U.S. Steel Loses Bid in Court to Throw Out Canada Investment Lawsuit
U.S. Steel Corp., sued by the Canadian government for failing to meet investment commitments it made in 2007 when it acquired Stelco Inc., lost its bid to have the suit thrown out.
Federal Court Judge Dolores Hansen today upheld a section of the Investment Canada Act that allows the government to fine or force foreign companies to sell their Canadian operations if they fail to live up to commitments made when acquiring a Canadian company.
The government sued U.S. Steel last year in the first such action since the investment act became law in 1984, claiming the Pittsburgh-based steelmaker failed to maintain employment levels and steel production at plants in Hamilton, Ontario. Canada sought as much as C$14 million ($13.5 million) in fines, or an order forcing U.S. Steel to sell the Canadian operations.
The law lets government “impose penalties you get in criminal proceedings but none of the protections,” Marie Heenan, Stelco’s lawyer, said at a hearing in Toronto in January. “The government gets to have it cake and eat it too.”
The law “is not ‘by nature’ a penal proceeding,” Hansen wrote in the 46-page decision issued today in Ottawa. The possibility of a forced divesture doesn’t rise to the level of those decisions in which the life, liberty and security of a person are at stake, she said. “It is purely an economic outcome.”
Reviewing Opinion
“We have just received the court’s opinion and are reviewing it,” Erin Dipietro, a spokeswoman at U.S. Steel, said.
The ruling isn’t a surprise and is consistent with earlier decisions that restricted such constitutional challenges to criminal proceedings in Canada, Mark Katz, a partner in Toronto with Davies Ward Phillips & Vineberg’s competition and foreign investment review practice, said in a phone interview. Katz wasn’t involved in the case.
In civil cases, courts tend to see government-imposed penalties under the Investment or Competition Acts as “administrative in nature,” Katz said.
U.S. Steel, the largest U.S.-based steelmaker, acquired Stelco for $1.2 billion in cash in 2007. Since then, it has fired workers in the U.S. and Canada because of a drop in manufacturing, construction and automaking.
The company idled most of its operations in Canada in March 2009, laying off 1,500 workers. It restarted one of two Canadian blast furnaces in August, allowing 800 employees to return to work.
Company’s Commitments
The company has lived up to 29 of 31 commitments it made before the acquisition, including paying off C$700 million of Stelco’s debt, funding the company’s pension plan and spending C$15 million on research, said Michael Barrack, U.S. Steel’s lawyer.
“The whole world melted” during the recession, so it’s understandable U.S. Steel would claim economic circumstances beyond its control, Katz said.
While Clement sought sanctions against U.S. Steel, he declined to press for similar sanctions against Vale SA, which bought Inco Ltd. and then curtailed production during the recession. Clement said Vale, based in Rio De Janeiro, acted consistently at its plants around the world.
“I expect U.S. Steel will raise that” at trial, Katz said. The company may not be successful because judges tend to give ministers a lot of leeway, he said.
“It’s based on ministerial discretion and it can be applied somewhat inconsistently,” Katz said.
The case is AGC v. U.S. Steel Corp., T-1162-09, Federal Court of Canada (Toronto).
To contact the reporter on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net.
Rate These Stories
Rate this Page