Before Industry Minister Tony Clement sent a demand letter to
United States Steel Corporation ("US
Steel") in May of 2009, it was unclear how sharp the
teeth of the Investment Canada Act (the
"Act") could be. That demand letter
(described in our client communication entitled Minister
Clement's Letter to US Steel) illustrated the government's
resolve. Last week, a decision of the Federal Court upheld the
constitutionality of the federal government's remedial powers
under the Act, indicating that the teeth may have some bite.
In 2007, US Steel gave certain undertakings to the Canadian
government as part of its takeover of Stelco Inc.
("Stelco"). Pursuant to the Act, where a
non- Canadian proposes to acquire a Canadian business that meets or
exceeds certain size thresholds, the transaction is subject to
review by the Industry Minister (and/or, for certain cultural
acquisitions, the Minister of Canadian Heritage). The acquiror must
satisfy the relevant Minister(s) "that the investment is
likely to be of net benefit to Canada." Often acquirors will
be asked to provide, and will provide, undertakings to bolster the
transaction's benefits. US Steel's undertakings addressed
concerns including the protection of Canadian jobs and Stelco's
operations in Hamilton.
Section 39 of the Act provides the Minister with the power to
send a demand where the Minister believes that the non-Canadian
acquiror has failed to comply with an undertaking. Section 40 of
the Act provides the Minister with the power, where an acquiror has
failed to comply with a demand made under Section 39, to apply to a
superior court for any order that, in the court's opinion, the
circumstances require, including, for example, compliance with the
undertaking, the imposition of monetary fines or even forced
US Steel challenged the constitutionality of Section 40 on the
basis that it violates both the presumption of innocence and fair
hearing provision of the Canadian Charter of Rights and
Freedoms and the fair hearing provision of the Bill of
Overview of Reasons
With respect to the Charter, US Steel's arguments
were based on the premise that an order under s.40 is either by its
nature a criminal proceeding or involves the imposition of true
penal consequences. In short, the Federal Court held that a s.40
proceeding is not by its nature criminal; in the court's view,
the acquiror is not being called to account to the public, as in a
criminal prosecution, but rather is "being called to account
to the government for a failure to honour commitments made to the
government," akin to a civil enforcement mechanism. Similarly,
the court held that an order under s.40, particularly a monetary
penalty, is not a "true penal consequence" but is rather
a means "to promote and ensure the attainment of the
legislative objectives." Significantly, the court held that
the amount of an administrative monetary penalty is not
determinative. Rather, it appears that such penalties, even if
potentially very large, do not trigger the constitution as long as
the legislative regime as a whole meets the Charter's
With respect to the Bill of Rights, US Steel claimed
that the procedure provided for under Section 40 of the Act does
not allow for a fair hearing in accordance with the principles of
fundamental justice. The court dismissed these claims on the
grounds that, in the context of the Act, an acquiror would be
afforded sufficient procedural protections to satisfy the
principles of fundamental justice.
The Federal Court's decision remains subject to appeal.
However, the decision should provide the government with some
confidence that its remedies under the Act are enforceable. The
decision should also remind those interested in Canadian
acquisitions or mergers that the government is not only willing,
but also likely able, to enforce any undertakings.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific 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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