A Federal Court ruling has thrown into question the future of Globalive's Wind Mobile cellular service and established a check on the broad powers of cabinet in government.
Legal experts say the historic decision should give the Harper Conservatives pause as they act again to undo a ruling by Canada's independent telecom regulator - this time on Internet billing.
In a rare move Friday, the Federal Court struck down a late 2009 Harper cabinet decision that overruled the Canadian Radio-television and Telecommunications Commission and allowed Globalive, a company with strong foreign ties, to operate in Canada.
Friday's decision leaves Wind Mobile, which has been operating for 14 months, hanging.
Mr. Justice Roger Hughes issued a 45-day stay to his decision, however, to give the company time to respond.
The ruling capped a turbulent week for telecommunications in Canada, one that saw the Conservative government publicly repudiate a different CRTC ruling on the cost of Internet service after it spawned a fierce consumer backlash. Industry Minister Tony Clement vowed this decision would not survive.
The Federal Court decision is surprising because courts are traditionally deferential to cabinet authority and have only very infrequently quashed decisions made by the prime minister and his ministers.
The decision is a victory for Public Mobile, a wireless competitor, which had appealed the cabinet decision, arguing the Harper cabinet exceeded its authority when it allowed Globalive to operate despite the fact the CRTC felt it exceeded restrictions on foreign ownership.
The ruling sets a potentially enduring curb on the breadth of authority at the federal cabinet's disposal.
The last time cabinet power on telecom was examined by the courts, the decision effectively shaped the legal view of cabinet authority for a generation. In 1980, a Supreme Court ruling on the Inuit Tapirisat's challenge of a cabinet decision on Bell Canada's rate structure effectively gave cabinet more blanket authority.
Hudson Janisch, a University of Victoria expert in regulatory law who helped revise the Telecommunications Act in 1993, said Friday's ruling should inspire the Tories to be more prudent as they admonish and browbeat the CRTC over its January Internet decision.
Prof. Janisch, who once taught Mr. Clement at the University of Toronto, urged his former student to tread cautiously.
"I think what this decision should do is remind Mr. Clement, who was a student of mine in administrative law, that he should watch his legal Ps and Qs a little bit more carefully."
Judge Hughes ruled Friday that the Harper cabinet made "errors of law" when it overrode the regulator and let Globalive launch its mobile service.
Essentially, the ruling means cabinet could not read things into the law that aren't there.
The federal cabinet's authority to undo or amend the federal regulator's decisions stems from one piece of legislation: the Telecommunications Act.
The Conservatives had justified their Globalive move in part by saying they believed the telecommunications law should be interpreted as encouraging access to foreign capital.
But Judge Hughes said while the legislation has a mandate to promote Canadian control of telecom companies it does not empower cabinet to act to encourage foreign investment.
Its imperative, as currently written, is to foster Canadian ownership, he said.
"Where there is a concern that foreign investment and other factors may put Canadian control at risk, then it is the promotion of Canadian control that is to be the essential criterion," he wrote.
"It is for Parliament, not the [cabinet]to rewrite the act."
Ottawa will likely be forced to appeal Friday's decision in defence of broad cabinet authority.
Mr. Clement, for his part, said the government was considering its options.
"Let me reiterate: Our government stands with consumers in wanting to see more choice and more competition in the wireless marketplace."