“There is no absolute obligation on any business to supply to, or buy a product from, another business. However, under certain circumstances, if your business refuses to supply another business or another business refuses to supply you, the Competition Act may apply.”
MAJOR COMPETITION LAW COMPLIANCE UPDATE: On June 3, 2015, the Competition Bureau (Bureau) finalized its new core competition law compliance materials. The Bureau’s new compliance materials, which include information on most major competition law areas, misleading advertising, associations and the Bureau’s Leniency Program, are essential reading for corporate compliance officers, senior management and in-house and general counsel. For an overview of the developments (with links) see: Canadian Competition Law Compliance Programs.
Four provisions of the federal Competition Act can apply, and offer remedies, to refusals to deal or terminations of supply, depending on the circumstances:
1. Section 45 (criminal conspiracy agreements). The criminal conspiracy provisions of the Competition Act can apply where a refusal to supply or deal involves concerted behavior (e.g., an agreement or arrangement between competing suppliers to collectively refuse to deal or supply, sometimes referred to as a “group boycott”). Under the conspiracy provisions, complaints can be made to the Competition Bureau, the Bureau can refer matters to the DPP for prosecution and private parties have the right to commence civil damages actions. For more see: Conspiracy (Cartels).
2. Section 75 (refusal to deal). The Competition Act contains a stand-alone civil refusal to deal provision (discussed below). Under section 75, complaints can be made to the Competition Bureau, the Bureau may make applications to the Competition Tribunal for remedial orders and private parties can, with leave, make refusal to deal applications to the Tribunal.
3. Section 76 (price maintenance). The civil resale price maintenance provision of the Competition Act can apply where there has been a refusal to deal based on another person’s or company’s low pricing policy. Under the price maintenance provision, complaints can be made to the Competition Bureau, the Bureau may make applications to the Competition Tribunal for remedial orders and private parties can, with leave, make price maintenance applications to the Tribunal. For more see: Price Maintenance.
4. Section 79 (abuse of dominance). The civil abuse of dominance provisions of the Competition Act (sections 78 and 79) can apply to refusals to supply or deal when engaged in by a dominant supplier, including in some circumstances being the basis for competing suppliers to seek access to a competitor’s assets or facility. Under the abuse of dominance provisions, complaints can be made to the Competition Bureau and the Bureau may make applications to the Competition Tribunal. Neither private actions nor private access applications are possible – i.e., the Bureau has exclusive enforcement jurisdiction under sections 78 and 79 of the Competition Act. For more see: Abuse of Dominance.
Each of these criminal and civil provisions requires that different elements be proven, have different remedies available – for example, section 45 (conspiracy offences) allows damages actions to be commenced, while the other provisions do not – and are heard in different forums (i.e., some in the provincial courts, while others can only be adjudicated by the Competition Tribunal).
As such, individuals or companies seeking a competition law remedy for a refusal to deal or termination of supply need to consider both the nature of the conduct (i.e., whether it may fall under one or more of the relevant Competition Act provisions) and the desired remedy (e.g., civil damages, a remedial order for the conduct to stop, Competition Bureau enforcement, etc.).
Similarly, it is incumbent on suppliers or distributors seeking to terminate supply or refuse to deal to consider the potential risk, both under the Competition Act and otherwise (e.g., potential contract, tort or other liability) before terminating supply or supply/distribution agreements.
SECTION 75 – REFUSAL TO DEAL
The refusal to deal provisions of the Competition Act are contained in section 75 of the Act. Under these provisions, a distributor or reseller whose supply has been terminated by a supplier may, where all of the elements of the provision are met, have an alternate remedy in addition to contractual or other remedies (e.g., termination rights under a supply or distribution agreement).
The refusal to deal provisions of the Act were passed to address a concern that in some Canadian industries there may be relatively few suppliers and, as such, a customer that has been terminated may be unable to secure alternate sources of supply.
Under section 75, the Competition Tribunal has the power to make “remedial orders” to order a supplier to accept a person as a customer on ”usual trade terms” where all of the following elements are established:
1. The person is substantially affected in his business, or precluded from carrying on business, due to an inability to obtain adequate supplies of a product anywhere in a market on usual trade terms.
2. The person is unable to obtain adequate supply of the product because of insufficient competition among suppliers in the market.
3. The person is willing and able to meet the supplier’s usual trade terms.
4. The product is in ample supply.
5. The refusal to deal is having (or likely to have) an adverse effect on competition in a market.
Both the Commissioner and private parties (with leave) may make applications to the Tribunal for remedial orders (i.e., for conduct to stop or resupply) under section 75.
As discussed above, three other sections of the Competition Act, in addition to potential contractual, tort and other legal causes of action, can also apply to refusals to deal or supply terminations.
LINKS AND RESOURCES
Competition Act: Competition Act – Competition Tribunal: Competition Tribunal – homepage – Competition Bureau: Pamphlets: Refusal to Supply (Section 75 – refusal to deal), Abuse of Market Power (Section 79 – abuse of dominance), Setting Your Own Price (Section 76 – price maintenance) – Bulletins: Information Bulletin on Private Access to the Competition Tribunal – Enforcement Guidelines: Competitor Collaboration Guidelines, Abuse of Dominance Guidelines
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