On May 25, 2011, the Federal Court of Appeal released its decision in Canada (Attorney General) v United States Steel Corp. In this decision, the FCA dismissed the appeal of US Steel, affirming the decision of the lower court to the effect that s. 39 and 40 of the Investment Canada Act (ICA) do not violate s. 11(d) of the Charter and s. 2(e) of the Bill of Rights. Accordingly, the constitutional validity of monetary penalties issued by a court under s. 40 of the ICA, in response to a breach of undertaking, has once again been upheld.
By way of background, on July 17, 2009, the Minister of Industry asked the Federal Court to impose retroactive penalties against US Steel under s. 40 of the ICA for allegedly breaching two undertakings made by US Steel as conditions for the Minister’s approval of the 2007 acquisition of Stelco, one of the last Canadian-owned steel companies in Canada. The Act allows for fines of $10,000 per day per breach, until such a time that US Steel complied with the undertakings. US Steel opposed the penalties, arguing that ss. 39 and 40 of the Act violated s. 11(d) of the Charter (the presumption of innocence for persons charged with an offence) and s. 2(e) of the Bill of Rights (the right to a fair hearing in accordance with the principles of fundamental justice). In its June 14, 2010 decision, the Federal Court rejected US Steel’s arguments. It ruled that the s. 40 penalties fell outside the ambit of s. 11(d) because, following the Supreme Court of Canada in R. v Wigglesworth, the penalties were not criminal in nature, nor did they impose true penal consequences. Further, the Federal Court rejected the Bill of Rights argument because US Steel had not been denied natural justice or procedural fairness in this case. US Steel appealed to the FCA, leading to the decision just issued.
The FCA dismissed the appeal, following the reasoning that in order for s. 11(d) of the Charter to apply to a proceeding, the proceeding must either be criminal in nature or lead to truly penal consequences. The FCA affirmed that the proceedings under s. 39 and 40 of the ICA met neither of these criteria, and therefore s. 11(d) was not applicable. In so ruling, the FCA confirmed two important points. First, it confirmed that the purpose of the s. 40 sanctions is to encourage timely compliance with undertakings made under the ICA, rather than to punish foreign investors for a societal wrong. Second, it confirmed the proposition that a large monetary penalty does not automatically imply a penal consequence. This proposition recognizes that large fines are sometimes required to deter large corporations from flouting regulations, so that fines are not simply regarded as a cost of doing business.
Significantly, the FCA ruled that even the possibility of contempt proceedings, which are available under s. 40(4) of the ICA, do not render the proceedings criminal in nature, notwithstanding the fact that contempt proceedings can result in imprisonment. This is because US Steel would only face the possibility of contempt proceedings if it was able but unwilling to pay the penalty. Further, any contempt proceedings would arise separately from the current proceeding and would attract full Charter protection at that time.
This decision is significant because it confirms that the Minister of Industry can validly impose sanctions for breaches of undertakings made by foreign investors under the Investment Canada Act. Further, the principles espoused in the case may be transferable to other administrative monetary penalties, such as those in the Competition Act, the validity of which have yet to be tested in court.