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Mobilicity chairman John Bitove.

Peter Power/The Globe and Mail

A Toronto court has ruled that a $1.2-billion lawsuit launched against the federal government by Mobilicity's original backers can proceed.

The claim, launched in September, alleges the federal industry department broke promises it made to entice businessman John Bitove and New York-based private equity firm Quadrangle Group LLC to invest in Canada's wireless industry more than half a decade ago.

The lawsuit claims the government offered certain assurances in return for their investment, including that the investors would be able to sell to one of the national carriers after five years if necessary.

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Mobilicity launched a cellular business after purchasing spectrum licences in 2008 but ultimately floundered financially and Ottawa has blocked its attempts to sell to Telus Corp. on several occasions. The government has pointed to a spectrum transfer framework it introduced in 2013 and said it will not approve deals that led to the undue concentration of spectrum in the hands of an incumbent.

Lawyers for the Attorney General of Canada brought a motion to dismiss the case on the grounds that the claims and losses alleged belong to Mobilicity itself. The government argued the plaintiffs – Quadrangle and Mr. Bitove's company Data & Audio-Visual Enterprises Investments Inc. (DAVE), which owns and operates Mobilicity – did not have the right to bring a "derivative" claim.

Ontario Superior Court of Justice judge Frank Newbould, who is also presiding over Mobilicity's creditor protection process, heard the motion on Wednesday and issued a ruling Friday.

"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," Justice Newbould wrote in his decision dismissing the motion.

He also dismissed a request by the government to stay the lawsuit pending the outcome of Mobilicity's restructuring proceeding under the Companies' Creditors Arrangement Act. The company has been under CCAA protection since September, 2013.

In dismissing that request as well, Justice Newbould said he sees no overlap between the shareholder lawsuit and the CCAA proceedings.

"The issues raised in this action are not issues that have been raised in the CCAA proceeding."

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He also dismissed a government request that both plaintiffs be represented by one law firm and ordered the government to pay the plaintiffs their costs of the motion.

In December, Telus lost a lawsuit it launched against the federal government in the Federal Court in July 2013 ‎complaining about the shift in Ottawa's policy on the spectrum transfers.

The court in that case ruled that the government's original rules did not state or imply that after the five-year period expired, anyone could freely acquire the set-aside spectrum.

Telus had argued that it based its bidding strategy in the 2008 auction on the idea that incumbents would eventually be able to purchase the set-aside airwaves.

Federal Court Justice Roger Hughes ruled there was no evidence that Telus suffered a loss as a result of its claim to have relied on the government's earlier spectrum policy.

"The most that can be said is that Telus made a business gamble and lost. It is not the Minister's fault," he wrote.

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