If foreign companies that fail to keep promises made when they invest in Canada face too small a fine, the penalty would be treated as "just another cost of doing business," says the federal government.
Lawyers representing the federal attorney general were in Federal Court in Toronto on Wednesday, defending the Investment Canada Act against claims by U.S. Steel Corp. that it violates foreign companies' constitutional rights.
U.S. Steel, which bought the former Stelco for more than $1-billion in 2007, is facing fines of up to $10,000 per day, per contravention of the act for as long as it fails to comply - an amount the company says could amount to $14.6-million - for its failure to keep employment and production promises it made when it acquired the Hamilton-based steelmaker. Under the act, it could also face divestiture of its Canadian operations.
However, U.S. Steel is arguing that the case should be dismissed entirely because the act punishes a company that doesn't comply with its rules as if it has committed a criminal offence, but doesn't give it the rights guaranteed under criminal proceedings, and therefore violates the Charter of Rights and Freedoms.
But government lawyer Jeffrey Johnston said U.S. Steel's argument that the potential fine of up to $10,000 per day is penal in nature is based on a false assumption. He said that even in civil cases, fines need to be high enough that the company will be deterred from breaking its promises again.
"If a monetary penalty is to deter, it has to be of significant magnitude that it will amount to more than another cost of doing business," Johnston said. "Penalties have to have teeth."
To a "billion-dollar corporation" like U.S. Steel, a small fine could easily be absorbed and wouldn't deter the company from continuing to violate its promises, he said.
Mr. Johnston was critical of the steelmaker for closing its Canadian operations - which include plants in Hamilton and Nanticoke, Ont. - during the recession while continuing to keep some of its American plants open, and said the purpose of the Investment Canada Act is to deter this type of behaviour by foreign companies operating in Canada.
The company doesn't dispute that it broke two of the 31 undertakings it made at the time of its acquisition of Stelco, but says it was justified in doing so because the "sudden international economic crisis" left it with no choice. However, federal Industry Minister Tony Clement ruled that this was not a good enough justification and therefore legal action was necessary.
The crux of U.S. Steel's argument before the court is that the act does not allow the company to receive full disclosure of the case against it and therefore violates the Charter of Rights and Freedoms.
In other words, the industry minister was not obligated to give his reasons why U.S. Steel had failed to justify its inability to meet its promises, even though the Investment Canada Act does allow for the investor to "justify any non-compliance."
But Mr. Johnston argued that this isn't necessary under a civil proceeding, and cases under the Investment Canada Act in no way criminal in nature.
The act has none of the hallmarks of a criminal proceeding, he argued: no one is arrested for violating it, there is no finding of guilt or innocence and violators won't have a criminal record.
Once both sides have made their arguments, it will be up to Justice Dolores Hansen to decide whether the act is indeed unconstitutional and the case against U.S. Steel should be thrown out.
If she decides the case should proceed, the Federal Court will then hear arguments from both sides as to whether U.S. Steel was justified in failing to meet its promises and, if not, how it should be punished.