The Federal Court of Appeal held that s. 39 and 40 of the Investment Canada Act violate neither s. 11(d) of the Charter, nor s. 2(e) of the Canadian Bill of Rights. Accordingly, where foreign investors fail to comply with undertakings made as part of their applications to obtain control of major corporations, it is constitutionally valid for the Minister to seek to impose monetary penalties under the Act.
In reaching this result, the Court applied the two-part test, as established in R. v. Wigglesworth, to determine whether s.11 of the Charter applied. Under the Wigglesworth test, the proceeding must either be criminal in nature, or lead to the imposition of a "true penal consequence". Under the first part of the test, the Court applied the three factors set out in Martineau v. M.N.R. to determine whether the proceeding was criminal in nature. In applying the criteria set out in Martineau, the Court concluded that the objective of s. 40 sanctions is to "encourage and promote timely compliance with any undertakings and provisions of the legislation." Further, Justice Nadon found that a court's powers in a s. 40 hearing are directed at preventing harm to the Canadian economy, and not toward retributive aims. The Court went on to clarify that the mere availability of contempt proceedings to punish non-compliance, notwithstanding the possibility of imprisonment, does not turn the s. 40 monetary penalties into fines. This is because U.S. Steel faces the possibility of contempt proceedings only if it is able, but unwilling, to pay the penalty imposed under the Act. Accordingly, the court found that the relevant provisions of the Act did not fall under the first Wigglesworth category. With respect to the question of whether the sanctions constitute a "true penal consequence", the Court noted that the magnitude of the penalties is not determinative, and that large penalties are required to deter large corporations from absorbing the penalties as simply "another cost of doing business". Accordingly, the relevant provisions did not fall under either of the Wigglesworth categories and therefore did not attract s. 11 protection.
Finally, the Court dismissed U.S. Steel's submission that the lack of a criteria for setting fines inevitably makes the monetary penalty punitive, holding that even an unlimited statutory power to fine will not be subject to s. 11 scrutiny as long as it is exercised to achieve "proper administrative aims".
With regard to U.S. Steel's Bill of Rights challenge, Justice Nadon held that section 40 of the Canada Investment Act does not violate the right to a fair hearing in accordance with the rules of fundamental justice, and that the Federal Court Rules are sufficient to satisfy the requirements of s. 2(e). In particular, s. 40 does not infringe upon a party's right to know the case he or she has to meet, and the Rules provide the appropriate procedural protections to ensure that the investor understands the Minister's case.
May 25, 2011
Link to Decision
Steve Holinski & Edward Changsik Kang
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