Canadian COMPETITION LAW

August 16, 2016

In an important decision released August 11, 2016, the Ontario Court of Appeal held that the discoverability principle applies to the private actions limitations period section of the Competition Act (the “Act”) (section 36(4)) (see: Fanshawe College of Applied Arts and Technology v. AU Optronics Corporation, 2016 ONCA 621 (“Fanshawe”).

Competition Act Limitation Periods
and the Discoverability Principle

In general, under section 36(1) of the Act, private parties may commence civil damages actions or class actions for violations of: (i) a criminal section under Part VI of the Act; or (ii) a failure to comply with a Competition Tribunal or court order made under the Act.

The right to bring Competition Act civil actions is, however, restricted by several statutory limitation periods, which, for a violation of a criminal section of the Act, runs from two years from the later of: (i) the day on which criminal conduct under the Act was engaged in (section 36(4)(a)(i)); or (ii) the day on which any related criminal proceedings were finally disposed of (section 36(4)(a)(ii)).

To date there have been a number of issues related to the limitations periods set out in section 36(4) of the Act, which have included whether the discoverability principle applies to extend the periods. The discoverability principle is a common law rule that provides that a cause of action arises for the purposes of a limitation period when the material facts on which it is based have been (or ought to have been) discovered by the plaintiff by the exercise of reasonable diligence (see, for example, Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147). Another key issue has been whether the time for commencing private actions can also be extended based on a continuing offence.

Some Canadian courts have held that the discoverability principle does not apply to section 36(4) of the Act (or was not engaged on the particular facts). In other cases, courts have held that the discoverability principle does apply to section 36(4). This issue has been, therefore, unsettled.

The Fanshawe Decision

In Fanshawe, a price-fixing class action involving liquid crystal displays (LCDs) and compnents, the Ontario Court of Appeal upheld the motion court’s finding that the discoverability principle does in fact apply to the limitation period under section 36(4)(a)(i) of the Act.

Relying on the Supreme Court of Canada’s decision in Ryan v. Moore, 2005 SCC 38, the Court held that a statutory limitation period will generally be subject to the discoverability principle when the running of a limitation period is linked to either: (i) the plaintiff’s knowledge about an event; or (ii) to an event related to the plaintiff’s cause of action (as opposed to an external event not related to the plaintiff’s cause of action).

The Court reasoned that since the limitation period under section 36(4)(a)(i) is triggered by an event related to the underlying cause of action – conduct that violates Part VI of the Act – it is subject to discoverability.

Interestingly, the Court also held, relying on Ryan, that the discoverability principle is only based on a presumption and should not be applied automatically or systematically without a thorough balancing of competing interests. Helpfully for Competition Act plaintiffs, the Court indicated that in conspiracy cases, courts may well favour applying the discoverability principle given that “secrecy and deception are invariably elements of anti-competition agreements.”

The Court also cited approvingly Sharpe J. in Chadha v. Bayer Inc. (1998), 82 C.P.R. (3d) 202 (Ont. Gen. Div.), who noted that “Parliament has hardly provided potential defendants with an iron-clad assurance that they may not be sued more [than] two years after the cessation of their conduct as the limitation period could start to run again in the event of criminal proceedings.”

Implications

This decision is important in that it clearly gives plaintiffs stronger grounds to argue that the two-year limitation period under section 36(4) can be extended, particularly in the context of alleged price-fixing or other conspiracies where secrecy is commonly a key part of the commission of the offence.

This decision also appears to be part of a larger judicial trend to allow plaintiffs to advance their Competition Act private action cases to trial, which has included the Supreme Court’s decision to allow indirect purchaser class actions.

However, while this latest Competition Act limitations decision adds clarity to the application of section 36(4) of the Act to competition law private actions, the discoverability principle issue still remains unsettled among Canadian courts (for example, it remains unclear whether courts in other provinces will adopt this reasoning).

Questions also remain about other aspects of section 36(4), including the scope of section 36(4)(a)(ii) (the limitation period that runs from the final disposition of criminal proceedings).

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