to the CRTC, the test for de facto control comes from its decision in Canadian Airlines Decision of the National Transportation Agency, No. 297-A-1993, 27 May 1993:
“…There is no one standard definition of control in fact but generally, it can be viewed as the ongoing power of ability, whether exercised or not, to determine or decide the strategic decision-making activities of an enterprise. It can also be viewed as the ability to manage and run the day-to-day operations of an enterprise.”
This decision further notes that many small ties between companies, while on their own may not be enough to exert control, might, when taken together, result in a degree of influence which amounts to control.
In order to determine if Orascom had control in-fact over Globalive, the CRTC looked at (i) Globalive’s corporate governance structure, (ii) the company’s shareholder rights, (iii) it’s external commercial arrangements, and (iv) economic participation between Globalive and non-Canadians.
Under the category of corporate governance, the CRTC examined the composition of Globalive’s Board of Directors, quorum provisions, and the appointment of officers. It proposed amendments to curtail Orascom’s control, such as reducing the number of directors the financer may nominate. With respect to shareholder rights, the CRTC noted that extensive modifications were needed to reduce the impact of Orascom’s veto powers.
As for the external commercial arrangements with non-Canadians, the CRTC found that Globalive’s Technical Service Agreement (TSA), which allows Globalive to access Orascom’s wireless expertise, results in continued influence by Orascom over operating and strategic decisions at Globalive. Furthermore, the Trademark Agreement for WIND Mobile is with one of Orascom’s subsidiaries, and the CRTC found that Orascom would have the power to limit how the brand was used [para 89 of CRTC Decision].
Lastly, when considering economic participation of non-Canadians, the CRTC found that Orascom’s equity participation of 65% was likely to result in an avenue of influence, but was not determinative of control. Moreover, regarding financing, the Commissioner found Globalive’s debt to Orascom ($508 million) to be unacceptably high. The CRTC noted that while there are no statutory limits on the amount of debt that a non-Canadian can provide to a telecommunications provider, it is a strong indicia of where influence really lies.
Altogether, the CRTC found that the factors it considered amounted to “control in fact” by Orascom of Globalive, and therefore that Globalive did not meet the requirements set out in s. 16(3) of the TCA.
What’s the Big Deal Anyway? The Governor in Council’s Decision (“GC’s Decision”)
The GC’s Decision sounds like a very strange document. There are two parts: the first part is a series of “Whereas…” clauses, followed by a concluding “Therefore…” The second part is an attached Schedule of paragraphs from the CRTC Decision.
For the purposes of s. 12(8) of the TCA, which says that where the Governor in Council makes an Order such as this (to vary or reject a CRTC decision) the reasons shall be set out; Hughes J concludes these “Whereas” clauses are the Reasons, and the Schedule is the s. 16 decision, that Globalive is Canadian owned and controlled “in fact.”
The final Whereas on the first page of the GC’s Decision interpreted the CRTC’s decision as being determined by Globalive’s debt financing by a non-Canadian entity. [Para 42]
The GC’s Decision then reviewed the main policy objectives underscoring the Act, (which correspond to what is laid out in ss. 7(b), (c), and (d) of the TCA):
(b) to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada;
(c) to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications;
(d) to promote the ownership and control of Canadian carriers by Canadians
While Hughes J states succinctly that “one policy cannot be subordinate to another” [Para 47], the GC “considers 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, including enhancing competition in the telecommunications market (emphasis added in Hughes J’s judgment).”
The GC’s Decision indicated that access to foreign capital, technology and expertise was predominantly important to the field of telecommunications, and that the TCA should be interpreted so as to ensure outward growth in this fashion, albeit within the parameters set by the existing control requirements (restricting voting shares by non-Canadians, in particular) [Para 48].
It is further noted, presumably as a heads up to future drafters of such documents, that the test for control is a double negative – (16.3(c) is the corporation not otherwise controlled by persons that are not Canadian). When asked if the double negative was happenstance, counsel for the AG and Globalive said no, arguing that a broadly held, multi-national entity may have control over a TCC and not be forced out by this rule, so long as it was “not a non-Canadian.” Nothing more was said of this point, but it’s a good lesson for those who craft statutes.
The GC’s Decision then recognized that multiple levels of influence can amount to control, but “that is not the case with Globalive.”
“Whereas the Governor in Council considers that, on the basis of a careful examination of the facts and submissions before the Commission, it is reasonable to conclude, for the reasons set out in this Order, that Globalive is not in fact controlled by persons that are not Canadian and therefore meets the Canadian ownership and control requirements under the Act and is eligible to operate as a [TCC] in Canada.”
As a nota bene, the second last paragraph of the decision limits the ramifications of finding a company as foreign-owned as Globalive to be Canadian controlled in fact, saying their Decision “has a significant direct impact only on Globalive.” Obviously, the companies that have to compete with Globalive’s $35/month cellphone plans disagree.
The attached Schedule altered the findings of the CRTC regarding: the structure of the board, whether debt-financing structure could result in undue influence by a non-Canadian, the effect of liquidity rights, the definition of eligible purchasers of shares, and the effect of the TSA and Trademark Agreement.
The variable interpretation of the same facts by the two federal entities, listed in such stark language, is remarkable. See Para 85 to watch language, law and politics collide in a tornado of policy and analysis!
The Conclusion aptly sums up the Schedule:
118. …In other words, the Commission finds that Orascom has the ongoing ability to determine Globalive’s strategic decision-making activities.
Governor in Council’s decision:
22. …In other words, Orascom does not have the ongoing ability to determine Globalive’s strategic decision-making activities.
“Took a Look at your Report; Did Not Like it”, Decides the Federal Court
Hughes J identified two main issues in the case before him:
1. Does Public Mobile have standing to bring this request?
i. Does it have an effective remedy under the Act, which it has not exhausted?
2. Did the Governor in Council act within the statutory mandate in varying the CRTC decision concerning Globalive?
Before directly addressing these issues, Justice Hughes speaks to his role in this mess. Paraphrasing Bastarache and LeBel in Dunsmuir v. New Brunswick  1 S.C.R. 190, he notes that the courts act to supervise the administrative powers exercised by government decision-makers. All public authority derives from enabling statutes, or the pertinent common or civil law, and the purpose of judicial review is to ensure public figures act within those legal boundaries. When they do not, those authorities transgress the principle of rule of law. As was recently considered in Telezone, reviewed here, (Court.ca link) and as I discussed in the case of the bank-robber McArthur (Court.ca), judicial review is directed at the legality, reasonableness and fairness of the procedures employed and actions taken by the government decision-makers. This authority is derived from s. 18(1) of the Federal Courts Act, which “was enabled to enhance government accountability as well as promote access to justice.” (Para 32 of Telezone). I would suggest that Hughes J doesn’t care whether Globalive gets to compete or not, so long as the law is applied correctly.
Mind Your Own Business: The Issue of Standing
When the Cabinet said it’s “relaxed approach” to interpreting the TCA would only apply to Globalive, it ruffled a few feathers in the Canadian telecommunications industry. The applicant in the case before the Federal Court is Public Mobile, one of WIND Mobile’s main competitors.
A preliminary issue for consideration is whether Public Mobile, whose legal entitlements were not impacted by the Governor in Council’s decision, has standing to ask for review of that decision. As the CEO of Public Mobile protested, “[the GC’s Decision] directly impacts my ability to get more money and grow.” Air Canada v. Toronto Port Authority informs judges to determine standing by both the context of the situation and the basis for judicial review. Hughes J. decides that Public Mobile does not have direct standing: in order to be directly affected, one’s legal rights must be imposed upon, or legal obligations adversely prejudiced. However, Hughes J found without difficulty that Public Mobile satisfied the three-fold test set out in Canadian Council of Churches v. Canada (Minister of Employment and Education)  1 S.C.R. 263:
a) A serious issue has been raised;
b) The party seeking public interest standing has a genuine or direct interest in the outcome of the litigation; and,
c) There is no other reasonable and effective way to bring the issue before the Court.
According to Public Mobile, if Industry Canada allowed them and everyone else to “have the same kind of structure as Globalive and get foreign capital…this application would not have been brought forward.” (Para 77). Despite what the Governor in Council’s had to say, allowing Globalive to compete as a Canadian TCP amongst other Canadians ignores its foreign funding and expertise, and puts our national carriers at a significant disadvantage. That, according to Public Mobile, is not the intention of the TCA, and the Governor in Council trod on the rule of law by saying it was so.
Did the GC Act Within its Statutory Mandate?
The relevant statute under which both the CRTC and the Governor in Council made their decisions is the TCA. To answer this question, the Federal Court must determine (a) whether the GC’s finding of facts could be reviewed (b) what the standard is for a review of this nature and (c) what determinations were made by the GC that the Federal Court should review.
(a) Can the Governor in Council disturb a finding of fact of the CRTC?
Hughes J first flags as an issue whether the Governor in Council can disturb a finding of fact of the CRTC. Finding that the Governor in Council relied on the same set of facts as the CRTC to come to the opposite position, it was not necessary to pursue this inquiry.
(b) What is the appropriate standard of review?
In Canada (Director of Investigation and Research) v. Southam Inc., 1997 CanLII 385 (S.C.C.) the Court demonstrated how an error on a question of mixed fact and law can amount to an error of pure law, subject to the standard of correctness. Relying on this case, Hughes J finds it is really the legal determination of the Governor in Council that we are concerned with, since it and the CRTC relied on the same set of facts. So, despite the Governor in Council’s overall inquiry being a question of mixed fact and law, Hughes J disaggregates a question of law from the overall inquiry on which he intends to focus his review.
Hughes J concludes somewhat dubiously that because we are concerned with a question of law the appropriate standard of review must be one of correctness, citing Dunsmuir. The very paragraph he cites (50) recognizes that some legal issues attract the more deferential standard of reasonableness, and the justice offers no reasons why the correctness standard is preferred in this case, and no further analysis.
(c) The Legal Findings of the GC
The legal basis upon which the Governor in Council has stated that its Decision was made has been set out in pg. 2 of the “Whereas” clauses, in particular:
“…The Act does not impose limits on foreign investment in telecommunication common carriers and should be interpreted in a way that ensures that access to foreign capital, technology and experience is encouraged in a manner that supports all of the Canadian telecommunication policy objectives”
Hughes J finds that in many respects, the GC adhered to the policy objectives of the statute from which it derived authority to act to review the CRTC decision. In the quote above, however, it stepped outside the provisions as specifically set out in the TCA by “inserting a previously unknown policy objective into s. 7; namely, that of ensuring access to foreign capital, technology and experience” [Para 107].
The result of this, he concludes, is that because the statute defines the scope of the discretion applicable when interpreting it, and because the GC acted not within the scope of the statute, that the exercise of discretion to broaden the policy objectives of the act was arbitrary. The Federal Court of Appeal in Canada (Canadian Wheat Board) v. Canada (Attorney General), 2009 FCA 214 (CanLII) declared that it is settled law that the Governor in Council must stay within the boundaries of the enabling statute, both as to empowerment and purpose. The decision-maker must include all relevant criteria, and also exclude irrelevant criteria from consideration (Canadian Union of Public Employees (C.U.P.E.) v. Ontario (Minister of Labour), 2003 SCC 29 (CanLII) at para 172. Even decisions made in good faith are objectionable and subject to review by the Courts if the decision-maker departs from the objects and purposes of a statute pursuant to which it acts, said Cory J (as he then was) in Doctors’ Hospital and Minister of Health, (1976), 12 O.R. (2d) 164 at page 174.
Referencing the above “Whereas” clause, Hughes J finds that the GC misdirected itself in law by interpreting the ownership and control requirements of the TCA in a way that ensures access to foreign capital and technology. There is no policy objective in the Act that encourages foreign investment. What the TCA does say is that telecommunications has an essential role in the maintenance of Canadian sovereignty and identity, and provides a policy which requires Canadian ownership and control to be promoted. The intent of the TCA seems clear on this point. Whether this is a relic from a simpler time is a moot point – after all, “it is for Parliament not the Governor in Council to rewrite the Act” [Para 117].
If all that wasn’t enough, finds Hughes J, the GC was in error when it declared its Decision only applied to Globalive. He addresses Public Mobile’s concerns about equal treatment by the CRTC by flatly stating: “The Governor in Council cannot restrict its interpretation to one individual and not to others who may find themselves in a similar circumstance.”
I’ve Heard Enough: Conclusions
Thus, the Federal Court found that Public Mobile has standing to seek judicial review of the Decision of the Governor in Council, which was based on errors of law and is quashed. A stay was granted for 45 days.
Globalive and the Federal Government have announced their appeal of this decision, with Globalive arguing in their notice of appeal, filed Feb. 17, that:
“[Hughes J] erred on fact and law in failing to recognize that the Governor in Council, as it was entitled to do, considered ‘access to foreign capital, technology and experience’ to be a means to achieving Canadian telecommunications policy objectives rather than as a policy objective in and of itself.”
The issue of standing is also being appealed.
For those of you who stayed with me until the end, here are my two cents:
I hate my expensive phone contract, and would welcome WIND. As a personal matter, I hope WIND gets the go-ahead to do business here, but also I don’t think that telecommunications plays an important part in Canadian sovereignty and identity. Maybe I’d even feel better about my Canadian identity if we had some half-decent telecom providers. The TCA, however, clearly states that preserving sovereignty and identity through Canadian TCPs is an objective, and that does not mesh well with the free market’s insatiable desire for superior goods and services.
We’ll see what the FCA has to say, but one thing’s for sure: decisions pursuant to a legislative scheme that import non-existent objectives are clearly outside the scope of the executive’s power and is another example of this government blurring the lines of its own authority. Be accountable, be transparent, be forthwith – and stop trying to play fast and loose with the rules, because we (that coveted slice of the pie, Canadian citizens) are listening in.