On December 12, 2011, Canada's Minister of Industry, Christian Paradis, announced that the federal government has reached an out-of-court settlement in its case against U.S. Steel Corp. for its alleged failure to abide by various undertakings that were conditional to the government's approval of its acquisition of Stelco, a Hamilton-based steel manufacturer, under the Investment Canada Act.
In September, 2007, U.S. Steel sought to acquire Stelco, and submitted the required application for ministerial review and approval under the Act. The statute requires the Minister of Industry to review a foreign acquisition of control of a significant Canadian business and to approve the change in control only if persuaded that the transaction is likely to be of "net benefit" to Canada, based on prescribed - largely economic - criteria. On October 29, 2007 the Minister approved the transaction, subject to 31 binding undertakings which U.S. Steel agreed to abide by as part of its obligations under the Act.
On May 5, 2009, however, in the wake of the global economic downturn and the shutter of two former Stelco plants in Canada (Hamilton and Lake Erie/Nanticoke), the Minister notified U.S. Steel that it had not complied with two of the undertakings, namely the obligation to ensure steady employment levels and continued production at the two plants. Consequently, the Minister demanded under section 39 of the Act that U.S. Steel comply with its undertakings and remedy its default. In response, U.S. Steel sent a letter to the Minister explaining that its non-compliance was due to the unexpected slowdown in economic activity following the 2008 financial crisis.
Eventually, the Minister commenced proceedings against the company pursuant to section 40 of the Act, seeking an order directing compliance and a penalty for non-compliance of C$10,000 for each day of the breach. In response, U.S. Steel filed a Notice of Motion challenging the constitutional validity of sections 39 and 40 of the Act on the grounds that they violated the presumption of innocence and the right to a fair hearing, contrary to subsection 2(e) of the Canadian Bill of Rights and subsection 11(d) of the Charter of Rights and Freedoms.
The Federal Court dismissed the motion by U.S. Steel, a decision that was affirmed on appeal at the Federal Court of Appeal. Details of the Federal Court of Appeal's decision can be found in our previous post on the constitutional validity of section 40 of the Investment Canada Act. On November 24, 2011 the Supreme Court denied U.S. Steel's motion for leave to appeal. Around the same time, U.S. Steel approached Minister Paradis with a proposal for new undertakings, which formed the basis for negotiations between the Minister and the company.
The final settlement requires U.S. Steel to continue producing steel in Canada for at least another four years, and to make substantial capital investments in its Hamilton and Lake Erie plants, totaling C$50 million. These undertakings are over and above U.S. Steel's original commitment to invest C$200 million in the Canadian plants by October 31, 2012.
In addition, U.S. Steel has committed to making financial contributions of C$3 million to local communities. In the Minister's view, these additional investments mean that "U.S. Steel will continue operations in Canada that provide economic benefit to the communities of Hamilton and Nanticoke". Minister Paradis praised the settlement as achieving "benefits that in all likelihood would not have been obtained through the court process". A spokesperson for the steelmaker says that "the resolution reflects our ongoing and long term interest in doing business in Canada".
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