Canada (Attorney General) v. United States Steel Corporation

Canada (Attorney General) v. United States Steel Corporation
Court (s) Database
Federal Court Decisions
Date
2010-06-14
Neutral citation
2010 FC 642
File numbers
T-1162-09
Notes
Digest
Decision Content
Federal Court
Cour fédérale
Date: 20100614
Docket: T-1162-09
Citation: 2010 FC 642
Ottawa, Ontario, June 14, 2010
PRESENT: The Honourable Madam Justice Hansen
BETWEEN:
THE ATTORNEY GENERAL OF CANADA
Respondent (Applicant)
and
UNITED STATES STEEL CORPORATION AND
U.S. STEEL CANADA INC.
Applicants (Respondents)
REASONS FOR ORDER AND ORDER
Introduction
[1] The United States Steel Corporation and U.S. Steel Canada Inc. (U.S. Steel) challenge the validity of section 40 of the Investment Canada Act, R.S. 1985, c.28 (1st Supp.) (ICA or Act) as being in violation of section 11(d) of the Canadian Charter of Rights and Freedoms and section 2(e) of the Canadian Bill of Rights, R.S.C. 1985.
Facts
[2] For the purpose of this motion, only a brief review of the facts is necessary. In September 2007, U.S. Steel submitted an application for review under the Act to obtain ministerial approval of its proposed investment in and acquisition of control of Stelco Inc.’s Hamilton-based Canadian business. In support of the application, U.S. Steel provided 31 undertakings including two in relation to employment and production levels. On October 29, 2007, the Minister approved the acquisition.
[3] On May 5, 2009, the Minister sent a demand to U.S. Steel pursuant to section 39 of the Act advising U.S. Steel that it was in contravention of the employment and production undertakings and requested that U.S. Steel cease the contraventions, remedy the default, show cause why there were no contraventions or justify any non-compliance. Subsequent to U.S. Steel’s response to the demand, the Minister informed U.S. Steel that he was not satisfied with the response. On July 17, 2009, the Attorney General of Canada filed an application under section 40 of the Act seeking an order directing U.S. Steel to comply with the two undertakings and a penalty of $10,000 per day, per breach of the undertakings calculated from November 1, 2008 until compliance with the undertakings. U.S. Steel then filed the within motion.
Overview of the legislation, transactions subject to review and the relationship between the parties
[4] Before turning to a consideration of the issues raised in this motion, an overview of the legislation together with some observations regarding the types of transactions that are subject to review under the Act and the relationship between the government and the non-Canadian investor are useful.
[5] The ICA came into force in 1985. It repealed and replaced the Foreign Investment Review Act, S.C. 1973 -1974, c. 46 (FIRA). The ICA provides that certain investments in Canada by non-Canadian investors may not be implemented unless the investment has been reviewed and approved by the Minister. To initiate the review process, the non-Canadian investor is required to submit an application containing the requisite information. In addition, the non-Canadian investor may give written undertakings in support of the application. Section 21 of the Act provides that if after taking into account the information, undertakings and representations received under section 19 and the factors set out in section 20 the Minister is satisfied that the proposed investment “is likely to be of net benefit to Canada”, the proposed investment will be given ministerial approval. Subsequent to the implementation of the investment, the Minister has the authority to monitor the investment to determine whether the investment is being carried out in accordance with the application and any representations and undertakings given by the non-Canadian investor in relation to the investment.
[6] Section 38 authorizes the Minister to issue guidelines and interpretation notes with respect to the application and administration of the Act. The current Guidelines issued by the Minister outline the procedural aspects of the proposal and monitoring stages. The Guidelines contain information regarding the pre-filing meetings, undertakings, third party representations, feedback during the review process, the determination “is likely to be of net benefit to Canada”, and post-approval monitoring.
[7] With respect to undertakings, the Guidelines encourage investors to incorporate in their plans as much detail and precision as possible to reduce the likelihood that undertakings will be needed to supplement the plans. The Guidelines also note that undertakings may still be “helpful to provide greater assurances when issues, critical to the determination of net benefit, arise.” As to monitoring, the Guidelines state that an evaluation will usually be made 18 months after the implementation of the investments.
[8] Section 39 provides that where the Minister believes that the non-Canadian investor has failed, among other things, to comply with an undertaking given at the time of the approval, the Minister may send a demand to the non-Canadian investor requiring the investor within a specified period “to cease the contravention, to remedy the default, to show cause why there is no contravention of the Act or Regulations or, in the case of undertakings, to justify any non-compliance.”
[9] A section 40 proceeding arises from the ministerial demand made pursuant to section 39. It is initiated by an application in a superior court. If at the conclusion of the hearing, the court is satisfied that the Minister was justified in sending the demand and the non-Canadian investor has failed to comply with the demand, the court may make any order or orders the court considers the circumstances require including any of the orders provided in subsection 40(2). In particular, for the purpose of this motion, the court may impose a monetary penalty not exceeding $10,000 per breach for each day the non-Canadian investor is in contravention and may direct the disposition by the non-Canadian investor of any voting interests or assets acquired that are or were used in carrying on a Canadian business.
[10] Section 40(3) provides that a monetary penalty is a debt due to Her Majesty the Queen in right of Canada and is recoverable as such in a superior court. Under section 40(4), a person or entity that fails or refuses to comply with an order made under subsection (2), may be cited and punished by the court that made the order “as for other contempts of that court”.
[11] Lastly, under section 42, everyone who knowingly provides false or misleading information under the Act or the Regulations or contravenes section 36 of the Act is guilty of an offence punishable on summary conviction.
[12] For ease of reference, the relevant statutory provisions are included with these reasons in Annex “A”.
[13] Leaving aside for the moment reviews undertaken in relation to investments that could be injurious to national security, the Act applies to significant investments by non-Canadian investors. In 2007, at the time of the approval of the investment at issue in this proceeding, the financial threshold for investments by non-Canadian investors from World Trade Organization countries was 281 million dollars. For non-World Trade Organization countries, the threshold was 5 million dollars. It is also important to note that the transactions that are subject to review are private transactions involving the acquisition of interests in Canadian businesses by non-Canadian investors.
[14] Undertakings play an important role within the legislative scheme. As Richard Lajeunesse, Investment Review Manager with Industry Canada explains in his affidavit, an application for approval under the Act must include a detailed description of the non-Canadian investor’s plans for the business being acquired with specific reference to the section 20 factors that the Minister is required to take into account in reaching a decision. In the case of significant investments, non-Canadian investors will also often submit undertakings in relation to the investor’s plans for the Canadian business directed at the section 20 factors that include maintaining the business operations in Canada, Canadian participation in the business and employment for Canadians. These undertakings are intended to demonstrate that the investment will be carried out in a manner that “is likely to be of net benefit to Canada”.
[15] During the hearing, both parties characterized the relationship under the legislation between the non-Canadian investor and the government, particularly in relation to the undertakings, as being akin to a contractual relationship. It is not necessary for the purpose of this motion to make a determination regarding the legal nature of the relationship between the government and the non-Canadian investor. It is sufficient to note that there is no dispute between the parties that the undertakings drafted by the non-Canadian investor and submitted to the government in support of the application for approval are binding commitments.
The Charter
[16] The first issue is whether section 11(d) of the Charter applies to a proceeding under section 40 of the Act. Section 11(d) reads:
11. Any person charged with an offence has the right
d) to be presumed innocent until proven guilty according to law in a fair and public hearing by an independent and impartial tribunal;
11. Tout inculpé a le droit :
d) d’être présumé innocent tant qu’il n’est pas déclaré coupable, conformément à la loi, par un tribunal indépendant et impartial à l’issue d’un procès public et équitable;
[17] As section 11(d) is limited in its application to “a person charged with an offence”, U.S. Steel must establish that a person or corporation against whom a section 40 proceeding is initiated “is a person charged with an offence”. To do so, the parties agree that U.S. Steel must demonstrate that it meets either of the two branches of the test articulated in R. v. Wigglesworth, [1987] 2 S.C.R. 541. In Wigglesworth, Justice Wilson stated that section 11(d) will apply if a matter by its very nature is a criminal proceeding or if it involves the imposition of true penal consequences.
[18] The first question to resolve is whether a section 40 proceeding is by its very nature a penal proceeding. In Wigglesworth at paragraph 23, Justice Wilson explained:
In my view, if a particular matter is of a public nature, intended to promote public order and welfare within a public sphere of activity, then that matter is the kind of matter which falls within s. 11. It falls within the section because of the kind of matter it is. This is to be distinguished from private, domestic or disciplinary matters which are regulatory, protective or corrective and which are primarily intended to maintain discipline, professional integrity and professional standards or to regulate conduct within a limited private sphere of activity”. … Proceedings of an administrative nature instituted for the protection of the public in accordance with the policy of a statute are also not the sort of “offence” proceedings to which s. 11 is applicable. … [citations omitted]
[19] In Martineau v. M.N.R. (2004), 192 C.C.C. (3d) 129 (S.C.C.), at paragraphs 21-22, Justice Fish echoed Justice Wilson’s earlier observation that “when a matter is of a public nature, intended to promote public order and welfare within a public sphere of activity, it falls, by its very nature within s. 11 of the Charter.” He also contrasted these types of proceedings with “proceedings of an administrative – private, internal or disciplinary – nature instituted for the protection of the public in accordance with the policy of a statute” that are not penal in nature. At paragraph 24, Justice Fish explained that the nature of a proceeding is to be determined on the basis of three criteria: 1) the objectives of the Act and the relevant provision; 2) the purpose of the sanction; and 3) the process leading to the imposition of the sanction.
[20] Although U. S. Steel acknowledges that it relies primarily on the second branch of the Wigglesworth test, it maintains that the first branch of the test is also met.
[21] U. S. Steel submits that the following five key factors bring section 40 squarely within the test in Wigglesworth: 1) the purpose of the legislation is public and not private; 2) the magnitude of the fine is significant; 3) the failure to pay the monetary penalty leads to contempt proceedings and exposure to a term of imprisonment; 4) the penalty goes to the Consolidated Revenue Fund and not to an internal body to maintain or regulate an internal or private sphere of activity; and 5) the penalties are imposed by a court and not by a regulator.
[22] In particular, with regard to the “by nature” branch of the test, U.S. Steel submits that the Act is of a public rather than of a private nature. The Act has the effect of creating the offence of failure to comply with a demand which if breached leads to a number of penalties including the imposition of a fine. U.S. Steel contends that having regard to the purpose of the legislation found in section 2, the factors in section 20 that the Minister must take into account and the test “is likely to be of net benefit to Canada”, the Act is not aimed at regulating a defined sphere of private activity. Rather, it is directed at promoting the public order and welfare within a public sphere of activity.
[23] U.S. Steel points out that the typical characterizations of matters as being “private, domestic or disciplinary which are regulatory, protective or corrective and which are intended to maintain discipline, professional integrity and professional standards or to regulate conduct within a limited private sphere of activity” do not apply to the ICA.
[24] U.S. Steel claims that the public nature of the legislation is also reflected in the 2009 amendment to the purpose of the Act which incorporated the recognition of “the importance of protecting national security”. U.S. Steel also points out that under the legislation a non-Canadian investor’s undertakings are given to the government and not to a regulator. U.S. Steel maintains that while the statutory scheme regulates private economic actors, these provisions illustrate the public nature of the legislation.
[25] U.S. Steel contends that a number of features of the ICA distinguish it from the typical legislation that regulates private activity. U.S. Steel points out that the activity being regulated by the Act is arbitrarily defined. That is, not all investments by non-Canadian investors are regulated by the Act. It is only applicable to investments in excess of 5 million dollars. In this respect, it is not the usual type of regulation of private activity where a defined sphere of conduct is regulated without limitations based on the magnitude of the activity or its volume. As well, the ICA is atypical in another respect in that it only provides a temporary monitoring period and not the ongoing regulation of the activity subject to the legislation.
[26] U.S. Steel also argues that other features of the ICA point to section 40 being penal in nature. U.S. Steel notes that although many pieces of legislation have both civil and criminal enforcement mechanisms, generally the penalties imposed in the criminal process are greater than those imposed in the administrative process. However, under the ICA, the penalties under section 40 far exceed those that may be imposed for a summary conviction offence. Further, unlike section 40, the penalties within an administrative process are capped and do not include a risk of imprisonment. U.S. Steel adds that there is no “tribunal process” under section 40. Instead, the matter proceeds directly to a court. Lastly, U.S. Steel notes that none of the typical civil remedies such as damages, compensation or disgorgement are found in the legislation.
[27] U.S. Steel also submits that even if section 40 does not meet the first branch of the Wigglesworth test, the monetary penalty that may be imposed under section 40 is a true penal consequence attracting the protection of section 11(d). In particular, U.S. Steel maintains the magnitude alone of the monetary penalty available under section 40 is sufficient to bring it under the second branch of the Wigglesworth test. U.S. Steel disputes the Attorney General’s interpretation that a true penal consequence has two components and argues that it is at odds with Justice Wilson’s decision in Wigglesworth. In particular, U.S. Steel submits that Justice Wilson did not create a two part test that requires a fine of sufficient magnitude and that the fine is imposed for the purpose of redressing a wrong done to society at large. That is, at paragraph 24, Justice Wilson did not say a fine by its magnitude and is imposed for the purpose of redressing a wrong done to society. Rather, Justice Wilson stated that “a fine which by its magnitude would appear to be imposed”. It is the fine by its magnitude that leads to the conclusion it is being imposed for the purpose of redressing the wrong. U.S. Steel maintains that it is from the magnitude of the fine that the purpose of the fine must be drawn. For this reason, the magnitude of the fine is the critical issue.
[28] U.S. Steel submits that its interpretation finds further support in Justice Wilson’s observation “…that if a body or an official has an unlimited power to fine, and if it does not afford the rights enumerated under s. 11, it cannot impose fines designed to redress the harm done to society at large.” U.S. Steel argues that this statement makes it clear that it may be inferred from the magnitude of the penalty that it is being imposed for the purpose of redressing a wrong done to society at large.
[29] U.S. Steel submits that when the legislation is viewed objectively, the potential monetary penalty under section 40 is so large that it cannot have any purpose other than to redress a wrong done to society at large. That is, the purpose of the penalty is to punish.
[30] U.S. Steel also submits that there are two main indicators of the purpose of a penalty. A key consideration is whether the penalty is in some manner connected to the regulated activity or has a mathematical connection to the regulated activity. U.S. Steel argues that if a monetary penalty, as in the present case, is not connected in some way to the extent of the breach and there is no relationship between the penalty and any actual damages or compensation, then the purpose of the penalty must be to redress the wrong done to society and to punish. The other key consideration is that under the ICA the penalty goes into the Consolidated Revenue Fund and is not used for some internal benefit.
[31] U.S. Steel submits that other indicators also show that the monetary penalty under section 40 is a true penal consequence. The penalty may be imposed for each breach of an undertaking and there is no provision in the legislation capping the total amount of the penalty irrespective of the number of contraventions. The fact that the monetary penalty may be imposed for each day of contravention reflects a general and specific deterrence purpose that is consistent with a penal purpose. The consequences flowing from a finding of failure to comply with a ministerial demand are penal in nature and far more serious than the penalty that may be imposed for a contravention of the summary conviction offence under section 42 without any of the procedural and substantive Charter protections afforded to an investor charged with the summary conviction offence. In particular, the daily monetary penalty is double the total amount that may be imposed for a summary conviction offence under section 42 of the ICA and, under section 40, there is potential exposure to a term of imprisonment.
[32] U.S. Steel also claims it is significant that under section 40, it is a court imposing the monetary penalty and not a regulator. In U.S. Steel’s view, the legislation is, in effect turning the court into a regulator. However, the court is always an adjudicator and never in the business of regulating. The only instance in which a court has jurisdiction to impose a fine is in the criminal or quasi-criminal setting. U.S. Steel argues that a penalty is an administrative penalty because it is imposed by an administrative tribunal. The fact that the monetary penalty under section 40 is imposed by a court and not a regulatory body also shows that it a true penal consequence.
[33] U.S. Steel takes the position that as the cases relied on by the Attorney General, Lavallee v. Alberta (Securities Commission), 2009 ABQB 17; Commissioner of Competition v. Gestion Lebski Inc., 2006 Comp. Trib 32; and Martineau v. M.N.R. (2004), 192 C.C.C. (3d) 129 (S.C.C.), are all cases where the fines were imposed by a regulator, they are of no assistance for the purpose of this motion.
[34] For example, in Lavallee where the Securities Commission had imposed a fine of one million dollars, the Alberta Court of Queen’s Bench concluded that Charter rights were not engaged because a true penal consequence could not be imposed by the Commission. In reaching this conclusion, the Court took into account the fact that the magnitude of the penalty was statutorily capped; the penalty was imposed by a tribunal and not a court; and the goal of the Securities Commission is to regulate economic activity.
[35] Similarly, in Lebski, a Competition Tribunal decision, the penalty was imposed by an administrative tribunal and not a court. U.S. Steel rhetorically asks, “is a fine when it is imposed by a court of law ever anything other than a true penal consequence”.
Analysis
[36] Turning to the first branch of the Wigglesworth test, in particular, the objectives of the Act and section 40, the purpose of the legislation is found in section 2. It reads:
Recognizing that increased capital and technology benefits Canada, and recognizing the importance of protecting national security, the purposes of this Act are to provide for the review of significant investments in Canada by non-Canadians in a manner that encourages investment, economic growth and employment opportunities in Canada and to provide for the review of investments in Canada by non-Canadians that could be injurious to national security.
[37] The stated purposes are two-fold. The first is to establish a process to review significant investments in Canada by non-Canadian investors that encourages foreign investment and fosters economic growth and employment opportunities in Canada. The second purpose is to provide a mechanism to review investments in Canada by non-Canadian investors that could be injurious to national security. The ultimate objective of the legislation in relation to the first purpose is to ensure that the proposed investment “is likely to be of net benefit to Canada”. As to the second, the objective is self-evident.
[38] As to the objective of the proceeding at issue, a section 40 proceeding is the second of a two stage process. As set out above, at the first stage under section 39, the ministerial demand gives the non-Canadian investor an opportunity to show cause why there has been no contravention, to remedy a default and to justify any non-compliance with undertakings. The ministerial demand also gives notice to the non-Canadian investor of the consequences flowing from a failure to comply with the demand. Additionally, although section 39.1 only came into force in March 2009, it provides that if the Minister believes a non-Canadian investor has failed to comply with an undertaking, the Minister may, after the implementation of the investment accept a new undertaking from the investor.
[39] In the event that the investor allegedly fails to comply with a ministerial demand, the Minister may initiate a section 40 proceeding. The range of orders that may be imposed if the court is satisfied that the Minister was justified in sending the demand and there has been a failure to comply with the demand include various degrees and forms of divestiture, directions to the investor to comply with any undertakings and to provide information requested by the Minister or the Director and the imposition of a penalty not exceeding ten thousand dollars per breach for each day the investor is in contravention of the Act.
[40] The central feature of the legislation is the determination that the proposed investment “is likely to be of net benefit to Canada”. This determination is based on the strength of the investor’s information, representations and undertakings in relation to the broad economic factors found in section 20. If the investment is not carried out in accordance with the basis upon which it was approved, in particular, if the undertakings are not honoured, there is a risk that the ultimate objective of the legislation will be undermined.
[41] Read in the context of sections 39 and 39.1, and having regard to the legislative objectives and the types of orders available under section 40, the objective of a section 40 proceeding is to enforce compliance with the provisions of the Act and any undertakings that may have been given in support of the application for approval.
[42] The second criterion in Martineau concerns the purpose of the sanction. Although there are a number of sanctions that may be imposed under section 40, the focus for the purpose of this motion is on the monetary penalty. Having regard to the purpose and the objectives of the legislation, the critical role that undertakings play in the approval process and in ensuring the attainment of the legislative objectives, the opportunity for voluntary compliance prior to the initiation of a section 40 proceeding, the “for each day … in contravention” structuring of the monetary penalty, I find that the purpose of the monetary penalty is to encourage and promote timely compliance and to enforce compliance with any undertakings and provisions of the legislation.
[43] As to the third criterion, the process leading to the imposition of the sanction, under the Act is an application brought on behalf of the Minister in a superior court, a civil proceeding. This reflects Parliament’s deliberate choice to enforce compliance with undertakings and the provisions of the Act through a civil and not a criminal proceeding.
[44] U.S. Steel stresses the public nature of the legislation and that it is aimed at promoting the public order and welfare within a public sphere of activity. There is no doubt that the legislation has a public aspect in that it is aimed at encouraging investment, economic growth and employment opportunities for the benefit of Canadians. However, it does not necessarily follow from the broad public aspect of the legislation alone that the legislation and, in particular, a section 40 proceeding is aimed at regulating a public sphere of activity. In my view, a section 40 proceeding is not concerned with a public sphere of activity. As stated above, a section 40 proceeding arises in the context of a private transaction involving the acquisition of interests in Canadian businesses by private investors. A section 40 proceeding concerns the information, representations and undertakings given by a non-Canadian investor to the government to obtain ministerial approval of a private investment. In a section 40 proceeding, the investor is not being called to account to the public. The investor is being called to account to the government for a failure to honour commitments made to the government.
[45] Further, apart from the assertion that a section 40 proceeding is intended to promote public order and welfare, U.S. Steel did not explain the basis upon which the regulated activity implicates or threatens the public order and welfare. While I accept that a section 40 proceeding serves a public purpose, in my opinion it does not serve the broader public service of promoting the public order and welfare within a public sphere of activity.
[46] The legislative history also supports the conclusion that a section 40 proceeding is non-criminal in nature. Under the FIRA, the predecessor legislation, the enforcement proceedings for non-compliance were criminal in nature. At the February 5, 1985 meeting of the Standing Committee on Regional Development, the responsible Minister, the Hon. Sinclair Stevens explained:
In order to ensure compliance with the proposed act, sections 39 to 43 of the bill provide for certain penalties but, contrary to the current legislation, Bill C-15 prescribes civil, as opposed to criminal penalties for non-compliance. There is only one exception. There is a criminal penalty for breach of confidentiality or the provision of false information. …
De façon à assurer le respect de la loi, les articles 39 à 43 du projet de loi prévoient certaines sanctions. À l’encontre de la loi actuelle, le projet de loi C-15 prévoit des sanctions d’ordre civil, plutôt que criminel, pur le défaut de se conformer à la loi. Il n’y a qu’une exception : des sanctions criminelles sont prévues pour bris de confidentialité ou faux renseignements. …
Accordingly, it can be seen that in implementing the ICA Parliament intended a civil enforcement mechanism and civil penalties to deal with non-compliance.
[47] It is convenient at this point to touch briefly on the second purpose of the legislation, namely, to ensure that proposed investments will not be injurious to national security. U.S. Steel relies on the recognition of the importance of national security to show the public nature of the Act. Clearly, national security is a matter of public interest. However, as stated above, it does not necessarily follow from this broad public interest component that the legislation and a section 40 proceeding are penal in nature. In my view, the provisions of the Act regarding national security are aimed at preventing investments that may compromise national security and, in this sense, further the legislative purpose.
[48] U.S. Steel also submits that the penal nature of a section 40 proceeding is also reflected in the fact that section 40 is in part VII of the Act under the heading “Remedies, Offences and Punishment”. I am not persuaded that this assists U.S. Steel’s position given that the heading includes “remedies” and not just “offences and punishment” and section 42 in the same part of the Act creates two offences punishable on summary conviction.
[49] In the course of its argument, U.S. Steel compared and contrasted the ICA with other legislation in an attempt to demonstrate that this legislation is unlike other regulatory legislation or legislation focused on private, internal or disciplinary matters that are not penal in nature. In my view, given the unique character of this legislation this approach is not particularly helpful. As Chief Justice McLachlin stated in R. v. Shubley, [1990] 1 S.C.R. 3 at page 18, “the logic of R v. Wigglesworth is to proceed not by a category approach, but by application of the general principles” articulated in that case.
[50] Based on the above considerations, I conclude that a section 40 proceeding is not “by nature” a penal proceeding.
[51] Even though, in my opinion, this is not the type of matter that was intended to come within section 11 of the Charter, section 11 may still be engaged if it involves the imposition of a true penal consequence. In Wigglesworth, at paragraph 24, Justice Wilson described a true penal consequence in the following terms:
This is not to say that if a person is charged with a private, domestic or disciplinary matter which is primarily intended to maintain discipline, integrity or to regulate conduct within a limited private sphere of activity, he or she can never possess the rights guaranteed under s. 11. Some of these matters may well fall within s. 11, not because they are the classic kind of matters intended to fall within the section, but because they involve the imposition of true penal consequences. In my opinion, a true penal consequence which would attract the application of s. 11 is imprisonment or a fine which by its magnitude would appear to be imposed for the purpose of redressing the wrong done to society at large rather than to the maintenance of internal discipline within the limited sphere of activity.
[52] As stated above, U.S. Steel contends that the magnitude of the monetary penalty alone is sufficient to engage section 11(d) of the Charter. U.S. Steel characterizes the potential monetary penalty under section 40 as being a “King Kong fine” and submits that the magnitude is of such significance that it can only be regarded as a true penal consequence. This assertion raises a number of questions. The first is whether U.S. Steel’s interpretation of the second branch of the test is correct. As set out earlier, U.S. Steel’s interpretation is that it is the fine by its magnitude that leads to the conclusion it is being imposed for the purpose of redressing the harm done to society.
[53] U.S. Steel claims that its interpretation is supported by Justice Wilson’s observation “… that if a body or an official has an unlimited power to fine, and if it does not afford the rights enumerated under s. 11, it cannot impose fines designed to redress the harm done to society at large”. I note, however, that Justice Wilson added “[i]nstead, it is restricted to the power to impose fines in order to achieve the particular private purpose.” I interpret Justice Wilson’s observation to mean that a body can have an unlimited power to fine, however, to determine whether the penalty is a true penal consequence the analysis has to proceed beyond the magnitude of the fine to determine whether it is being imposed for the purpose of redressing the harm done to society or for a particular private purpose.
[54] I note, as well, that U. S. Steel’s interpretation of the test does not find support in the jurisprudence. In Martineau, the appellant argued that the magnitude of the amount claimed under the Customs Act, R.S.C. 1985 c.1 (2nd Supp.) made it a true penal consequence. In rejecting the argument, Justice Fish observed that the argument was falsely premised on magnitude alone and continued his analysis to determine whether the payment claimed under the Customs Act constituted a fine that by its magnitude was being imposed for the purpose of redressing a wrong done to society.
[55] More recently, in Lavallee, a case concerning the Alberta securities legislation, Chief Justice Wittmann, at paragraph 142, stated:
My reading of Wigglesworth is that, on one hand, the fact that the Securities Act is regulatory legislation is obviously not sufficient to determine whether the consequences of the application of s. 29 leads to true penal consequences. On the other hand, the dollar amount of the administrative penalty or its magnitude is not determinant, in itself, to qualify as a true penal consequence. In fact, it is the magnitude of the administrative penalty combined with the purpose for which it can be imposed that will determine whether it entails true penal consequences. [Emphasis added]
[56] Subsequent to the hearing of this motion, the Alberta Court of Appeal dismissed the appeal from this decision: Lavallee v. Alberta (Securities Commission), [2010] A.J. No. 144. On the question as to whether the magnitude of a penalty alone was sufficient to engage the protections of section 11, of the Charter, the Court observed at paragraph 23:
… The chambers judge rejected that argument, emphasizing the need to consider the purpose of the sanction, and not just its magnitude, in assessing whether it amounts to a true penal consequence. Moreover, when considering the purpose of the sanction it is necessary to consider the overarching purposes of the Securities Act, which include the protection of investors and the public, the efficiency of the capital markets, and ensuring public confidence in the system. In the end, the chambers judge agreed with this Court’s conclusion, at para. 54 of Brost, that the increase in the magnitude of administrative penalties reflects a legislative intent to ensure that the penalties are not simply considered another cost of doing business. He therefore concluded that no true penal consequences arise under ss. 198 and 199 of the Securities Act and that s. 11 of the Charter is, accordingly, not engaged here. I agree.
[57] Having regard to Justice Wilson’s observation and the jurisprudence it is clear that the magnitude of a monetary penalty alone is not a sufficient basis upon which to conclude that the penalty is a true penal consequence. However, this does not fully respond to U.S. Steel’s argument. U.S. Steel contends that there is a point at which the penalty is so large that the only conclusion that can be drawn is that it is a true penal consequence. U. S. Steel submits that the characterization of a penalty as an administrative monetary penalty cannot immunize it from Charter scrutiny and notes the following recent statement of the Federal Court of Appeal in Doyon v. Canada (Attorney General), 2009 FCA 152, at paragraph 27:
In short, the Administrative Monetary Penalty System has imported the most punitive elements of penal law while taking care to exclude useful defences and reduce the prosecutor’s burden of proof. Absolute liability, arising from an actus reus which the prosecutor does not have to prove beyond a reasonable doubt, leaves the person who commits a violation very few means of exculpating him- or herself.
[58] The difficulty with this argument is that the enormity of a monetary penalty cannot be assessed in isolation. On the one hand, in the context of the financial threshold of the investments subject to review under the ICA, 281 million dollars at the time of the approval in this case, a monetary penalty of $10,000 per breach for each day the investor is in contravention may be less significant. On the other hand, in the context of the five million dollar financial threshold for investors from non-World Trade Organization countries the potential penalty is enormous. Without context, it cannot be said that a dollar value alone, can lead to no other inference but that the penalty is being imposed to punish. To be effective, the legislated monetary penalty has to be of a sufficient scope to address the financial range of the reviewable investments. It also has to be of a sufficient magnitude to deter non-compliance and to not be seen as simply a cost of doing business.
[59] As part of the response to U.S. Steel’s assertion that the magnitude of the monetary penalty alone is sufficient to make it a true penal consequence, the Attorney General notes that the determination of the amount of the penalty is a matter of judicial discretion to which U.S. Steel counters that the exercise of judicial discretion cannot save an otherwise unconstitutional provision. This argument is rejected for two reasons. First, the argument is premised on the assertion that the magnitude of the maximum monetary penalty available under the legislation alone is sufficient to render the provision unconstitutional. Section 40 does not require the imposition of the maximum monetary penalty or any monetary penalty. The court may make any order or orders the court considers the circumstances require. Second, as the Attorney General submits, this argument assumes a prospective breach of the Charter in the exercise of the discretion under the monetary penalty provision of the Act. As Justice Lebel reaffirmed in R. v. Shoker, [2006] 2 S.C.R. 399, at para. 39, Parliament is entitled to assume that its legislation will be applied in a manner consistent with the constitution.
[60] As to U.S. Steel’s reference to the Doyon decision, on my reading of the decision the reference to the “Administrative Monetary Penalty System” is not to the use of administrative monetary penalties generally but to the particular system established by the Agriculture and Agri-F