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
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
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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