While many countries around the world have established procedures for reviewing transactions with national security implications, few have enacted statutes of general application that apply to all, or the vast majority of, foreign investments within their borders.
Canada represents one of the primary exceptions to this rule. Foreign direct investment has been regulated in Canada since 1973 and the current statute enabling foreign investment review, the Investment Canada Act, has been in force since 1985.
While the Act engendered little controversy during the first 23 years of its existence, several foreign investment reviews since 2008 have garnered an unusual amount of attention, including those in respect of BHP Billiton's proposed acquisition of Potash Corporation and the Chinese National Offshore Oil Corporation's acquisition of Canadian oil and gas producer, Nexen Inc. As the recent quote cited above by Canadian Prime Minister Stephen Harper illustrates, particular scrutiny is now being directed at investments made in Canada by foreign state-owned enterprises. To that end, guidelines governing investments by SOEs in Canada were revised and strengthened in December 2012.
This paper examines recent trends in foreign investment review in Canada and considers the implications of these developments for the future negotiation and apportionment of foreign investment review risk in M&A transactions.