Canada now has three new criminal conspiracy offences for “hard core” cartel conduct, making bare price fixing, market allocation and supply restriction agreements per se illegal – i.e., without the necessity of establishing any anti-competitive effects on a relevant market (or markets).  At the same time, a second civil provision has come into force under which other commercial agreements (i.e., agreements that do not fall within the scope of the new criminal offences) may be subject to review, where they prevent or lessen competition substantially.

When did Canada’s new two-track conspiracy regime come into force?

On March 12, 2010, the Competition Bureau announced the coming into force of Canada’s new two-track conspiracy regime.  While the majority of the recent amendments to the Act came into force in March, 2009, Canada’s new two-track conspiracy regime came into force one year later – on March 12, 2010.

Why was Canada’s old conspiracy law changed?

Canada’s new U.S.-style criminal conspiracy regime is meant to make the enforcement of hard-core criminal cartel activity easier – i.e., bare price-fixing, market division and output restriction agreements between competitors and potential competitors -  by removing the former competitive effects test.  At the same time, the new rules are meant to allow a more detailed analysis of non-hard core agreements between competitors, such as joint venture and strategic alliance agreements (i.e., where a more detailed analysis of the potential effects on a market may be warranted).  In short, the new regime is meant to make catching clearly anti-competitive agreements easier while allowing for a more detailed review of agreements that may be competitively neutral or pro-competitive.

What is now illegal under Canada’s new criminal regime (i.e., section 45)?

Under the new criminal conspiracy provisions of the Act, three categories of agreements are now “per se” illegal (i.e., with no requirement to establish any negative effect on a relevant market or markets).  The following three types of agreements are now per se illegal: (i) agreements to fix, maintain, increase or control the price for the supply of a product (price fixing agreements); (ii) agreements to allocate sales, territories, customers or markets for the production or supply of a product (market division/allocation agreements); and (iii) agreements to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product (supply restriction agreements).

What types of agreements may potentially be subject to review under the new civil agreements provision of the Competition Act (i.e., section 90.1)?

Agreements among competitors that are not caught by the three new per se criminal offences (price-fixing, market allocation and output restriction agreements) will be potentially reviewable under the new civil agreements provision (section 90.1).  Some of the types of agreements that may potentially be subject to challenge under section 90.1 include non-compete agreements, research and development agreements, joint purchasing agreements, joint production agreements, joint selling and commercialization agreements and information sharing agreements.

Are vertical agreements (e.g., supplier / customer, franchisor / franchisee, licensor / licensee agreements) caught under the new criminal provisions (section 45)?

Likely not.  While the previous conspiracy provisions applied to both vertical and horizontal agreements (e.g., supplier-distributor-consumer and competitor-competitor agreements), the new criminal provisions appear to be restricted to horizontal agreements between competitors (and potential competitors).  In this regard, it is thought that the scope of the new conspiracy provisions has been narrowed.  The Competition Bureau has also indicated in its recent Competitor Collaboration Guidelines that it will review the majority of allegedly anti-competitive vertical agreements under the new civil provision (section 90.1), or the Act’s other reviewable matters provisions (e.g., section 79 – abuse of dominance), not under the criminal conspiracy provisions.

Where can I get more information about the Competition Bureau’s enforcement policy under the new two-track regime and its approach to collaborations between competitors?

For more information about the Competition Bureau’s enforcement policy under Canada’s new two-track regime and its approach to collaborations between competitors, including joint ventures and strategic alliances, see: Competitor Collaboration Guidelines (Enforcement Guidelines) and Reaching an Agreement with Competitors (Pamphlet).

What is necessary to prove an agreement?

Canadian case law has established that while there must be a “meeting of minds” or “consensus” between parties, both informal and overt arrangements may be caught.  Moreover, it is well established that an agreement may be established based only on circumstantial evidence, which may include, among other things, evidence of meetings, exchanges of competitively sensitive information, identical or similar pricing (or sudden price stabilization), language suggesting the existence of an agreement, enforcement activities among competitors, attempts to keep meetings or other activities secret and conduct that can only be explained by the existence of an agreement.

Does an agreement need to be secret or confidential to be caught by section 45?

No.  Both “overt” (i.e., non-secret) and “covert” (i.e., secret) agreements may be caught by section 45 (the criminal conspiracy provision of the Competition Act.

Does an agreement need to be carried out to violate section 45?

No.  It is settled law in Canada that the offence is in the agreement, not in the carrying out of an agreement.  While acts in furtherance of a cartel may be used as additional evidence, they are not necessary in order to establish an offence under section 45.

What is the burden to prove that section 45 or section 90.1 has been contravened?

The burden for section 45 remains the criminal burden of proof – i.e., beyond a reasonable doubt.  The burden for section 90.1 (the new civil agreements provision) is the civil standard – i.e., on balance of probabilities.

What are the potential penalties for contravening Canada’s criminal conspiracy offences under section 45?

Under the new rules, the penalties for contravention of the criminal conspiracy provisions have been increased to include fines of up to $25 million (per count) and/or imprisonment for up to 14 years (increased from the previous $10 million per count and 5 years).  Canadian courts may also issue “prohibition orders” prohibiting the continuation or repetition of an offence and order a party to take certain steps to avoid future offences and comply with the law (e.g., to implement a corporate compliance program).  In reality, however, most penalties in Canada for violations of the criminal conspiracy provisions arise as a result of plea negotiations between the Competition Bureau and an accused.

What are the potential penalties under the new civil agreements provision (section 90.1)?

The federal Competition Tribunal now has the power, on an application by the Commissioner of Competition, to make remedial orders where it is established that an agreement prevents or lessens (or is likely to prevent or lessen) competition substantially in a relevant market.  The Tribunal may make an order: (i) prohibiting any person (whether or not a party to the agreement) from doing anything under the agreement or (ii) requiring any person, with their consent, to take any other action.  Unlike the criminal conspiracy provisions, however, the Tribunal does not have the power to impose monetary penalties and private parties do not have any right to commence private actions.

Who enforces the conspiracy provisions of the Competition Act?

The Competition Bureau is responsible for the administration and enforcement of the Act, while the Director of Public Prosecutions has exclusive jurisdiction to determine whether to commence prosecutions for alleged violations of the Act’s criminal offences, including the criminal conspiracy, bid rigging and criminal misleading advertising provisions.

What enforcement powers does the Competition Bureau generally have?

The Competition Bureau has broad powers of investigation under the Competition Act.  These include the power to obtain search warrants (including for computer searches), obtain court orders to compel document production and oral testimony under oath, as well as the ability to obtain wiretaps in some cases.  In some cases the Competition Bureau may rely on voluntary information requests, while in others it may resort to compulsory document or information requests (e.g., using its powers under sections 11 or 15 of the Act).

Are conspiracies an enforcement priority for the Competition Bureau?

Yes.  Criminal conspiracies, together with abuse of dominance and deceptive marketing, remain top enforcement priorities for the Competition Bureau.  Moreover, in the past fifteen years there have been more than eighty convictions for cartel offences in Canada with total fines of approximately $250 million.

What industries or sectors are practically most at risk?

The Competition Actis “law of general application”.  As such, it applies, with few exceptions to all businesses and industries in Canada.  Having said that, as a practical matter, the Competition Bureau has tended to focus its enforcement resources in recent years on industries with high consumer impact, including gasoline, real estate and high profile retailers.  Historically, industries in which demand is declining, there is excess capacity, homogenous products, competition primarily on price and consolidated markets have tended to be at the greatest risk for the formation of cartels.

What defences are available under the new conspiracy rules?

The recent amendments have introduced a new ancillary restraints defence that will apply where it can be shown that: (i) the agreement is ancillary to a broader or separate agreement that includes the same parties; (ii) the agreement is directly related to, and reasonably necessary for giving effect to, the objective of the broader or separate agreement; and (iii) the broader or separate agreement does not itself constitute an offence under section 45.  Other pre-existing defences and exceptions continue to apply (e.g., the exception for affiliates and export defence), while other defences have been repealed.

In addition, a new efficiencies defence has been created under section 90.1 that will apply where an agreement has resulted in (or is likely to result in) efficiency gains that are greater than, and will offset, the adverse effects of the agreement (i.e., any prevention or lessening of competition that will result or is likely to result from the agreement).  In this regard, the new civil provision dealing with non-criminal anti-competitive agreements is now more closely aligned with the existing merger provisions of the Act.

Can private parties sue for breach of the conspiracy provisions of the Competition Act?

Yes.  Under section 36 of the Act any person that has suffered actual loss or damage as a result of a contravention of the criminal provisions of the Act, including the criminal conspiracy provisions, may commence a private damages action.  Class actions are also possible for violations of the criminal provisions of the Act.  In general, it is thought that the recent amendments (which have lowered the burden to prove criminal conspiracies) together with several recent class action cases in British Columbia and Ontario (which has made it easier to certify price-fixing class actions) will lead to an increase in competition law private actions in Canada.

Have there been any recent significant competition law private actions?

Yes.  See for example: Supreme Court of Canada Denies Leave to Appeal in DRAMS Price-Fixing Class Action.  For more information about competition law private actions see: Competition Law Litigation in Canada.

What are some examples of recent penalties imposed for breach of the criminal conspiracy provisions?

The Competition Bureau recently announced that Solvay Chemicals has been fined Cdn. $2.5 million in relation to its role in a hydrogen peroxide price-fixing conspiracy.  See Solvay Chemicals Fined $2.5 Million in Hydrogen Peroxide Price-Fixing Conspiracy.  The Competition Bureau has also recently laid 28 additional charges in its ongoing investigation of a gasoline price-fixing cartel in Quebec.  See: Quebec Gasoline Price-fixing Case.  In the past fifteen years there have been more than eighty convictions for cartel offences in Canada with total fines of approximately $250 million.

Are reductions in penalties possible for cooperating with an investigation?

Yes. The Competition Bureau has a formal immunity program intended to encourage participants in criminal cartels to disclose their illegal conduct to potentially receive immunity from prosecution.  The Competition Bureau’s immunity program is set out in a Bureau Information Bulletin.  See: Immunity from Prosecution (Pamphlet), Immunity Program Under the Competition Act (Bulletin), Investigating Cartels, Memorandum of Understanding, Revised Draft  Information Bulletin on Sentencing and Leniency in Cartel Cases (Bulletin) and Sentencing and Leniency in Cartel Cases (Information Bulletin).  Immunity applications are made to the Competition Bureau, which will determine whether to recommend to the Director of Public Prosecutions that the request be granted.

What are the requirements to qualify under the Competition Bureau’s immunity program?

In general, a party may receive immunity where: (i) they are the first to approach the Competition Bureau with evidence of a cartel offence that the Bureau is unaware of or (ii) of which the Bureau is aware but has insufficient proof to refer the matter to the DPP for prosecution.  Both the Bureau’s immunity and leniency programs operate on a “first in” basis, and so time is of the essence in order for participants to seek immunity or leniency (where immunity is unavailable).

Other requirements that a party must satisfy in order to obtain immunity include immediately taking steps to stop its involvement in the illegal conduct, not having coerced unwilling parties to participate in the conspiracy, making full, frank and truthful disclosure of all evidence and information that is known (or available), disclosing all offences under the Act in which it may be involved and agreeing to provide full, timely and continuous cooperation during the Competition Bureau’s investigation.

Is more information available about the Competition Bureau’s immunity and leniency programs?

Yes.  For more information about the Competition Bureau’s immunity and leniency programs see: Immunity from Prosecution (Pamphlet), Immunity Program Under the Competition Act (Bulletin), Investigating Cartels, Memorandum of Understanding, Revised Draft  Information Bulletin on Sentencing and Leniency in Cartel Cases (Bulletin) and Sentencing and Leniency in Cartel Cases (Information Bulletin).

What are some of the key impacts for individuals and companies under the new laws?

Some of the expected impacts of the new rules include: (i) increasing the risk of engaging in hard-core anti-competitive conduct (e.g., price-fixing, market allocation or output restriction agreements), (ii) lowering the bar for the Competition Bureau and private plaintiffs to establish a criminal conspiracy under section 45 (the criminal conspiracy provision of the Act), (iii) increasing the importance of reviewing commercial agreements (and other commercial arrangements, such as information sharing arrangements or joint venture agreements) for competition law compliance and (iv) potentially leading to an increase in competition law litigation in Canada.

Are other Competition Bureau resources available?

Yes.  For example, see: Competitor Collaboration Guidelines (Enforcement Guidelines), Immunity from Prosecution (Pamphlet), Immunity Program Under the Competition Act (Bulletin), Investigating Cartels, Memorandum of Understanding, Reaching an Agreement with Competitors (Pamphlet), Revised Draft  Information Bulletin on Sentencing and Leniency in Cartel Cases (Bulletin), Sentencing and Leniency in Cartel Cases (Information Bulletin), Setting Your Own Price (Pamphlet) and Technical Bulletin on “Regulated” Conduct.

What are some examples of recent conspiracy cases and investigations in Canada?

For some examples of recent conspiracy cases and investigations in Canada see: Criminal Charges Laid Against 25 Individuals and Companies in Quebec Gas Price-fixing Case, Recent Speech by Canada’s Commissioner of Competition Indicates Tougher Enforcement Stance Against Criminal Cartels, Supreme Court of Canada Denies Leave to Appeal in DRAMS Price-Fixing Class Action, Solvay Chemicals Fined $2.5 Million in Hydrogen Peroxide Price-Fixing Conspiracy, Competition Bureau Announces Coming Into Force of New Conspiracy Regime, Two Landmark Supreme Court of Canada Cases, Canada’s New Conspiracy Regime – Potential Implications and Key Practice Points for Commercial Lawyers, Canada’s New Criminal Conspiracy Rules – Some Potential Implications for Companies and Trade Associations, Canada’s New Competition Law – Some Potential Implications for Real Estate Brokers, Agents & Boards.

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We practice federal competition law, provide Canadian competition law advice to clients across Canada and internationally and offer a full range of competition law services including in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act.  We also provide Canadian foreign investment law advice under the federal Investment Canada Act.

Our services in relation to criminal conspiracies and competitor collaborations include advice on the application of the new conspiracy rules to commercial activities, structuring commercial agreements and joint ventures to comply with the new regime, designing competition law compliance programs for companies and trade associations, preparing compliance guidelines for key commercial activities (e.g., guidelines for the conduct of meetings, information exchanges, benchmarking projects and joint venture activities), applications for binding Competition Bureau advisory opinions and advice in relation to the Competition Bureau’s immunity and leniency programs.

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For more information about Canadian competition law or our competition law services visit our: Canadian Competition Law Home, Team, Competition Law Services, Competition Law Publications, Competition Law Courses and Conferences, Global Competition / Antitrust Law Resources, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Conspiracy and Competitor Collaborations, Abuse of Dominance, Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal, Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law services to Canadian and international clients.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558.  Visit us on the web in Toronto at www.torontocompetitionlawyer.com or www.torontocompetitionlaw.com.

Significant changes have recently been made to the federal Competition Act (the “Act”) that impact private actions in Canada (making it easier for private plaintiffs to commence private actions under the Act’s criminal conspiracy provisions).  At the same time, there have recently been several plaintiff-favourable class action decisions in Ontario and British Columbia that make it easier to certify competition law class actions.  The combined result of these recent developments is that competition law private actions are now of more importance to plaintiffs seeking remedies for anti-competitive conduct under the Act.  At the same time, there appears appears to be an increasing number of private and class actions currently being commenced in Canada.

Generally speaking, parties may commence private actions under the Act for contraventions of either the criminal provisions of the Act or a breach of a court or Competition Tribunal (“Tribunal”) order made under the Act.  Private competition law actions in Canada have typically been commenced in the context of (i) consumers alleging damages as a result of a conspiracy between suppliers (e.g., a price fixing conspiracy relating to a product or key input), (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 misleading claims made by a competitor or alleged conspiracy entered into among other competitors.

Process

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 (the criminal provisions of the Act, which include the criminal conspiracy, bid-rigging and criminal misleading advertising provisions), or failure to comply with a Tribunal or 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., under the Act’s abuse of dominance, tied selling, exclusive dealing or market restriction provisions, although limited rights of private access are available, with leave, under the latter three provisions, as well as under the Act’s refusal to deal provision).  For example, see: British Columbia Supreme Court Rejects Novus’ Section 79 Predatory Pricing Claim Against Shaw

Private actions may be commenced for contravention of the criminal conspiracy (e.g., price fixing agreements), bid-rigging or criminal false or misleading representations provisions.  Private parties do not, however, have a right to commence private actions for breaches of the civil “reviewable matters” provisions of the Act, which include the merger, abuse of dominance, price maintenance and civil misleading advertising sections.

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 claims in relation to business 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 may increase following the coming into force of 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 (the “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 has now been removed from three forms of “hard core” criminal cartel offences as follows: price fixing, market allocation and output restriction agreements.  The key impact of this amendment is that both private plaintiffs and the Bureau will have a lower burden to establish these three forms of “hard core” criminal cartel conduct.

Moreover, the fact that both the former and impending new cartel rules can have a bearing on many forms of common commercial agreements (e.g., joint venture, franchise, dual distribution and licence agreements, among others), it remains to be seen how the Bureau, private parties as well as Canadian courts treat the application of the new cartel rules on commercial agreements and arrangements in Canada.  In this regard, while the Bureau has issued new enforcement guidelines in relation to dealings between competitors, and which address some of the commercial contract issues associated with the new cartel rules, the Bureau’s guidelines are not law and are not binding on either the courts or private parties seeking remedies under the Act.

At the same time, however, some of the former criminal offences in the Act have been repealed, with the result that private actions are no longer possible for certain types of conduct – for example, for predatory pricing, which used to be a criminal offence, but is now dealt exclusively under the Act’s civil abuse of dominance provision.  Also repealed as a result of the recent amendments are the criminal promotional allowance, price discrimination and criminal resale price maintenance provisions (which has been replaced with a civil “reviewable matters” provision, under section 76 of the Act).

Jurisdiction

Under the Act, private action proceedings 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 – 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 “real and substantial connection test” to determine whether a court has jurisdiction in the private action context.   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.

Test

To establish a private action claim under section 36 of the Act, a private plaintiff must establish that the defendant contravened one of the criminal provisions of the Act (e.g., establish all of the elements of a criminal price fixing conspiracy) or breached a Tribunal or court order under the Act and that it 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 and that it has suffered actual loss or damage as a result of the conduct (and that the damage or loss was caused by the defendant).  Moreover, the absence of a prior criminal conviction does not act as a bar to parties commencing private actions.

The necessity under section 36 for private plaintiffs to establish actual damage may, in many cases, mean that it is easier for downstream purchasers (as compared to a direct competitor) to establish and quantify damages (e.g., 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.).

Rebuttable Presumption

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.  The impact of this presumption is that unless sufficient evidence is adduced to the contrary, a guilty finding in a criminal proceeding, and likely pleadings and agreed statements of fact where a defendant is convicted or has plead guilty, can lead to potential civil liability in subsequent civil proceedings.

Burden

It has been held that the elements of a private action claim under the Act must be established on a higher burden than the normal civil burden of proof (i.e., on balance of probabilities), as a private action is based on an alleged breach of a criminal provision of the Act.

Class Actions

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.  To date, Ontario, Quebec, British Columbia, Alberta, New Brunswick, Saskatchewan, Manitoba and Newfoundland have adopted class action legislation.

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 (and which in many cases did not seriously proceed until guilty pleas or convictions had been obtained).

In order to commence a competition law class action a representative plaintiff must as a first step obtain leave (“certification”) to commence the action as a class action after which, if certification is granted, the action will proceed on its merits.

The test for certification of a class action in most 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 of the class.

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 indirect purchasers (i.e., where it is alleged that that direct purchasers passed on, for example, a price-fixing overcharge to a second downstream level of consumers).  As a result, much of the contested activity in relation to Canadian competition law class actions has been at the certification stage of proceedings. 

The leading Canadian case on indirect purchaser class actions had been Chadha v. Bayer, in which certification was denied on the basis that the plaintiffs in that case had not adduced sufficient evidence to establish or calculate harm for the entire class.  As such, the Ontario Court of Appeal found that a class action was not the preferable procedure for resolving the claims (and therefore, that the action should not be certified).

However, as a result of several recent plaintiff favourable class action certification cases in British Columbia and Ontario, these earlier obstacles are thought to have been overcome in part, and it is expected that competition law class action activity in Canada (as well as competition law private actions generally) will increase. 

In particular, the British Columbia Court of Appeal, in Pro-Sys Consultants Ltd. v. Infineon Technologies AG, involving a class action on behalf of a class of purchasers of dynamic random access memory referred to as “DRAMS” (the “DRAMS” case), recently took a highly flexible and plaintiff favourable approach to the certification of competition law private actions in British Columbia.

The DRAMS case followed shortly after another plaintiff—favourable competition law class action decision in Irving Paper Limited v. Atofina Chemicals Inc. et al., in which the Ontario Superior Court of Justice certified a contested price-fixing class action involving indirect purchasers.  This was, in fact, the first Canadian decision certifying a contested price-fixing class action on behalf of indirect purchasers.

It is now widely thought that the recent amendments to the Act (removing the competitive effects test from section 45), together with several plaintiff-favourable competition class action decisions, has substantially lowered the bar both to commence private actions in Canada, as well as to commence class actions.

The DRAMS Case

On June 3, 2010 the Supreme Court denied leave to appeal in the DRAMS case.

In this important case, leave to appeal to the Supreme Court was sought from the British Columbia Court of Appeal that had approved the DRAM memory price-fixing class action.  The British Columbia Court of Appeal had reversed the British Columbia Supreme Court’s decision and certified the class action against a group of five technology manufacturers accused of fixing their prices for computer memory chips.

The Court of Appeal held that the British Columbia Class Proceedings Act should be “construed generously in order to achieve its objectives” – for example, to improve access to justice and avoid duplication in legal proceedings.  The impact of the recent Supreme Court decision to deny leave in this case is that the British Columbia Court of Appeal’s decision is now the latest appellate judgment on the certification of competition law class actions in Canada and the first Canadian appellate decision certifying a contested competition law class action.

It is also thought that the Court of Appeal’s decision has significantly lowered the bar to certify competition law class actions in Canada, including those involving indirect purchasers, which has been a significant obstacle to obtaining certification in past cases.

The respondent computer firms in this case include Infineon, Hynix Semiconductor Inc., Samsung Electronics Co. Ltd., Micron Technology Inc. and Elpida Memory, Inc., who together represent approximately 76% of the global production of dynamic random access memory that provides electronic memory and information retrieval for computer and telecommunications products.  Three of the respondents have settled U.S. class action proceedings for USD $160 million and all of the respondents, with the exception of Micron, have pleaded guilty to criminal cartel charges in the U.S. and have paid fines totalling about USD $731 million.

This case is one of several recent plaintiff-favourable price-fixing class actions under the Competition Act, including a recent Ontario indirect purchaser certification judgment (the hydrogen peroxide case) in which the Ontario Superior Court granted certification in a case involving an indirect and direct class.

Together with the recent sweeping changes to the Competition Act, which have significantly lowered the bar to establish criminal conspiracies in Canada, this most recent plaintiff-favourable price-fixing class action case is expected to lead to a marked increase in competition law class action activity in Canada.

Limitation Period

The limitation period during which plaintiffs must commence a private action under the Act is two years from the later of: (a) the day on which the relevant anti-competitive conduct was engaged in (or court or Tribunal order was contravened) or (b) the day when any criminal proceedings were “finally disposed of”.

Remedies

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 damages, not treble damages, are available to successful plaintiffs in Canada.  This is intended as one of several procedural safeguards against strategic litigation.  Moreover, there is some authority in Canada that punitive or exemplary damages are not available.  As a practical matter, however, 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.

As a result of the potential remedy limitations under the Act, it is common for private plaintiffs to argue common law causes of actions together with claims under the Act (e.g., common law conspiracy, unjust enrichment, unlawful interference with economic interests, etc.).

Implications of Recent Competition Private Action Activity

This is a very interesting time for competition law private actions, class actions and private access cases in Canada based on the recent sweeping amendments to the Act and recent plaintiff favourable class action cases in British Columbia and Ontario.

Some of the potential key impacts of the recent developments include: (i) an increase in the number of competition law private actions commenced following the March, 2010 implementation of the new criminal conspiracy rules, (ii) an increase in the number of competition law class actions commenced following the recent British Columbia and Ontario class action certification cases, (iii) increased compliance costs for firms to review their policies and comply with the new rules and (iv) possible increased strategic litigation.

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CANADIAN COMPETITION LAW LINKS

For more information about Canadian competition law or our competition law services visit our: Canadian Competition Law Home, Team, Competition Law Services, Competition Law Publications, Competition Law Courses and Conferences, Global Competition / Antitrust Law Resources, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Conspiracy and Competitor Collaborations, Abuse of Dominance, Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal, Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law services to Canadian and international clients.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558.  Visit us on the web in Toronto at www.torontocompetitionlawyer.com or www.torontocompetitionlaw.com.

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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