Canadian COMPETITION LAW

In an interesting recent decision by the Ontario Superior Court, the Court refused to allow defendants in a conspiracy action to strike plaintiffs’ claims on the basis of the regulated conduct defence (“RCD”) merely because the industry was regulated.

In Fournier Leasing Co. v. Mercedes-Benz Canada Inc., 2012 CarswellOnt 6068 (Ont. Sup. Ct.), plaintiff auto importers alleged that Mercedes-Benz Canada Inc., Mercedes-Benz USA LLC and BMW Canada Inc. had, among other things, conspired with their dealers in relation to the regulation for the importation of Mercedes and BMW cars into Canada.  In particular, the plaintiffs alleged that Mercedes and BMW conspired with their respective dealers to pressure Transport Canada to make certain changes to its admissibility requirements for vehicles imported into Canada, including requirements for Mercedes and BMW to provide admissibility and recall information that could be withheld until importers paid Mercedes and BMW fees for the information and unnecessary vehicle modifications.

According to the Court, these changes to Transport Canada’s admissibility list “gave Mercedes and BMW the ability to deny entry into Canada of vehicles that could properly be imported through [Transport Canada’s program] unless importers paid fees and charges to [Mercedes/BMW] for unnecessary certifications and vehicle modifications … [and] BMW and Mercedes withheld letters of admissibility unless the unnecessary modifications were completed and fees were paid to them by importers.”  BMW and Mercedes also charged a standard fee to issue a letter of admissibility.

The thrust of the dispute appears to be allegations by the plaintiff importers that the two auto manufacturers together with their dealers conspired to force importers to pay unnecessary costs imposed as a result to regulatory changes introduced by Transport Canada, based on an apparent concern of lost revenues arising from cheaper Mercedes and BMW cars from the U.S. – which were in some instances as much as 35% lower in price.

Some of the arguments being made by the plaintiff importers include allegations that Mercedes and BMW and their dealers conspired to fix prices for modifications and certifications for importation of Mercedes, BMW and Mini vehicles and allocated the market for modifications for the importation of certain vehicles.  The plaintiffs in this case also allege theories of harm based on tort and equitable grounds, including civil conspiracy, interference with economic relations, unjust enrichment, waiver of tort and breaches of consumer protection legislation.

In bringing a motion to strike the plaintiffs’ claims for a failure to disclose a cause of action, the defendants argued, among other things, that the conduct in question was immune from Competition Act liability based on the application of the RCD.  The RCD, which has now been partially codified in subsection 45(7) of the Competition Act as a result of 2009 amendments to the Act, is the Canadian equivalent of the U.S. state action immunity doctrine.  When met, it offers a form of immunity from enforcement under the Competition Act for legislatively authorized or mandated conduct.  As such, the RCD can operate as a defence (though it has also sometimes been characterized as an exception) to some types of activities that would otherwise be subject to the Competition Act.

In this regard, the defendants argued that the importation of vehicles into Canada is a regulated process, that Canada has enacted laws and regulations that if followed allow importers to bring cars into Canada through a Transport Canada regulated process and that certain inspection and certification requirements are imposed to ensure that vehicles are compliant with Canadian motor vehicle safety standards.

The Court rejected this argument, finding that it was not plain and obvious that the RCD will apply to preclude the plaintiffs’ Competition Act claims.

In arriving at this conclusion, the Court reviewed several key RCD cases, including R. v. Independent Order of Foresters, Industrial Milk and the Supreme Court’s decision in Garland v. Consumers Gas finding, quite correctly based on existing authorities, that the RCD does not offer any blanket immunity for all conduct related to a regulated sector.  Instead, the RCD can apply to exempt conduct that may otherwise violate the criminal or civil provisions of the Competition Act where the elements of the RCD are met, perhaps most importantly here that the challenged conduct was either mandated or at minimum authorized by the relevant regulatory regime (although the degree of legislative authorization needed to invoke the RCD remains unsettled).

The Court also cited this often quoted passage from Reed J.’s judgment in Industrial Milk:

“… Indeed as I read the cases it is a regulated conduct defence.  It is not accurate merely to identify an industry as one which is regulated by federal or provincial legislation and then conclude that all activities carried on by individuals in that industry are exempt from the Competition Act.  It is not the various industries as a whole, which are exempt … but merely activities which are required or authorized by the federal or provincial legislation as the case may be.  If individuals involved in the regulation of a market situation use their statutory authority as a spring board (or disguise) to engage in anti-competitive practices beyond what is authorized by the relevant regulatory statute then such individuals will be in breach of the Competition Act.”

In this case, the Court held that the defendants were “unable to point to any express provision or necessary implication in the regulatory regime that would authorize or direct them to engage in the conduct they are alleged by the plaintiffs to have undertaken …”

As such, like some of the other exemptions under the Competition Act, such as the collective bargaining exemptions under section 4 for unions and employers associations, it is not all conduct that will have the benefit of such exemptions, but instead the requirements of each exemption or defence must be satisfied.

This recent decision is also interesting as it re-states other causes of action commonly asserted in Canadian competition law litigation, including common law conspiracy, interference with economic relations and the somewhat more novel waiver of tort.

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