Competing Changes

The Competition Bureau has a new mantra and approach

Led for the first time by an economist rather than a lawyer, the Competition Bureau is emphasizing cooperation rather than prosecution in its dealings with companies suspected of having breached the Competition Act. John Pecman, the Commissioner of Competition, is promoting the notion of “shared compliance.”

In June, the Bureau released its revised Corporate Compliance Programs Bulletin, advising the private sector on how to implement “credible and effective” compliance programs. This includes the need for a thorough risk-based corporate compliance assessment regarding adherence to the Act. It also provides for a reduction of fines for companies that have a credible and effective program in place, even if they are involved in a violation of the Act.

The Bulletin “sets the bar relatively high in terms of expectations of what clients should do to have effective compliance programs in place,” says Anita Banicevic, a partner at Davies Ward Phillips & Vineberg LLP in Toronto. Some of the new requirements, like having an officer tasked to report to the Board on compliance matters, “might catch companies by surprise,” Banicevic says.

Particularly demanding may be the requirement for an anti-trust audit. “You have to take a look at your business and see if there are any [anti-competitive] issues coming up. It’s not something that’s widely done in Canada or even the US,” says Banicevic.

Large corporations in Canada would have compliance programs in place that are “pretty comprehensive and rigorous,” says Randal Hughes, a partner at Bennett Jones LLP in Toronto. “But the Bulletin may be aimed at smaller businesses or businesses that have grown from smaller to larger and that may not have had a recognition of the importance of compliance with competition laws.”

Companies have previously benefited from leniency – avoiding higher fines or criminal prosecution – if they cooperated with the Bureau. What’s new is the fine reduction available if a company allows the Bureau to evaluate whether it had a credible and effective compliance program in place. This is a more formal process than existed in the past.

“You may want to take advantage of fine reduction,” says Banicevic, “but are you prepared to allow the Bureau to look at your files? Is that worth it to you from a business risk perspective? It’s a risk/reward analysis at that point.”

The Bureau cites three recent cases involving the Ontario water heater industry as “perfect examples of shared compliance.” The Bureau reached resolutions with Reliance Comfort Limited Partnership in an abuse of dominance case, with EnerCare Inc. in a mergers case, and with National Energy Corporation in a false or misleading representations case. “These resolutions strengthen competition and consumer choice in Ontario’s residential water heater industry,” said the Bureau’s Pecman in a recent speech.

In competition case law, the major ruling in the past year was the Supreme Court of Canada’s decision in Tervita Corp v. (Canada) Commissioner of Competition, 2015 SCC 3.

Tervita Corp. owns the only two hazardous waste landfills in northeastern British Columbia. As part of its acquisition of Complete Environmental Inc. in 2009, Tervita acquired an interest in Babkirk Land Services Inc., which planned to develop a new landfill site in northeastern BC. The Bureau challenged the deal before the Competition Tribunal in 2011, alleging it was likely to substantially prevent competition in secure landfill services in the area.

The Tribunal found in favour of the Commissioner and ordered Tervita to divest the Babkirk site. Tervita appealed all the way to the Supreme Court of Canada, which ruled in January 2015 — the first decision from the SCC in a merger case in almost 20 years.

The Tervita merger was the second transaction – the first was the Superior Propane/ICG merger – where the courts found anti-competitive effects but allowed the merger to proceed due to the “efficiencies” defence in s. 96 of the Act. Efficiency gains in Tervita were less than the yearly salary of a half-time junior employee. “Yet because of difficulties in how the Commissioner presented evidence on the anti-competitive effects, those efficiencies won the day,” says Kevin Wright, a partner at DLA Piper in Vancouver.

When the responding party invoked the efficiencies defence, he says, “there was an obligation on the Commissioner, to the extent possible, to quantify the anti-competitive effects of the merger.” It’s not sufficient to show the effects of a merger are harmful to competition in a qualitative way. “There must be a target for the respondent to react to when they go to claim efficiencies,” he says. “The Commissioner didn’t do that.” As a result of the ruling, there is a heightened awareness at the Bureau that they have to quantify, to the extent possible, anti-competitive effects.

A second significant court case is the recent decision of the Ontario Superior Court in R. v. Nestlé Canada Inc., 2015 ONSC 810, arising out of the Bureau’s ongoing price-fixing case against chocolate companies Nestlé Canada Inc., Mars Canada Inc. and ITWAL Limited.

The court ruled that where members of an alleged price-fixing cartel (i.e., Cadbury and Hershey) provide information against other members of the alleged cartel (i.e., Nestlé and Mars) to the Crown in exchange for immunity from criminal prosecution, that information must be disclosed to the other members who are charged.

This decision addresses the conflicting principles of a co-operating party’s right to settlement privilege versus an accused’s right to full disclosure by the prosecution. “In a conflict between these two rights, the right of an accused is going to win,” says Katherine Kay, a partner at Stikeman Elliott LLP in Toronto.

“Counsel for a party seeking immunity or leniency needs to be mindful that the Crown will have a disclosure obligation to other accused,” she says. “The Competition Bureau will need to be aware of that as well.

“This decision is the first to consider these principles squarely in a competition-law context,” says Kay. “I view the decision as important confirmation that those principles apply to Competition Act prosecutions, but I don’t otherwise view it as a departure from longstanding legal principles.”

The Competition Tribunal has made some significant rulings in recent months. The competition Bar paid close attention to Commissioner of Competition v. Parkland Industries Ltd., 2015 Comp. Trib 4.

In April 2015, the Bureau applied to the Tribunal to block Parkland’s acquisition of Pioneer gas stations or supply contracts in 14 communities in Ontario and Manitoba. The Bureau’s review concluded that the parties’ post-merger market shares in these communities would be between 39 and 100 per cent.

In June 2015, the Competition Bureau obtained the first contested injunction issued pursuant to s. 104 of the Act in a merger case. The Tribunal recognized the potential for “irreparable harm” to consumers in six communities if retail operations were integrated before the fate of the merger was decided.

Banicevic describes the decision as “an important development for the Bureau in that it clarifies the approach and the burden that the Bureau has to meet when using s. 104 to obtain an injunction in the merger context.” (Section 104 has not been invoked as often in mergers as s. 100 since the former can only be used where an application to challenge the merger has already been brought.)

“The Bureau will still have to show evidence for why they need that injunction,” she says. “But overall they’ve now got an opportunity to use s. 104 with more success than they had with s. 100. Practically, the Bureau’s success in invoking s. 104 may be more significant in its impact on the negotiating dynamics between the parties and the Bureau where a merger raises competition issues and potential remedies are being discussed.”

Another important Tribunal ruling, upheld on appeal, was Kobo Inc. v. The Commissioner of Competition, 2014 Comp. Trib. 14. The case clarifies the factors that the Tribunal will consider when reviewing third-party applications to rescind or vary a consent agreement.

In February 2014, following a probe of the ebook industry, the Bureau reached a consent agreement with four major ebook publishers. They agreed to alter distribution agreements with individual ebook retailers (which the Bureau alleged restricted retail price competition), to allow retailers to offer discounts on ebooks.

Soon afterward, however, Kobo, the largest ebook retailer in Canada, sought to rescind or alter the agreement on the basis that it includes terms that could not be the subject of an order of the Tribunal. The Tribunal ruled in September 2014 that it can grant an application to rescind or vary the terms of a consent agreement only where one or more of three conditions are met:

  • The consent agreement includes terms that the Tribunal is not permitted to issue in respect of the reviewable trade practice in question.
  • The consent agreement does not identify each of the substantive elements of the reviewable trade practice in question or does not contain a statement that the respondent either agrees or does not contest that these elements have been met.
  • The consent agreement includes terms that are unenforceable or would lead to no enforceable obligation, e.g., because they are too vague.

“The Tribunal set a standard that was deferential to the Commissioner,” says Wright. “It was deferential to the process of allowing parties to settle, restricting the ability of third parties to come in and upset the applecart. So the standard is fairly high for intervention by a non-party.”

Kobo challenged the Tribunal’s decision at the Federal Court of Appeal, but its appeal was dismissed in June 2015.