COMPETITION LAW PRIVATE ACTIONS
& CLASS ACTIONS
Private parties may commence damages actions under the Competition Act (the “Act”) for violations of the criminal provisions of the Act (under Part VI) or a breach of a court or Competition Tribunal (“Tribunal”) order made under the Act.
Competition law private actions in Canada are typically commenced in the context of (i) wholesale or retail customers alleging damages as a result of a conspiracy between suppliers (e.g., a price-fixing conspiracy relating to a product, input, etc.), (ii) consumers alleging damages as a result of misleading advertising claims (e.g., false or misleading claims in relation to a product, investment or other business opportunity, etc.) or (iii) competitors alleging damages based on another party’s (or parties’) violation of the misleading advertising or criminal conspiracy offences under the Act.
There have as well been an increasing number of class actions commenced in Canada and both recent amendments to the Act and recent Supreme Court case law now makes it easier for private plaintiffs to commence civil actions for violations of the Act.
Section 36 of the Act creates a statutory cause of action for private parties seeking to commence a private action under the Act.
Section 36 provides that any person that has suffered loss or damage as a result of conduct that is contrary Part VI of the Act (criminal offences, including the criminal conspiracy, bid-rigging and criminal misleading advertising provisions – sections 45, 47 and 52), or failure to comply with a Tribunal or other court order under the Act, may commence a private damages action.
Private actions cannot be commenced, however, under the Act’s civil “reviewable matters” provisions (e.g., for abuse of dominance, tied selling, exclusive dealing, market restriction, refusal to deal or price maintenance). Some “private access” rights are available, however, under some of the civil reviewable matters provisions (under the tied selling / exclusive dealing / market restriction; refusal to deal; and price maintenance provisions). This allows private parties, with leave, to make applications before the federal Competition Tribunal.
In the past, the majority of competition law private actions have been commenced for alleged breaches of the criminal conspiracy or criminal misleading advertising provisions (e.g., in relation to alleged price-fixing conspiracies, misleading representations in relation to the sale of products or on occasion misleading claims in relation to wider business or investment opportunities).
It has been relatively uncommon for private plaintiffs to commence proceedings under other criminal provisions, although there have been some cases – for example, one case brought for alleged predatory pricing which was, until recently, a criminal offence.
With respect to private actions commenced under the conspiracy provisions of the Act, private action activity is expected to continue to increase following the coming into force of Canada’s new U.S.-style “per se” criminal cartel rules in March, 2010.
This is because, whereas formerly private plaintiffs, as well as the Competition Bureau (“Bureau”), were required to establish anti-competitive effects as a key element of a conspiracy offence (i.e., that the alleged illegal conduct prevented or lessened competition “unduly” in one or more relevant markets), this competitive effects test was removed from three categories of “hard core” criminal cartel offences: agreements between competitors to fix prices, divide/allocate markets or restrict/limit output. The key impact of this is that both private plaintiffs and the Bureau now have a lower burden to establish these three forms of “hard core” criminal cartel conduct.
In addition, because of the fact that section 45 (conspiracy) can at least in theory apply to many forms of common commercial agreements (e.g., joint venture, franchise, dual distribution and license agreements), it remains to be seen how the Bureau, private parties and courts will in practice interpret and apply Canada’s new conspiracy rules. In this regard, while the Bureau issued new enforcement guidelines at the time the Act was amended (Competitor Collaboration Guidelines) they are not law and are not binding on the courts, private parties seeking remedies under the Act or indeed the Bureau itself.
At the same time, some of the former criminal offences in the Act have been repealed, so that private actions are no longer possible for certain types of conduct – for example, for predatory pricing or resale price maintenance, both of which were prior to 2009 criminal offences (but are no longer).
Private actions under the Act may be commenced in provincial superior courts or the Federal Court. However, as the Federal Court has limited jurisdiction, plaintiffs that wish to rely on causes of action in addition to those under the Act – for example, common law causes of action such as tort claims – must commence their proceedings in provincial superior court.
With respect to asserting jurisdiction in relation to cross-border cases, Canadian courts have generally relied on the so-called “real and substantial connection test” to determine whether a court has jurisdiction. The jurisdiction of Canadian courts to hear private actions under the Act is particularly relevant in the context of international price-fixing conspiracies, where the agreement may have been formed outside Canada with potential anti-competitive effects in Canada. There is now, however, authority for the proposition that where a conspiracy is formed abroad, with anti-competitive effects in Canada, a Canadian court will have jurisdiction. (Canada also has a standalone foreign-directed conspiracy provision.)
To establish a private action claim under section 36 of the Act, a private plaintiff must show that a defendant contravened one of the criminal provisions of the Act (e.g., establish all of the elements of a criminal price-fixing conspiracy, criminal misleading advertising, etc.) or breached a Tribunal or court order under the Act and has suffered actual damage or loss as a result of the conduct.
In other words, a private plaintiff must establish both the elements of the alleged criminal offence on which the civil action is based and actual loss or damage as a result of the conduct (and that the damage or loss was caused by the defendant). The absence of a prior criminal conviction does not act as a bar to parties commencing private actions, nor must the Bureau have commenced enforcement steps (though “follow on” actions following Bureau enforcement or a conviction, whether through trial or guilty plea, is most common).
The necessity under section 36 for private plaintiffs to establish actual damage may, in many cases, mean it is easier for downstream purchasers (as compared to a direct competitor) to establish and quantify damages – for example, consumers paying an overcharge as a result of a price- fixing conspiracy engaged in by suppliers, based on misleading claims made by a supplier in relation to a product that does not work, etc.
Section 36, which is the provision under which private actions under the Act are commenced, also contains a helpful rebuttable presumption for plaintiffs. It provides that the “record of proceedings” in a matter that results in the conviction for a criminal offence under the Act (or a failure to comply with a Tribunal order) is “prima facie” evidence of the alleged conduct in a civil action.
It is also possible to commence class actions under the Act. For example, competition law class actions can be commenced in British Columbia under the British Columbia Class Proceedings Act and Ontario under the Ontario Class Proceedings Act.
The introduction of class action legislation has led to a relative increase in competition law private actions in Canada, largely as a result of consolidating the considerable expenses of commencing competition law private actions. Competition law class actions are also in many cases “follow on” actions, following announcements by the Bureau or international investigations.
To commence a competition law class action a representative plaintiff must first obtain leave (“certification”) to commence the action as a class action after which, if certification is granted, the action proceeds on the merits.
The test for certification of a class action in some provinces is as follows: (a) the pleadings of notice of application disclose a cause of action, (b) there is an identifiable class of two or more persons, (c) the claim of the class members raises common issues, (d) a class proceeding is the preferable procedure for the resolution of the common issues and (e) there is a representative plaintiff that: (i) would fairly and adequately represent the class, (ii) has produced a workable plan for advancing the proceedings on behalf of the class and of notifying class members of the proceeding and (iii) with respect to the common issues, does not have interests that may conflict with other members.
One of the primary issues relating to the certification of competition law class actions to date has been difficulties arising from the calculation of damages and, in particular, the challenges in some cases of calculating damages in the context of so-called “indirect purchasers” (i.e., where it is alleged that that direct purchasers passed on, for example, a price-fixing overcharge from manufacturers to a second downstream level of consumers).
These prior uncertainties relating to the ability of indirect purchasers to commence Competition Act class actions has now, however, been settled with the Supreme Court now confirming the ability of indirect consumers to bring class actions under the Act (and for issues relating to complexities of establishing harm to be resolved at trial on the merits).
The limitation period during which plaintiffs must commence a private civil action under the Act is two years from the later of: (i) the day on which the relevant anti-competitive conduct was engaged in (or court or Tribunal order was contravened) or (ii) the day when any criminal proceedings were “finally disposed of”.
The date from which this limitation period should run, however, can be complex and in some cases has raised issues, among other things, of whether a court may consider competitive effects or a continuing agreement (in a conspiracy based case) for the purposes of the start date.
Under section 36 of the Act, the potential remedies for a successful competition law private action are the actual damages (i.e., compensatory damages) proven as a result of the criminal violation (or breach of a Tribunal or court order).
In contrast to the United States however, only single not treble damages, are available to successful plaintiffs in Canada. This is intended as one of several procedural safeguards against strategic litigation. As a practical matter, the majority of private actions in Canada have resulted in settlements.
In addition, in Canada the general rule is that the successful party in an action, whether the defendant or plaintiff, is entitled to recover the costs of a proceeding, including its legal fees and disbursements.
It is also common for private plaintiffs to argue common law causes of action together with statutory claims under the Competition Act. For example, these may include common law conspiracy, unjust enrichment or unlawful interference with economic relations. Some Canadian case law, however, has circumscribed private plaintiffs’ ability to use Competition Act violations as elements for some torts.
In addition to private damages actions, private parties also have a limited right of “private access” under the Act to the federal Competition Tribunal. “Private access” rights are distinct from the private action regime under section 36 of the Act, only available in relation to certain sections of the Act and, unlike private actions, no damages are available.
Private access rights were introduced in 2002 to allow small and medium sized firms to challenge allegedly harmful conduct to their businesses under provisions which have not historically been enforcement priorities for the Bureau (e.g., the refusal to deal provisions under section 75 of the Act).
Since the private access provisions were introduced, most private access applications to date have been under the refusal to deal provision of the Act (i.e., by distributors seeking a Tribunal order for resupply). There has, however, also been some private access activity under the newly civil price maintenance provisions (under section 76).
Private access proceedings, unlike private civil actions under the Act (which may be brought in the Federal Court or provincial courts), are brought before the federal Competition Tribunal.
Private access to the Tribunal is available to private parties, with leave, under the refusal to deal (section 75); exclusive dealing / tied selling / market restriction (section 77) and price maintenance (section 76) provisions of the Act.
Private parties are required to obtain leave to make private access applications to the Tribunal. In addition, damages are not available and costs may only be awarded in the discretion of the Tribunal.
To grant leave in a private access application, the Tribunal must have “reason to believe that the applicant is directly and substantially affected by any practice [under sections 75, 76 or 77] that could be subject to a [Tribunal order]”.
With respect to evidence, the Tribunal has held that a leave application must be “supported by sufficient credible evidence to give rise to a bona fide belief that the applicant may have been directly and substantially affected in the applicant’s business by a reviewable practice, and that the practice in question could be subject to a [Tribunal] order”.
Where leave is granted, the Commissioner may also intervene in the proceedings.
The burden of proof on a private access leave application is a lower burden than the civil balance of probabilities (i.e., an private access applicant need only establish sufficient credible evidence of the alleged conduct to lead to a bona fide belief by the Tribunal).
Under the private access provisions of the Act, the available remedy is a Tribunal remedial order (e.g., for a supplier to commence supply on “usual trade terms” in the case of a refusal to deal). Private parties are not entitled to seek damages.
Private parties granted leave to commence private access applications may also file consent agreements with the Tribunal (which, once filed, have the force of a Tribunal order).
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