Federal Court of Canada Holds Foreign Investors to Their Promises

With the Federal Court of Canada's June decision in The Attorney General of Canada v. United States Steel Corporation and U.S. Steel Canada Inc., the Canadian government has won the first round in its battle to hold foreign acquirers to promises they make while getting approval to take over a domestic company.

The suit against U.S. Steel marked the first time the Canadian government had taken a company to court under the Investment Canada Act (ICA), enacted in 1984. The government alleged that U.S. Steel had contravened promises to maintain employment and productivity levels at its Ontario plants. U.S. Steel responded by arguing that the enforcement proceedings were unconstitutional as they violated the company's rights under the Canadian Charter of Rights and Freedoms, the Canadian equivalent of the U.S. Bill of Rights.

Actionable Acquisition

It was against this statutory background that U.S. Steel announced in August 2007 that it had reached an agreement with Stelco Inc., the last of Canada's major steelmakers, to acquire all of the Hamilton, Ontario-based company's shares. Because the transaction was subject to the ICA, it could not close until the minister decided that it was likely to be of net benefit to Canada.

Hansen also ruled that AMPs were not a "true penal consequence" but rather "a way to promote and ensure the attainment of the legislative objectives." The mere size of the AMPS did not necessarily make them penal consequences so long as the statutory scheme as a whole did not fall afoul of the charter.

The proceedings against U.S. Steel, then, were more a civil enforcement mechanism than a criminal proceeding and did not offend the charter.


Julius Melnitzer

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