All claims dismissed in telecommunications case against Canada: Changes in the regulatory environment did not breach F.E.T.

Global Telecom Holding S.A.E. v. Canada, ICSID Case No. ARB/16/16

Global Telecom Holding (GTH), a joint stock company incorporated under Egyptian laws, entered the Canadian telecommunications market through investment in a Canadian company. The investment took place in the context of Canada’s attempts to open the telecommunications market to new operators to foster more competitiveness. GTH claimed that Canada had failed to provide it inter alia with fair and equitable treatment and full protection and security due to its maintaining a changing regulatory environment unfavourable to foreign investors.

The tribunal dismissed all claims on merits, apart from the claim under national treatment, which was considered outside the t     ribunal’s jurisdiction. It ordered the Parties to bear the arbitration costs in equal parts and their own legal costs and expenses without contribution of the other party.

Background and claims

In 2007, the Canadian telecommunications market was highly concentrated, its market share being held predominantly by three main carriers (the Incumbents). An auction for a new Advanced Wireless Services (     A.W.S.) spectrum was seen as a chance to open the market to new entrants. To this end, a portion of the spectrum was set aside for new operators, and a five-year restriction on transferring licences to the Incumbents was put in place, with all licence transfers requiring approval by the relevant government      minister.

GTH entered into investment agreements with Canadian companies where it agreed to advance funds for spectrum licences which would be held by Wind Mobile. To follow Canadian ownership and control rules, GTH as a foreign investor could only hold 20% of voting shares in Wind Mobile. However, the investment agreements gave GTH the right to take voting control of Wind Mobile if the rights were relaxed in the future.

In 2012, the legislation was amended to exempt carriers with less than 10% market share from the foreign ownership restrictions. Nonetheless, transfers of voting shares were still subject to review and approval under the Investment Canada Act, which required the review of investments by non-Canadians that could be injurious to national security. GTH’s application to acquire voting control of Wind Mobile was subject to this review.^[1]

In the years following the A.W.S. auction, Canada became concerned about the market consolidating again after the five-year restriction ended. This led to new policies, such as the 2013 Framework, which stated that the review of licence transfers would include, among other factors, the market concentration in spectrum ownership relating to them.

GTH brought a claim to ICSID in 2016, alleging that through the changing regulatory framework and review processes, Canada had violated the standard of national treatment, of F.E.T., and of full protection and security (F.P.S.), amongst others.

Exception to national treatment clause interpreted broadly (but Gary Born dissents)

The tribunal considered that, while the Canada–Egypt BIT contained the obligation of national treatment, the case fell into one of the exceptions provided by the BIT and thus was not within the tribunal’s jurisdiction. This interpretation was challenged in Gary Born’s dissent, where he argued that the effect of the BIT was that Canada had the right to make further exceptions to the application of the standard but that would require additional procedures which Canada had not fulfilled.

F.E.T. affords protection that is much broader than the minimum standard of treatment required by customary law, following Vivendi

GTH argued that Canada had breached F.E.T. by (a) the 2013 Framework, which had the effect of stopping GTH from selling Wind Mobile to an Incumbent, and (b) subjecting GTH to an arbitrary national security review that lacked due process, amongst others.

The tribunal followed GTH’s interpretation of the F.E.T. standard, but found that it was not breached on the facts. It found that the standard was much broader than the minimum standard of treatment required by customary law, rejecting Canada’s argument and referring to the approaches of tribunals in Vivendi v. Argentina and C.M.S. v. Argentina (para 482).

A change in the legal framework to reflect market evolution which is not arbitrary or aimed to harm the investor is not a breach of F.E.T.

The tribunal found that the 2013 Framework did not violate F.E.T. Following E.D.F. v. Romania and SARL v. Spain, a change in the legal framework to reflect market evolution that is not arbitrary nor aimed at harming the investor does not breach the standard (para 563). Further, for a measure to be arbitrary it would need to be based on an “excess of discretion, prejudice or personal preference, and taken for reasons that are different from those put forward by the decision maker” (citing Crystallex v. Venezuela) (para 561). The tribunal found that as the rationale for the 2013 Framework was to make the market more competitive, which was consistent with the earlier A.W.S. Auction, the measure was not arbitrary.

Due process standard satisfied where the subject of an investigation is afforded a fair opportunity to make their case

The tribunal found that the national security review did not violate F.E.T. It analyzed whether the review had been conducted in accordance with due process, in a non-arbitrary, reasonable, and transparent manner, which are elements of F.E.T. With regards to due process, the tribunal considered that it “should be deemed satisfied where the subject of the investigation is afforded a fair opportunity to make its case in relation to readily identifiable issues, and that opportunity is afforded reasonably ahead of an administrative decision being made based on objectively verifiable factors and after an appropriate time period which is not unnecessarily rushed.” (para 608). It found that because Canada had provided GTH with an adequate opportunity to make its case, it did not violate due process.

F.P.S. standard extends beyond physical protection and requires the state to act with “due diligence”

GTH claimed that the F.P.S. of its investment was breached due to the changes in the regulatory framework and the reviews to which its investment was subjected. As it had with the F.E.T. analysis, the tribunal agreed with GTH’s interpretation of the standard but found that it had not been violated in this case. It agreed that the standard is not limited to safeguards against physical interference by the state but extends to according to  a legal safeguard for the investment. F.P.S. also requires the state to act with “due diligence” to meet this obligation (para 662).

Notes: The tribunal was composed of Professor Georges Affaki (president appointed by both parties, French and Syrian national), Gary Born (nominated by claimant, U.S. national), Professor Vaughan Lowe (nominated by respondent, British national). The award of March 27, 2020, is available at https://www.italaw.com/sites/default/files/case-documents/italaw11434.pdf

Anna Sands is a graduate of the MPhil in Development Studies at Oxford University. Her MPhil research focused on the empirical effects of investment arbitration on government policy choices. She has a bachelor’s degree in law with French law from Oxford University.

[1] The exact procedure and result of the national security review was not made public in the written decision.