Industry Committee on Feb. 17th, 2011

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

I have another question to ask you. Suppose that a foreign company wants to acquire an auto manufacturing company here in Canada, and another foreign company wants to acquire dams to produce electricity, which to some extent involves an asset that belongs to the public. Would the same criteria apply in the two cases?

[Marie-Josée Thivierge]

There are only six factors that apply under the act, and they apply to any transaction that is subject to review. Those are the six factors listed in section 20 of the act.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

They are the same, whether it is public or individual in nature.

[Marie-Josée Thivierge]

There are six factors, and those are the factors the Minister must consider.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Since 1985, two plans for acquisition of a Canadian company by foreign investments have been rejected by the Minister of the day, and the last was the Potash Corporation deal.

Could you tell me what differentiated those two cases that were rejected from all the others that were approved? What was it that meant that the Minister rejected them in those two cases?

[Marie-Josée Thivierge]

I want to make a clarification. Only one transaction was rejected. In the second case you are referring to, the investor withdrew its application. So there has been only one transaction rejected under the act.

With respect to your question about what determines whether a transaction is approved or not, it's done on a case by case basis. The Minister must assess the information provided to him. Under section 19 of the act, it is very specific: the Director shall refer the plans, the undertakings, the representations made by the investor, the other representations received by the provinces that are affected by the transaction, and the consultations done with other federal departments. In light of all that information, he applies the factors set out in section 20.

So it is really done on a case by case basis, and the Minister alone decides. I would not be in a position to venture into one transaction or another in terms of the information that made him make a decision on one side or the other. That being said, the information and factors are the same, as provided by the act.

[The Chair, Conservative, David Sweet]

Thank you.

That's all the time we have for that.

We'll now go to Mr. Lake for seven minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

Thanks to the witnesses for coming in today.

It is kind of a complex process, so again, I'm just going to walk through a few of the different concerns we've heard from folks.

One, I guess, is regarding enforcement mechanisms. First, how many times has the Government of Canada taken a company to court to enforce the Investment Canada Act obligations?

[Marie-Josée Thivierge]

The first time was with U.S. Steel.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

That's the only time?

[Marie-Josée Thivierge]

Yes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Maybe you can speak to the enforcement mechanisms available to the minister to ensure that commitments provided under the act are implemented. Can you highlight that in the act? Is it in section 39 of the act that we find those provisions?

[Marie-Josée Thivierge]

Yes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Could you maybe walk us through that a little bit?

[Marie-Josée Thivierge]

Sure. So to the extent that you might provided with an act, the enforcement provisions are sections 39 and 40. Essentially, where an investor has implemented an investment subject to the act, as per section 25—I was referring to it earlier—the investor must provide the information that is requested by investment review officials.

So we essentially will request information at the 18-month point, or earlier, if we have a reason to believe that information is needed. Then we do an evaluation of the investor's performance. Essentially we look at its plan and its undertakings and at how it has performed vis-à-vis those plans and undertakings.

Now, to the extent that more information is needed, we will do additional monitoring under the act. That's where the sections of the act come in specifically. Where the minister believes that an investor has failed to implement a written undertaking or that the investment has not been implemented as per the terms and conditions that had been agreed to in the application, then the minister may issue a demand letter under section 39 of the act, essentially requiring the investor to do a number of things.

He can cease the contravention and remedy the default, show cause why there is no contravention, or, in the case of undertakings specifically, justify any non-compliance with the undertakings. This is really the first stage in the process.

Now, under section 39.1, the act also provides that the investor can submit new undertakings. So as part of this process, if there is in fact non-compliance, the investor can come in and submit additional undertakings. Where the investor ultimately fails to comply with the demand or the minister is not satisfied, essentially, with how things are unfolding, pursuant to section 40 of the act the minister can apply for court orders to seek remedies from an investor. That's really the second stage in the enforcement mechanism.

The court may order any remedies that it sees appropriate. That's where section 40 of the act lists a number of remedies directing the divestment of control of the Canadian business, directing the investor to comply with an undertaking, imposing a financial penalty, or directing the disposition of any voting interests or the assets that are acquired.

Essentially, this is the enforcement mechanism and the monitoring provisions that are provided for under the act. Monitoring is further detailed in guidelines that are issued by the minister. The minister has the authority under the act to issue guidelines. There are such guidelines that detail the nature of the monitoring that is done under the act.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

In terms of that enforcement mechanism, have there been suggestions made by organizations or companies that have gone through the process--or by anybody else--as to how to strengthen the enforcement mechanisms or change them in a way that would be beneficial to the act?

[Marie-Josée Thivierge]

Maybe I can turn to my colleague.

[Richard Saillant, Director General, Investment Review and Strategic Planning Branch, Department of Industry]

The competition review panel, to my recollection, was silent on the issue of an enforcement mechanism. I am not aware of any proposal to which you are referring at this point.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

That might give us a little bit of a direction, so that as we pursue the study, we might ask some questions in that regard.

In regard to the minister's authority to disclose information, maybe you could speak to that a little bit, because that has been a topic of some discussion. Maybe you could highlight again the area in the act that lists the restrictions on the minister in terms of his ability or authority to disclose information. Perhaps you could explain why those restrictions exist.

[Marie-Josée Thivierge]

I would invite committee members to turn to section 36 of the Investment Canada Act, on page 38. Essentially, it refers to what we're talking about today--confidential information--but it's actually privileged information. The act contains, under subsection 36(1), the main confidentiality provision, which essentially says:

...all information obtained with respect to a Canadian, a non-Canadian, a business or an entity...by the Minister or an officer or employee of Her Majesty in the course of the administration...of this Act is privileged and no one shall knowingly communicate or allow to be communicated any such information or allow anyone to inspect or to have access to any such information.

This is the article that forms the basis of the strict confidentiality provisions under the act. That being said, there are some exceptions, and I would turn to a few of the provisions.

Subsection 36(3) of the act provides that information that is privileged under subsection 36(1) may, “on such terms and conditions and under such circumstances as the Minister deems appropriate”, be released if the investor has provided us in writing the authority to release it. Where an investor essentially makes the request for us to release information, that can be released.

The second exception under subsection 36(3) is where, for purposes related to the administration of the act, the minister wishes to consult and to disclose information for purposes of consultation “to a minister of the Crown in right of Canada or a province or to an officer or employee of Her Majesty in right of Canada or a province”. This provision allows for it. We may consult ministers and officials at the federal and provincial levels. The minister does rely on those provisions to share information that is privileged, as I said, with government officials.

Subsection 36(4) of the act also provides the minister with the discretion to disclose specific information under certain conditions. Paragraph 36(4)(b) actually provides the minister with the authority to disclose information contained in undertakings--not the undertakings themselves, but information contained in undertakings.

Also, subparagraph 36(4)(e)(ii) provides the authority to disclose information contained in notices. When the minister issues notices under the act, he may share that information. In deciding to do so, in making undertakings public, the minister needs to exercise his discretion to disclose any privileged information only where he is satisfied that, one, it is required for the administration of the act, and two, that confidential commercial information is not being disclosed in that process, and that disclosing the information will not prejudice the investor.

Those are the conditions attached to those exceptions.

[The Chair, Conservative, David Sweet]

Madame Thivierge, just for full disclosure, we've already gone way beyond the amount of detail that's needed on this answer. If it's okay with the rest of the committee that we continue with this answer, then I'll allow it.

Okay?

Go ahead, Madame Thivierge.

[Marie-Josée Thivierge]

There's also section 23.1 of the act in terms of disclosure. Section 23.1 of the act says that the minister can provide reasons for any decisions that are made under a number of paragraphs. This provision requires the minister to give reasons to the investor for a disallowance and authorizes the minister to give those reasons to the investor for allowing a transaction. In the case of a disallowance, the minister must give his reasons to the investor. In the case of an approval, the minister may give his reasons to the investor.

In terms of disclosing such information around the reasons to the public, those are governed by paragraph 36(4)(g) and subsection 36(4.1). In essence, the minister cannot disclose financial, commercial, scientific, or technological information unless he is satisfied that this disclosure will not prejudice the investor.

[The Chair, Conservative, David Sweet]

Thank you very much, Madame Thivierge.

I'm going to go to Mr. Stoffer now, but I should note that the riding I represent, Ancaster—Dundas—Flamborough—Westdale, is part of the greater City of Hamilton.

I'm also the chair of the steel caucus, and I have received a lot of calls--I know that it's a specific case, but I'm talking about enforcement, really--regarding the U.S. Steel issue. A lot of people have concerns that the only option for enforcement in the act is to take someone to court. There's no previous option, other than the one you mentioned as far as new undertakings go.... There's no other place. Just to let you know, I certainly have had a lot input from citizens regarding that issue.

We're on to Mr. Stoffer now for seven minutes.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Thank you, Mr. Chairman.

Folks, thank you very much for coming.

When it comes to the billion-dollar threshold, does that mean that if a company is worth, say, $200 million or $350 million, and a foreign investor wishes to take it over or purchase it, there doesn't have to be a review? Is that correct? It has to be under that threshold.

[Marie-Josée Thivierge]

Once the definition of enterprise value is set, effectively, if the business enterprise value is below the threshold, it would not be reviewable.