Canadian COMPETITION LAW

August 7, 2010

In a decision late last month, the Supreme Court of British Columbia struck out Novus Entertainment’s claims against Shaw Cablesystems based on the abuse of dominance provisions of the Competition Act.

Novus’ challenge against Shaw was based, in part, on a Shaw promotional campaign in which it offered promotional pricing for some of its services (high definition television, digital telephone and high-speed internet services).

Novus argued that Shaw had been targeting its customers with offers at prices “far less” than the prices charged by Shaw to its existing customers, which constituted the tort of unlawful interference with economic interests.  In particular, Novus claimed that Shaw had deliberately interfered with Novus’ economic interests by illegal means, namely by contravening the abuse of dominance provisions of the Competition Act through allegedly predatory conduct.

In alleging that Shaw had engaged in illegal conduct, and had violated the Act’s abuse provisions, Novus included rather extensive pleadings setting out the requisite elements to establish abuse of dominance, including allegations of Shaw’s dominance in several markets (including cable and satellite television in Western Canada), that Shaw engaged in a practice of anti-competitive acts (including sales below variable or avoidable costs – the appropriate cost standard for predatory pricing remains unsettled in Canada) and that its conduct was likely to prevent or lessen competition substantially in several relevant markets.

Novus also made alternative claims based on allegations that Shaw contravened the former criminal predatory pricing provisions of the Competition Act, which were repealed in March, 2009 (the former section 50 of the Act).  Under section 36 of the Competition Act, private parties may commence private damages actions for contraventions of the criminal provisions of the Act (which used to include section 50, before it was repealed).

The Court held that the portions of Novus’ claim alleging a breach of section 79 of the Act should be struck out.  In coming to its conclusion, the Court relied on the decision of Tysoe J. in the Pro-Sys case, which held that without a Competition Tribunal order, conduct that merely allegedly contravenes Part VIII of the Act (the Act’s reviewable matters provisions, including abuse of dominance) does not constitute illegal or unlawful means to satisfy the second element of the tort of interference with economic relations:

“My ruling at this stage is that it is plain and obvious that, in the absence of an order of the Competition Tribunal and with no other reason to make it illegal or unlawful, conduct of the nature described in Part VIII of the Competition Act does not constitute illegal or unlawful means to satisfy the second element of the tort of interference with economic relations.”

In a somewhat confusing analysis, Greyell J. held:

“The plaintiff acknowledges that existing case law requires that there be an order of the Tribunal before an action can be commenced for damages under s. 36 of the Act.”

This part of the Court’s analysis, however, is simply wrong.  While it is true that a breach of an order made under the Competition Actmay give private parties an alternative basis to commence a private action, actions may also be commenced in the absence of a court or Tribunal order (though only for breach of the criminal provisions found under Part VI of the Act not under the Act’s reviewable matters provisions).  In this regard, Greyell J. appears to have confused the requirement for an order under the Act (and a breach of such order) as one basis for commencing a private action, with the separate and distinct right to commence an action where there has been a breach of one or more of the Act’s criminal provisions.  In any event, neither basis would have given Novus a right to commence an action under section 36, given that section 79 (abuse of dominance) is not one of the Act’s criminal provisions and there had as yet been no order made (yet alone breached) by the Competition Tribunal.

With respect to whether an alleged breach of section 79 could constitute one of the necessary elements for the tort of unlawful interference with economic interests, Greyell J. held that the recent amendments to the Competition Act (introducing “administrative monetary penalties”, essentially civil fines) did “not change the rationale underlying the decision in Pro-Sys” and in order for conduct to be considered illegal for the purpose of making out the tort of unlawful interference with economic interests, the “Tribunal must first make an order under s. 79(1) …”  As such, Greyell J. concluded that until the Tribunal had concluded that conduct was anti-competitive under section 79, “it cannot be said that a party’s conduct is unlawful.”

In this regard, Novus had argued that, as a result of the recent amendments to the Act, which introduced “administrative monetary penalties” for the first time under section 79, that the “fundamental character” of section 79 had changed and that, based on the Tribunal’s power to award such penalties, conduct under section 79 was now per se illegal.

Some Implications of the Decision

This recent British Columbia Supreme Court case is interesting for a number of reasons.

First, the decision confirms that there are no private action rights per se under the abuse of dominance provisions of the Competition Act (section 79).  This part of the decision is not surprising and uncontroversial.

Second, and more interestingly, the case shows that plaintiffs are attempting to find ways to expand their private rights of action under the Competition Act.  In this case in particular, while the criminal predatory pricing provisions of the Act used to allow section 36 private actions for alleged predatory conduct, the remedies under section 79 are far narrower in that only the Commissioner of Competition has the power to commence abuse of dominance applications to the Tribunal under section 79 (there are no private rights of action or damages available under section 79).

Third, the case, if followed, indicates that section 79 of the Competition Act will only be helpful to plaintiffs claiming that rivals have engaged in predatory conduct in very narrow circumstances – namely, where the Competition Tribunal has issued an order.  Given that there have been less than ten contested abuse of dominance cases since 1986, this may mean that such orders, to the extent they are sought to be included in causes of action (including economic torts), may be of very limited help to plaintiffs.

Finally, the case may also prove interesting in that, in addition to Novus’ claims based on section 79, it also argued that Shaw’s conduct violated the former criminal predatory pricing offence under section 50 of the Act.  Given that section 50 was repealed in March, 2009, and that Shaw’s alleged predatory conduct only occurred for a relatively short period when the provision were in force, it will be interesting to see whether Novus’ section 50 arguments are accepted (and as well the extent to which they may provide a basis for damage claims given the relatively short duration of the alleged conduct while section 50 was in force).

For the BC Supreme Court’s decision see: Novus Entertainment Inc. v. Shaw Cablesystems Ltd. (BCSC)

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