Ottawa has a case for suing Cleveland-Cliffs. But what does it hope to achieve?

Nicolas Lamp is an associate professor at the faculty of law at Queen’s University.

At first glance, Cleveland-Cliffs’s layoffs at Stelco are clearly in violation of an undertaking made to Ottawa when it bought the Hamilton steelmaker in 2024. However, the company points out that the interpretative guidelines relating to the Investment Canada Act stipulate that “where inability to fulfill a commitment is clearly the result of factors beyond the control of the investor, the investor will not be held accountable.”

Cleveland-Cliffs argues that it cannot comply with its undertaking because of the tariffs on Canadian steel imports imposed by the Trump administration, which necessitated the layoffs. Industry Minister Mélanie Joly has countered that Cleveland-Cliffs has backed the tariffs, and therefore “they cannot say that this is now an act of God or force majeure.” It appears increasingly likely that the government will take the company to court.

The CEO of Cleveland-Cliffs does not deny that he has supported the tariffs and continues to do so. On Monday, Lourenco Goncalves doubled down on this stance.

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A key question that a court would have to decide is whether Cleveland-Cliffs’s support for the tariffs means that the tariffs are no longer a “factor beyond the control of the investor” for the purposes of the Investment Canada Act. It appears that is likely.

This relevant provision has never been interpreted by a court, but we can reason by analogy from the law of contract (in previous litigation between the Government of Canada and U.S. Steel, then the owner of Stelco, the Federal Court noted that both parties saw undertakings under the Investment Canada Act as “akin” to a contract). In contract law, a party can only claim that a contract was “frustrated” by a supervening event if that event occurred “without the fault of either party.” The question thus becomes: Does Cleveland-Cliffs’s support for the tariffs mean that the tariffs are its “fault”?

If Cleveland-Cliffs had merely expressed support for tariffs that would have been imposed anyway, the government’s case would be weak. However, Mr. Goncalves went much further: He has taken credit for convincing President Donald Trump to increase the U.S. tariffs on steel from 25 per cent to 50 per cent, stating: “I’m very happy with 50 per cent. … I have my fingerprints on that 50 per cent. In other words, I influenced that.”

That statement is as much of a smoking gun as the Canadian government could hope to find in order to convince a court that the tariffs were, at least in part, the “fault” of Cleveland-Cliffs and hence not “beyond the control of the investor.”

But even though the Government of Canada has a strong substantive case, the question remains: What can it hope to achieve?

Ms. Joly has consistently drawn attention to three types of remedies that the Investment Canada Act provides: monetary penalties, a court order directing compliance and a court order for divestiture.

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The simplest remedy would be monetary penalties, which can reach up to $10,000 a day. However, what would be the purpose of seeking such penalties against Cleveland-Cliffs? The only conceivable purposes – apart perhaps from deterring other companies from breaching their commitments – would be to obtain leverage against Cleveland-Cliffs and potentially force it to agree to a sale of Stelco. It appears extremely unlikely that penalties would convince the company to hire back the workers, especially since the penalties would further weaken its financial position.

The government could also try to get a “court order directing compliance” – essentially, a court order to force Cleveland-Cliffs to hire back the workers. However, it is extremely unlikely that a court would grant such an order. Again, we can look to contract law for guidance. Courts will not order the “specific performance” of a contract where doing so would require continuing supervision by the court, which would be the case if a court ordered Stelco to rehire the workers. It is inconceivable that a court would order Cleveland-Cliffs to reinstate hundreds of workers.

Finally, the government could seek a court order for divestiture: a forced sale of the company. Such an order could open the door to government ownership of the company, should no private buyer step up, which is something the government may well want to consider.

However, if the government’s ultimate goal is to nationalize the company, there would be much quicker ways to achieve it than court proceedings: Namely, the government could negotiate for the sale of the company or follow the British example and expropriate it via legislation (with compensation).

Both would be quicker than lengthy court proceedings and would allow the new management that the government would put in place to rehire the workers before the company’s customers move on.