Chinese telecom firm seeks stay on order to divest Canadian subsidiary over national security concerns

The federal government informed CMI Canada of a review, saying the business could be leveraged by the Chinese state for foreign interference and to compromise critical infrastructure

OTTAWA — A state-owned Chinese telecommunications firm is asking a judge to pause a federal order to divest its stake in a Canadian subsidiary over national security concerns while broader arguments play out in court.

After hearing submissions Wednesday from China Mobile International Canada and government counsel, Federal Court Chief Justice Paul Crampton said he aimed to issue a decision on the stay application "sooner rather than later."

The Investment Canada Act and the National Security Review of Investments Regulations allow the federal government to scrutinize an investment in Canada by a foreign enterprise.

In January, the government informed CMI Canada of a review on security grounds, saying the business could be leveraged by the Chinese state for foreign interference and the compromise of critical infrastructure.

The government issued an order in August directing parent company China Mobile to either wind up or divest the Canadian business within 90 days, though an extension has since been granted.

CMI Canada says the government has no grounds to believe the company would compromise security or engage in espionage on behalf of Beijing.

The government argues for maintaining the order while the company's overall application for judicial review proceeds, saying a stay would pose an unacceptable risk to national security.

CMI Canada provides mobile communication services, including prepaid call plans, but does not itself own or operate any telecommunications network facilities. Instead, it has partnered with Telus Communications Inc. for provision of wireless services through the Telus network.

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CMI Canada says if there is no stay, it will be irreparably harmed, losing customers, regulatory licenses, contracts, revenues and the right to do business in Canada.

Even if the company ultimately succeeds in challenging the federal order during the judicial review process, it would have to start completely from scratch unless the directive is put on hold, said Erica Baron, a lawyer for the firm.

"The order directs that the company cease to exist, that's the effect of the order," Baron told the Federal Court hearing.

"We are seeking a suspension of a specific order for a short period of time to allow the judicial review to proceed."

In a written submission to the court, the government says CMI Canada has not filed "any direct evidence on this motion from any officer, executive or employee of any of China Mobile or CMI Canada to establish the nature or extent of the harm their counsel alleges they would suffer by complying with the Order."

China Mobile is a state-owned enterprise of China — "a country that poses a significant threat to Canada and Canadians through its espionage and foreign interference operations," the submission adds.

Federal lawyer Sean Gaudet told the hearing that while CMI Canada contends it should be allowed to continue operating, "we argue, no, it's not in the public's interest for this to happen, that the order should be should be implemented. And then let the judicial review take its course and there'll be a determination."

CMI Canada says the Trudeau government was motivated, at least in part, by "the current political socioeconomic climate and the general biases against Chinese state-owned companies."

Baron characterized the federal argument that the balance of convenience favours maintaining the order as "hearsay, speculation and unattributed expert opinions."