Canada: Foreign Investment In Canada: Focus On National Security And Liberalization Of The Net Benefit Regime


It was an eventful 2018 for foreign investment review in Canada. Canada's national security regime took centre stage as a result of the Canadian government's decision to block the proposed takeover of construction firm Aecon Group Inc. by a Chinese acquiror under the national security regime. Meanwhile, liberalization of Canada's long-standing net benefit regime continued.

National security regime

The highlight of 2018 was the Canadian government's decision to block the proposed takeover of construction firm Aecon Group Inc. (Aecon) by China Communications Construction Company International Holding Limited (CCCI) on the basis that the transaction would be injurious to Canada's national security. This was only the third transaction formally blocked under Canada's national security regime and the first transaction blocked by the Liberal government.

In most cases, where the government determines that a proposed investment is injurious to national security, the only viable remedy is likely to be a full block, or in the case of completed transaction, a divestiture.

CCCI's proposed acquisition of Aecon was announced on October 26, 2017, and quickly became the subject of debate in Canada. It was reported that Aecon's involvement in the construction of nuclear power stations, military facilities and communications infrastructure prompted concerns about the Chinese government indirectly acquiring control of Aecon. An order for a full national security review was issued in early 2018 and, on May 23, 2018, the government announced its decision to block the transaction. Predictably, other than advising that the decision was based on advice of Canada's security and intelligence agencies, no reasons were given in the official announcement (for more information on the decision, please refer to our Osler Update: "Proposed acquisition of Aecon by CCCI blocked on national security grounds.")

The Aecon decision is a significant development. However, this decision does not signal a change in Canada's overall approach to welcoming foreign investment.

While the Canadian government has the authority to scrutinize any foreign investment in Canada, regardless of size, that may be "injurious to national security," to date, the federal government has exercised its national security review power judiciously. The statistics released by the Department of Innovation, Science and Economic Development (ISED) for its fiscal year April 1, 2017 to March 31, 2018 indicate that of the 742 investments subject to mandatory notification or review during this period

  • only four investments received notice that a potential national security review order was being issued;
  • of these four investments, only two investments were subject to a formal order for national security review, as one investment was abandoned upon receipt of the notice and the government determined not to proceed with the issuance of a formal order with respect to the other; and
  • of the two investments subject to formal orders, one investment was abandoned and the other one, CCCI – Aecon, was blocked by the government.

While each investment requires a fact-specific analysis, theGuidelines on the National Security Review of Investments under the Investment Canada Act (Guidelines) issued in 2016 provide useful insight into the factors the government considers when assessing whether an investment poses a national security risk. The Guidelines indicate that the nature of the asset or business activities and the parties (including the potential for third-party influence) involved in the transaction will be considered. The Guidelines provide a list of nine non-exhaustive factors considered in the assessment, including the effects of the investment on Canada's defence capabilities and interests and intelligence activities; the transfer of sensitive technology or know-how outside of Canada; the effects on the security of Canada's critical infrastructure and the supply of critical goods and services; and the potential of the investment to enable foreign surveillance or espionage.

The Guidelines make it clear that the focus of Canada's national security assessment is on national security as opposed to economic security. In 2018, the Canadian government reiterated this point forcefully in response to President Trump's actions to impose tariffs on steel and aluminum from its allies, including Canada and the European Union, contending that their exports threatened the national security of the United States.

The Guidelines also recommend that parties take steps both formally and informally to proactively identify national security considerations at an early stage of transaction planning and to engage in early filing and consultation with the government. In this regard, Osler's experience suggests that Canadian businesses are more frequently approaching ISED for early informal views on whether potential foreign investors are likely to raise national security concerns and that ISED welcomes such inquiries, informally screening such potential investments relatively quickly in co-operation with Canada's national security agencies and providing informal guidance.

While orders for a formal national security review remain the exception, ISED has been candid in advising stakeholders that if a formal national security review is ordered, the review will take at least 200 days. To state the obvious, not many deals can withstand such a long period of uncertainty. In addition, while the statute does allow for measures short of blocking the investment, or in the case of a completed investment, divestiture, it appears that such mitigation measures are falling out of favour in the United States for a range of reasons, all of which may equally apply in Canada. Based on the July 2018 report of the U.S. Government Accountability Office, mitigation measures may be increasingly perceived as effective only where the national security risk can be remedied by a measure that is straightforward and relatively easy to implement and does not require post-implementation monitoring. For example, where the national security concern stems from the target's proximity to an important government facility, an agreement to relocate the business could resolve the concern. However, in most cases, where the government determines that a proposed investment is injurious to national security, the only viable remedy is likely to be a full block, or in the case of completed transaction, a divestiture.

Changes to the U.S. national security regime

Another important recent development that will have implications for the Canadian business community is the enactment of the Foreign Investment Risk Review Modernization Act (FIRRMA) in the United States. FIRRMA significantly transforms the jurisdiction and operation of the Committee on Foreign Investment in the United States (CFIUS), which is responsible for reviewing certain foreign investments to determine the effect on the national security of the United States. FIRRMA expands the scope of investments CFIUS may review to include, for example, non-controlling investments, investments in real estate in close proximity to sensitive U.S. government facilities and any acquisition of a business anywhere in the world provided that the business sells goods or services into the United States. In addition, FIRRMA imposes a mandatory pre-closing filing requirement on foreign investments in certain sensitive sectors and directs CFIUS to establish a formal process to facilitate the exchange of information important to national security analysis with foreign allies, including Canada.

The implications of FIRRMA remain to be seen, but there is a consensus that FIRRMA will result in national security review becoming an increasingly important consideration in the planning and negotiation of transactions where the target business has any nexus with the United States. In addition, while we understand that there already exists substantial collaboration on security issues and threats between and among the intelligence agencies of the "Five Eyes" (comprising Australia, Canada, New Zealand, the United Kingdom and the United States FIRRMA may be expected to enhance the collaboration between CFIUS and Canadian security and intelligence agencies on security issues related to foreign investment matters.

Also, one would expect that the Canadian government will be assessing the implications of FIRRMA for national security review in Canada and, in particular, considering the efficacy of imposing its own mandatory notification regime for investments that would not otherwise be subject to pre-closing review under the Investment Canada Act. Although the Canadian government has not to date proposed any changes to the national security review regime to make national security review mandatory for certain categories of investors or investment, this may become a subject of greater discussion in the coming year. In this regard, on December 11th, a Conservative (opposition party) Senator introduced a bill to amend the Investment Canada Act to provide for the mandatory national security review of investments made by foreign state-owned enterprises.

The net benefit regime – A less frequent pre-closing condition and a streamlined process

While the prospect of national security review has increased in importance, fewer transactions are now subject to the requirement to obtain ministerial approval under the Investment Canada Act's net benefit regime as a result of the substantially increased review thresholds.

As we outlined in our Foreign investment in Canada: Osler Fall 2017 update on, the substantial increase in the review thresholds of the net benefit regime of the Investment Canada Act has resulted in a decline in the number of investments subject to pre-closing ministerial approval. Of the 742 filings received in the 2017-2018 fiscal year, only nine investments exceeded the review threshold and therefore were subject to a net benefit review. These nine investments represent a 60% decrease in transactions subject to net benefit review as compared to the previous annual period. In addition, process improvements have been implemented. The government has increasingly focused undertakings on key areas relevant to Canadian business and sought clear and precise benchmarks against which future performance can be easily measured. In certain circumstances, the government has not required the investor to provide any undertakings, instead relying solely on the investor's business plans as set out in the investor's application for review. The result of these process improvements is a more streamlined, predictable and efficient net benefit review process.


With the increase in the net benefit review threshold and corresponding streamlined review process, many foreign investors have benefited from a reduced regulatory burden relative to prior years. However, the increased emphasis on the national security implications of foreign investments in Canada means that the assessment of national security-related considerations of a transaction and the management and allocation of perceived risk are becoming increasingly important features of transaction planning and negotiation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions