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Court rejects U.S. Steel's Charter challenge

The Federal Court of Canada has upheld the Investment Canada Act under a challenge mounted by United States Steel Corp. , giving the federal government the right to seek fines of as much as $10,000 a day against the company.

A U.S. Steel challenge to the act under the Charter of Rights and Freedoms was rejected by Madam Justice Dolores Hansen of the court in a ruling issued Monday.

The ruling, unless it is reversed under appeal, means the federal government can go ahead with a case against U.S. Steel, which it accuses of violating promises on employment and production the company made when it bought Stelco Inc. in 2007.

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The decision also upholds legislation the federal government has used since the Trudeau era to regulate foreign purchases of Canadian businesses to make sure they benefit Canada.

Although the Trudeau government's Foreign Investment Review Act was watered down under subsequent governments, the Investment Canada Act has been used to examine high-profile takeovers of Canadian companies, such as the purchases of all large Canadian steel makers last decade and the takeover of such signature Canadian companies as Inco Ltd. and Alcan Ltd.

The government's move against U.S. Steel's actions under the act is not "a criminal or quasi criminal proceeding and does not involve the imposition of a true penal consequence," so the Charter of Rights and Freedoms does not apply, Judge Hansen ruled.

"A distinction must be drawn between those decisions that implicate the life, liberty and security of the person involved and those, as in the present case, having only an economic impact," she wrote in a 37-page decision.

In addition, she rejected U.S. Steel's argument that the Investment Canada Act is designed to regulate public order and welfare within a public sphere of activity.

"The investor is being called to account to the government for a failure to honour commitments made to the government," Judge Hansen said. There was no comment on the decision from Pittsburgh-based U.S. Steel.

"We have just received the court's opinion and we are reviewing it," spokeswoman Courtney Boone said in an e-mail message.

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When the U.S. giant took over Stelco, it made promises to Ottawa about employment, production and investment at the Stelco operations in Hamilton and Nanticoke, Ont. But it closed its Canadian operations during the recession, when steel demand evaporated.

Last year, the federal government said that by shutting the mills, U.S. Steel broke the promises it made and the government sought fines under the Investment Canada Act.

U.S. Steel countered that the global financial crisis and recession amounted to factors beyond its control that prevented it from living up to the commitments.

It took the federal government to court, saying portions of the Investment Canada Act violate the Charter of Rights and Freedoms.

The shutdown at the Lake Erie Works was followed by a nine-month lockout of about 1,000 workers when the company and the United Steelworkers of America reached an impasse over cuts in benefits and changes in pensions.

The company is now negotiating with the USW local representing workers in Hamilton, whose contract is scheduled to expire on July 31.

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"This ruling is a victory for our members and all Canadians," Ken Neumann, Canadian director of the United Steelworkers of America, said in a statement Monday.

In her decision, Judge Hansen said part of U.S. Steel's complaint was that the Investment Canada Act is not precise and the company was not sure why Industry Minister Tony Clement thinks the company has broken the promises it made.

But the process of producing affidavits and evidence and cross-examination will provide U.S. Steel with enough information, she noted.

"I am satisfied that having regard to the context and the potential consequences to U.S. Steel, it satisfies the right to a fair hearing in accordance with the principles of fundamental justice, in particular, its right to know the case to meet."

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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