Why some state-owned firms do not belong in Canadian boardrooms – by Diane Francis (October 27, 2012)

The National Post is Canada’s second largest national paper.

Sovereign-owned or controlled enterprises from questionable countries have no business in the boardrooms of Canada or other free enterprise nations.

Indications are the Prime Minister and his government understand this and are devising nuanced “net benefit” criteria regarding foreign takeovers that would allow desirable companies into our economy and keep out the rest.

Undesirable SOEs are those that serve political not commercial agendas; do not offer reciprocal investment privileges to Canadians in their countries and believe they enjoy sovereign immunity from Canadian laws.

For instance, Sinopec Shanghai Engineering’s Canadian subsidiary last month belatedly pleaded guilty to several counts of negligence in the deaths and injuries of six workers in Alberta. This was after years of China’s refusal to let it be served Alberta court documents then after the Supreme Court of Canada this summer refused to hear its sovereign immunity defense.

But this concern about SOEs is not just about China. Russia is another questionable regime with companies investing here and all over the world that are owned by the Kremlin or by oligarchs who answer to it. The following case involving Russian government companies is another example why SOEs should be banned from controlling anything in Canada.

A Canadian uranium company, Khan Resources Inc., had a joint venture in Mongolia with a Russian government entity called Atomredmetzoloto JSC (ARMZ). In 2009, ARMZ made an unsuccessful hostile takeover bid for Khan. Then, due to disagreement and damages involving a joint venture, Khan sued ARMZ for $300 million.

The merits of the case are a matter for courts to decide, but the Russians are using a section of the Hague Convention treaty to stymie the lawsuit. Khan’s lawyers asked the Russian Ministry of Justice to serve the litigation papers but it refused, citing Article 13 of the Hague Convention that allows a government to refuse documents “if it deems that would infringe its sovereignty or security”.

In March, a Canadian judge was told that if the Russians were not served the case would be on hold. No service of documents, no case. The company appealed that decision in September and awaits a ruling.

Khan’s CEO Grant Edey put his company’s predicament in context to me: “Khan believes it unfair that ARMZ can come into Ontario and avail themselves of our capital markets through actions such as initiating a take-over bid in 2009 for Khan and acquiring a controlling 51% interest in Uranium One, but now hide behind the Russian Government and thereby avoid having to defend their conduct before an Ontario court.”

For the rest of this column, please go to the National Post website: http://opinion.financialpost.com/2012/10/26/why-some-state-owned-firms-do-not-belong-in-canadian-boardrooms/

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