June 18, 2010

Ottawa gets green light in case against U.S. Steel

TORONTO

After failing to quash a lawsuit that could force it to sell its Canadian operations, U.S. Steel Corp. will most likely turn its efforts toward negotiating an out-of-court settlement with Ottawa, experts say.

“They’ve got a pretty strong signal here that their case is going nowhere,” Richard Powers, a corporate law expert and associate dean at the University of Toronto’s Rotman School of Management, said in an interview.

The Federal Court’s ruling June 14 means that, barring an appeal, the government’s case against U.S. Steel for breaking employment and production promises can proceed. If the steelmaker is found to have illegally broken promises it made to Ottawa when it bought Hamilton-based Stelco Inc. in 2007, it could face a multimillion-dollar fine or the forced sale of its Canadian assets.

The government says U.S. Steel broke two of its undertakings when it cut production and slashed its workforce to 23 per cent of the 3,100 people it had promised to employ. Since then, all of the remaining laid-off workers have been recalled to the company’s Hamilton plant.

The steelmaker doesn’t deny that it failed to keep its promises, but says it was justified because the global recession decimated demand for its product.

However, federal Industry Minister Tony Clement said this wasn’t a good enough reason and took the company to court. U.S. Steel responded by challenging the constitutionality of the legislation that governs foreign companies operating in Canada.

The steelmaker argued that the Investment Canada Act imposes penal consequences — a fine of $10,000 a day for as long as the company is in contravention of its promises, or the divestiture of its Canadian assets — without giving it the rights guaranteed under a criminal proceeding.

But Justice Dolores Hansen disagreed Monday, arguing the potential penalties under the act are reasonable and “purely economic.”

Canadian Press

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