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Court Says that the $1.2-billion Mobilicity Lawsuit Against Industry Canada can Move Forward

March 7, 2015 - Written By Cory McNutt

Just when the excitement of the AWS-3 spectrum auction is winding down, Mobilicity’s original backers and plaintiffs, Quadrangle and Mr. Bitove’s company Data & Audio-Visual Enterprises Investments Inc. (DAVE) are starting to stir up a court case against the federal government to the tune of $1.2 billion.  The original lawsuit was launched back in September with the Ontario Superior Court of Justice and alleged that the federal industry department reneged on promises it made to the plaintiffs to encourage them to invest in Canada’s wireless industry more than half a decade ago.

Mobilicity has been under a court appointed restructuring proceeding under the Companies’ Creditors Arrangement Act.  The company has been under CCAA protection since September 2013.  Although TELUS has attempted, several times, to buy the troubled carrier and its 158,637 subscribers, the government has continually blocked the sale.  They will not allow the sale to go to an incumbent and will only allow a smaller entrant to purchase them in hopes of increasing competition.  The lawsuit claims that the investors were told that they could sell Mobilicity to one of the national carriers after a five-year period, if necessary.  However, in 2013 the government changed the rules and said it would not approve deals that lead to undue amounts of spectrum in the hands of any incumbent.

Quadrangle in its original statement said, “As a result of these breaches Quadrangle lost its investment and forfeited other investment opportunities, hundreds of Canadian jobs were lost, Canadian consumers have been deprived of the benefit of real competition and the prospect of any meaningful foreign investment in Canadian wireless industry for the foreseeable future has been has been lost.”

Lawyers for the Attorney General of Canada brought a motion to dismiss the case claiming that the losses Mobilicity incurred were because of their own failings in business and they did not have a right to bring a “derivative” claim against the government.  Ontario Superior Court of Justice judge Frank Newbould –  the same judge is presiding over Mobilicity’s creditor protection process – wrote in his decision dismissing the motion: “In my view the claims of the plaintiffs as pleaded are not derivative claims.  They are claims for civil wrongs done to them and not to Mobilicity and the damages claimed can be asserted by them in this action.” The judge has also dismissed a government request that only one law firm represent both plaintiffs.

It will be very interesting to see how the courts rule in the case and if the government can be held accountable for changing their policy midstream – not that laws cannot be changed, but should the government have to adhere to the original guidelines that were in place when the dealing with a business took place.