Resources

Competition Law

U.S. Steel Loses Constitutional Challenge to Investment Canada Act Enforcement Provisions

Published: 06/23/2010

By Yana Ermak, Chris Hersh, Nicole Washington

The first constitutional challenge to the government's use of the enforcement provisions of the Investment Canada Act ("ICA") was argued by U.S. Steel earlier this year. On June 14, the Federal Court rejected U.S. Steel's case in its entirety and upheld the provisions in question. 

U.S. Steel alleged that, because the ICA subjected it to potential financial penalties (up to $10,000 per day of non-compliance) without providing the protections typically afforded to defendants in criminal cases, the statute infringed its rights to a fair hearing under both the Charter of Rights and Bill of Rights.

In upholding the constitutionality of the ICA's enforcement provisions, the Court held that:

• ICA enforcement proceedings are not "by nature" penal proceedings;
• The potential for penalties of up to $10,000 per day is not unconstitutional; and
• The Federal Court Rules provide adequate procedural protections to protect the right to a fair hearing (i.e., knowing the case to be met).

This case arose in connection with allegations by the government that U.S. Steel breached undertakings given by it to secure approval for its 2007 acquisition of Stelco and the government's request for compliance (U.S. Steel shifted production from the Canadian Stelco facilities in response to the global economic crisis). Should this decision stand, the case will proceed to the analysis of whether U.S. Steel was justified in breaching its undertakings relating to maintaining production and employment levels at Canadian Stelco facilities. If the government's case is successful, U.S. Steel could face multi-million dollar fines and possibly have to sell Canadian operations.

This case has several implications for foreign investors who give undertakings to secure ICA approval:

• The Canadian government is willing to aggressively enforce undertakings provided to it by foreign investors;
• Foreign investors must carefully consider the terms and scope of any undertakings provided to the government; and
• It is necessary to consider how ICA undertakings may impact the company's ability to re-structure its international operations.

For more information regarding the potential implications of this decision or Canadian competition and foreign investment review matters generally, please contact one of the members of our competition law group Chris Hersh, Yana Ermak or Nicole Washington in our Competition, Antitrust & Foreign Investment Law group.

For the full text of the decision, please click here.