Canada's Supreme Court dismisses U.S. Steel appeal

Decision clears way for government to fine for breaking job-protection promises
By Euan Rocha and Randall Palmer
||Last Updated: 11/24/2011

The Supreme Court of Canada says it will not hear an appeal that pitted Canada’s federal government against American steelmaker United States Steel Corp. over the company’s 2007 purchase of Hamilton-based Stelco Inc.

The decision by Canada's top court gives the federal government the right to fine U.S. Steel for breaking job-protection promises made when it bought Stelco.

By refusing to hear the appeal by U.S. Steel, the Supreme Court blocked an attempt by the steelmaker to overturn the foreign investment law, under which the government is seeking to levy $10,000 a day in fines.

Ottawa wants the fines applied from Nov. 1, 2008, as it claims U.S. Steel has broken undertakings it made at the time when the government approved the company's takeover of Stelco. As of today, the fines would potentially amount to more than $11 million, plus any interest applied.

Despite the Nov. 24 Supreme Court decision, experts note it is likely to be a while before any fines get imposed. The current appeal dealt with the "constitutional validity" of the government's case and a separate lawsuit against the company will now proceed.

Earlier this year, the Federal Court of Appeal struck down U.S. Steel's efforts to overturn Canadian foreign investment law, after almost two years of procedural and legal challenges.

The government sued the company in 2009, claiming the steelmaker's decision to shut down two former Stelco plants violated promises it made about maintaining employment levels.

U.S. Steel bought Stelco in 2007 for US$1.1 billion, and the decision to idle the facilities affected about 1,500 jobs. The company challenged Ottawa's right to sue it, blaming weak demand for the shutdowns.

The official agreement between U.S. Steel and the Canadian government allowed the acquisition of Stelco to go ahead has not been made public. Currently, all acquisitions over $312 million involving a foreign buyer are required to pass a federal review to ensure the takeover provides a "net benefit" to Canada.

While Ottawa does not detail what "net benefit" means, it considers employment, technology development, productivity, competition and the effect a takeover will have on national policies. In approving the Stelco deal, the government cited job protection as one of the benefits.

Last year, opponents of mining giant BHP Billiton's $39 billion hostile bid for Potash Corp repeatedly pointed to U.S. Steel's poor track record on job protection as an example of how foreign takeovers harm Canadian interests.

The United Steelworkers union, which represents workers at the former Stelco facilities, welcomed today's Supreme Court decision.

"We are pleased by the decision," said Mark Rowlinson, a lawyer with the USW. "We are hopeful that this will clear the way for the matter to be tried as soon as possible."

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