On June 14, in The Attorney General of Canada v. United
States Steel Corporation and U.S. Steel Canada Inc., the
Federal Court of Canada upheld the constitutional validity of the
process and penalties for enforcing Canada's foreign investment
review statute, the Investment Canada Act (ICA).
In July 2009, the Attorney General of Canada filed an
application seeking an order directing U.S. Steel to comply with
undertakings it gave when it obtained approval to acquire Stelco
Inc. in 2007. The Attorney General also sought an
"administrative monetary penalty" (AMP) of $10,000 per
day for breach of the undertakings (see our July 20, 2009
M&A Bulletin for further details). U.S. Steel responded to
the application by claiming that the enforcement proceedings
violated its rights under the Canadian Charter of Rights and
Freedoms and the Canadian Bill of Rights.
In last week's decision, the Federal Court rejected U.S.
Steel's arguments. The Charter's "presumption
of innocence" applies only when a person has been charged with
an "offence." The ICA proceedings are not penal by
nature; nor do they lead to true penal consequences. The purpose of
AMPs in the ICA, despite their potentially high amount, is not to
penalize. Rather, it is to promote and ensure attainment of the
ICA's objectives by enforcing compliance with ICA's
provisions and any undertakings given to support of an application
for approval. Having regard to the context and potential
consequences to the foreign investor, the Court also concluded that
the procedure satisfies the right to a fair hearing in accordance
with the principles of fundamental justice, in particular U.S.
Steel's right to know the case it must meet.
The decision is significant for two reasons. First, it serves as
a reminder that the government considers Canada's foreign
investment review regime to be important and will enforce
undertakings in cases involving material non-compliance. Second,
and perhaps more important, the conclusion in this case that high
AMPs are not, in and of themselves, unconstitutional could have
implications outside the foreign investment review context.
AMPs are now part of the enforcement framework of a variety of
federal and provincial statutes. Some commentators have praised the
use of AMPs as offering a less expensive, more efficient means to
enforce regulatory legislation; others have been more skeptical and
have raised constitutional concerns similar to those raised in the
U.S. Steel case.
Although in other contexts – including competition,
income tax and securities regulation – some tribunals and
courts have held that AMPs do not contravene the Charter,
these cases do not apply to AMPs generally. The legal
characterization of a particular AMP scheme must depend on, among
other things, the nature of the scheme and the penalties
In the 2009 case, Doyon v. Canada (Attorney General),
for example, the Federal Court of Appeal described the system of
AMPs in a federal agriculture statute as "draconian" and
concluded that it "imported the most punitive elements of
penal law while taking care to exclude useful defences and reduce
the prosecutor's burden of proof." In the U.S. Steel case,
the Court concluded that Doyon was critical not of the use
of AMPs in general but of the particular system established by the
legislation at issue in that case. The Court also concluded that
the amount of an AMP cannot be assessed in isolation. To be
effective in the context of the ICA, an AMP must be flexible enough
to address the wide financial range of reviewable investments and
of a sufficient magnitude to deter non-compliance, rather than to
be seen merely as a cost of doing business.
Although the appropriateness of AMPs will continue to be
assessed on a case-by-case basis, the Court's decision in U.S.
Steel lends clear support to the position that the high amount of
an AMP alone will not render it unconstitutional.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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