OVERVIEW OF REFUSALS TO SUPPLY OR DEAL
UNDER THE CANADIAN COMPETITION ACT
Refusals to supply or deal are not per se prohibited under Canada’s federal Competition Act. In this regard, the Competition Act does not offer any remedies for refusals to supply where only a single distributor or retailer is impacted by a supply termination, unless there is a significant impact on overall competition in a market.
Four provisions of the federal Competition Act can, however, apply to refusals to supply or deal if the specific test under each section is met:
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 section 45, complaints can be made to the Competition Bureau, which can refer matters to the Director of Public Prosecutions for prosecution and private parties can commence civil damages actions and class actions.
For more information, 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 low pricing policy. Under section 76, 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 information, 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. Following June 2023 amendments to the Competition Act, private parties can now also commence applications to the Competition Tribunal for remedies for abuse of dominance.
For more information, 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.
Concerted refusals to supply or deal (i.e., agreements or arrangements between competitors to refuse to supply or deal) are the highest level of risk under Canada’s Competition Act given that agreements to refuse to supply are criminal offences under section 45 of the Competition Act (criminal conspiracy agreements).
SECTION 75 OF THE COMPETITION ACT
(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 competition law 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 Competition Act were enacted 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 of the Competition Act, the Competition Tribunal may 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 met on the civil burden of proof:
1. A person is substantially affected in their 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. A person is unable to obtain adequate supply of the product because of insufficient competition among suppliers in the market.
3. A 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 Competition Bureau and private parties, with leave from the Competition Tribunal, may make applications to the Tribunal for remedial orders (e.g., for conduct to stop or resupply) under section 75 of the Competition Act.
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.
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We are a Toronto based competition and advertising law firm offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law. We also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.
Our experience includes advising clients in Toronto, across Canada and the United States on the application of Canadian competition and regulatory laws and we have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal and pricing and distribution matters. For more information about our competition and advertising law services see: competition law services.
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