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January 25, 2013

Steve Szentesi
Kevin Wright (Davis LLP)
(with contributions by Jonathan Gilhen – Davis LLP)

Extract from a chapter to be published in CLEBC’s
Annual Review of Law & Practice – 2013

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2012 was a busy year for Canadian competition and foreign investment law, with significant developments in all major areas including misleading advertising, mergers, abuse of dominance, criminal matters (including cartels, bid-rigging and deceptive marketing) and private actions.  The following is an overview of some of the key criminal developments, with summaries of other significant developments in 2012 to come over the next few days.

Criminal Code
Sentencing Amendments

In March 2012, amendments to section 742.1 of the Criminal Code (the “Code”), which were part of the Federal Government’s omnibus crime bill (Bill C-10), received Royal Assent.  The changes, which came into force in November 2012, restrict the availability of conditional sentences, including for some offences under the Competition Act (the “Act”).  In particular, where a person is convicted of an offence and the court imposes a sentence of less than two years, the court may order a conditional sentence (i.e., served in the community), except in certain circumstances.  Those now include where an offence is an indictable offence with a maximum term of imprisonment of 14 years or life, which includes sections 45 and 47 of the Act (conspiracy and bid-rigging).  These changes to the Code will impact sentencing in competition law cases (i.e., eliminate the ability for courts to impose conditional sentences in some cases).  They may also influence whether cases go to trial or settle and whether individuals who are not eligible under the Competition Bureau’s (the “Bureau”) Immunity Program will cooperate with the Bureau under its Leniency Program, which, unlike the Immunity Program, requires guilty pleas as one condition.

DomFoam
(First Amended Competition Act Conviction)

In January 2012, the Bureau announced the first conviction under the Act’s amended conspiracy provisions.  Domfoam International Inc. and Valle Foam Industries Inc. pleaded guilty to conspiracy under section 45 of the Act and were fined a total of $12.5 million for participating in a price-fixing conspiracy for polyurethane foam.  The Bureau relied on wiretaps and search warrants in its investigation, as well as companies that cooperated with the Bureau under its Immunity and Leniency Programs.

Maxzone
(Cartel Sentencing)

In an important Federal Court decision issued in September, 2012 in the ongoing global auto parts price-fixing investigation (R. v. Maxzone Auto Parts (Canada) Corp., 2012 FC 1117), Chief Justice Crampton set the stage for the Court’s future approach to joint sentencing submissions for cartel cases.  The Court’s reasons relate to its earlier decision to accept joint sentencing submissions imposing a $1.5 million fine on Maxzone in this price-fixing case (Maxzone pleaded guilty to one count of contravening the foreign directed conspiracy provision of the Act).

Several key points come out of this decision.  First, parties making sentencing submissions must do more than adopt the mathematical approach to fines set out in the Bureau’s Leniency Program Bulletin, which establishes 20% of the affected volume of commerce in Canada as a starting point for fine negotiations.  Second, while the Bureau’s Leniency Bulletin can be an appropriate framework for sentencing submissions, it must be followed in “letter and spirit” relating to the Code’s sentencing principles (i.e., the fundamental purpose and objectives of sentencing, principle of proportionality and aggravating and mitigating factors).  Third, the Court indicated that it will require significantly more detailed evidentiary records and submissions in the future to be satisfied that a recommended sentence will not be contrary to the public interest or bring the administration of justice into disrepute.  These include either an estimate of the illegal profits gained (or evidence an accused has made restitution to victims).  The Court will also require a good sense of any relevant aggravating and mitigating factors (and how they influenced the jointly recommended fine) and sufficient information to determine whether the recommended sentence appropriately reflects the sentencing principles set out in the Code.

The Court also discussed individual sentencing in cartel cases, recognizing that it may be in the public interest for the Crown to agree to refrain from seeking imprisonment in some cases (e.g., directors, officers or employees of the first company to seek leniency) while at the same time indicating that subsequent leniency applicants may be asked to justify why individual imprisonment is not appropriate.  Overall, this recent decision signals an increasingly stern view of cartel sentencing by the Federal Court and a caution the Court will not rubber-stamp mathematically derived sentencing submissions.

Recent Bid-rigging Cases

There have been a number of high-profile bid-rigging cases brought recently by the Bureau and Director of Public Prosecutions, many in relation to the construction industry in Quebec.  A few of these cases are summarized below.

Sewer Services in Quebec

In November 2011, the Bureau announced it launched an investigation into bid-rigging (under section 47 of the Act) for municipal and provincial specialized sewer services contracts in the greater Montreal region.  As of December 20, 2012, seven companies and seven individuals have been charged, of which three companies and one individual have plead guilty and received a total fine of $140,000, for the three companies, and the individual was sentenced to perform 100 hours of community service.

Quebec Construction Industry

In February 2012, three companies pleaded guilty to bid-rigging related to the expansion and refitting of the emergency room at the Chicoutimi Hospital in 2003, and received total fines of $100,000.  According to a Bureau press release, the parties entered into an agreement to pre-determine the winner of the contract.

On June 21, 2012, the Sûreté du Québec, as part of the Unité permanente anticorruption taskforce, and the Bureau jointly announced that a total of 77 charges had been laid against 11 individuals and 9 companies in the construction industry, in connection with an alleged collusion scheme in respect of municipal contracts in the Saint-Jean-sur-Richelieu region of Quebec. Charges included violations of the bid-rigging offence under the Act.

Federal Government Contracts

In July 2012, one company pleaded guilty to bid-rigging in respect of a request for standing offers (“RSO”) for real estate advisory services issued by the Department of Public Works and Government Services Canada, and was sentenced to pay a fine of $125,000.  According to the Bureau, the company submitted bids in response to the RSO arrived at by agreement.

International Cartels

The past year saw several significant international cartel convictions in Canada.  One case involved the sale of aftermarket replacement automotive lights (the Maxzone decision, discussed above under cartel sentencing).  Second, the Bureau secured another guilty plea in the ongoing air cargo price-fixing cartel investigation.  This was the seventh airline to plead guilty in this case and was sentenced to pay a fine of $5.5 million, bringing total fines imposed in connection with the air cargo investigation to $22.6 million.  Although no charges have been laid to date, the Bureau has confirmed it is investigating alleged collusive conduct in the setting or manipulation of the Yen London Inter-Bank Offered Rate (the LIBOR case), which has been part of an ongoing investigation by competition and financial services regulators in various jurisdictions, including in the United States and Europe.

Gasoline Price-fixing Case

The Bureau’s extensive investigation into price-fixing in the retail gasoline market has expanded to include four regions of Quebec (Victoriaville, Thetford Mines, Sherbrooke and Magog) as well as Belleville, Kingston and Brockville, Ontario.

Quebec

As of December 3, 2012, thirty-nine individuals and fifteen companies had been charged with fixing the price of retail gasoline in four local markets in the Province of Quebec, contrary to section 45 of the Act.   The Bureau’s investigation was first announced in June 2008 and has been ongoing since that time.  Of those charged, twenty-eight individuals and seven companies have pleaded guilty receiving fines exceeding $3 million in total.  Of the 28 individuals that have pleaded guilty, six have been sentenced to imprisonment totaling 54 months.

Ontario

On March 20, 2012, three companies plead guilty to fixing the price of retail gasoline between May 2007 and November 2007 in Kingston and Brockville, Ontario, and were sentenced to pay fines totaling just over $2 million.  Just over a month later, another company pleaded guilty to price-fixing in respect of retail gasoline during that same time period in Belleville, Ontario, and was sentenced to pay a fine of $500,000.  According to the Bureau, its investigation into potential price-fixing in the retail gasoline market continues in the Southeastern Ontario market.

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