Canadian COMPETITION LAW

November 22, 2009

OVERVIEW

Significant changes have recently been made to the federal Competition Act (the “Act”) that impact competition law private actions under the Act. At the same time, there appears to be an increasing number of private and class actions currently being commenced in Canada.  This trend may well continue as a result of some of the recent amendments, as well as several plaintiff favourable competition law class actions in British Columbia and Ontario.

PRIVATE ACTIONS

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 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 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.

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.

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 recent British Columbia Court of Appeal DRAMS case is an excellent recent example.

However, as a result of several recent plaintiff favourable class action certification cases in British Columbia and Ontario, it is expected that class activity in Canada will increase.  In particular, the British Columbia Court of Appeal in the DRAMS case recently took a highly flexible (and plaintiff favourable) approach to the certification of competition law private actions in British Columbia, which closely followed another plaintiff favourable certification case in Ontario (Irving Paper).

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 proven as a result of the criminal violation (or breach of a Tribunal or court order) and “any additional amount that the court may allow” which cannot exceed the cost of any proceeding and investigation.  In contrast to the United States, only single damages, as opposed to treble damages, are available to successful plaintiffs in Canada (though as a practical matter the majority of private actions in Canada have resulted in settlements).  Moreover, there is some authority in Canada that punitive or exemplary damages are not available.

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 relations, etc.).

CONCLUSION

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:

– An increase in the number of competition law private actions commenced following the March, 2010 implementation of the new criminal conspiracy rules.
– An increase in the number of competition law class actions commenced following the recent British Columbia and Ontario class action certification cases.
– Increased compliance costs for firms to review their policies and comply with the new rules.
– Possible increased strategic litigation.

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