Hart and Smith later joined forces with Bret Hart, Jim Neidhart, and Brian Pillman to form a new form of the Hart Foundation, a heel faction which feuded with Stone Cold Steve Austin and other American wrestlers. This created an interesting rift between American fans, where the Hart Foundation were vilified, and Canadian fans, who revered the Hart Foundation. Smith and Owen dropped the World Tag Team Titles to Austin and Michaels, and lost the final match in a tournament for the vacant Tag Team Titles to Austin and Dude Love.  Smith then started a feud with Ken Shamrock for the European Title, and eventually lost the European Title to Shawn Michaels at the British Pay-per-view event One Night Only. Smith was booked in the main event to defend the belt against Michaels. However, Michaels convinced Vince McMahon that he should win, as it would create build-up not only for his impending rematch with Bret Hart, but also for a rematch against Smith at the next British pay-per-view.  Smith reluctantly agreed, and fans at the event, who gave Smith an ovation, voiced their displeasure by viciously booing Michaels and littering the ring with garbage.  This marks the only time Smith lost on a WWF card in the United Kingdom. After the 1997 Survivor Series which became famous for the Montreal Screwjob in which Vince McMahon changed the finish of Bret Hart's match and had him lose the WWF title to Michaels (who was also in on it) despite Hart not actually submitting when Michaels had him in a Sharpshooter, Smith, along with Bret Hart and Neidhart, left the WWF for WCW.
After entering the Royal Rumble as the second entrant in 1995, Smith and Shawn Michaels were the final two remaining participants at the end. Smith tossed Michaels over the ropes and celebrated on the second turnbuckle. However, only one of Michaels feet hit the floor and he was able to reenter the ring and eliminate Smith from behind. Soon after, Smith began teaming with Lex Luger as the Allied Powers . The team wasn't much of a success and only wrestled on two pay-per-views as a tag team. The first came at WrestleMania XI where they defeated The Blu Brothers . The second came at In Your House 2 where they failed to win the Tag Team Championship from Owen Hart and Yokozuna . Afterward the team briefly began feuding with Men on a Mission . On an August episode of Monday Night Raw , the Allied Powers were supposed to face Men on a Mission but Luger (kayfabe) no-showed the match; Smith found a replacement in the WWF Champion Diesel . During the match Smith unexpectedly attacked Diesel and turned heel for the first time in his WWF career, helping Men on a Mission beat up Diesel and aligning himself with Jim Cornette 's stable with Owen Hart and Yokozuna, who had been his adversaries just a month earlier, thus disbanding the Allied Powers.