Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 31 - Evidence
OTTAWA, Wednesday, March 6, 2002
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-23, to amend the Competition Act and the Competition Tribunal Act, met this day at 3:50 p.m. to give consideration to the bill.
Senator E. Leo Kolber (Chairman) in the Chair.
[English]
The Chairman: Welcome. We are meeting to discuss Bill C-23. Our first group of witnesses are from the Canadian Chamber of Commerce and the Canadian Federation of Independent Business. I do believe that each group has a prepared statement, which I would ask you to present seriatim. Senators will then pose questions. Proceed, please.
Mr. Matthew Ivis, Policy Analyst, Canadian Council for International Business, Canadian Chamber of Commerce: Thank you, Mr. Chairman. Good afternoon. The Canadian Chamber of Commerce is pleased to have this opportunity to provide comments on Bill C-23, an act to amend the Competition Act and Competition Tribunal Act to the Standing Senate Committee on Banking, Trade and Commerce.
The Canadian Chamber is Canada's largest and most representative business association. Through its network of some 350 local chambers of commerce and boards of trade, the Canadian Chamber represents approximately 170,000 businesses of all sizes in all sectors and all regions of the country.
Competition issues are of vital importance to the Canadian Chamber and its members. The Canadian Chamber's Competition Law and Policy Task Force has been an active participant in the consultative processes leading up to Bill C-23 and fully intends to continue its involvement in the future.
On October 16, 2001, the Canadian Chamber appeared before the House of Commons Standing Committee on Industry, Science and Technology. At that time, the Canadian Chamber raised a number of important issues related to Bill C-23 that are still relevant today, including the most widely debated topic discussed during the Industry Committee hearing process: private access to the Competition Tribunal. The Canadian Chamber's position on this issue is well documented in our submission to the Industry Committee and thus will not be the subject of our comments here.
The topics the Canadian Chamber would like to discuss three topics today. First, the competitive effects test proposed for the acts' ``refusal to deal'' provision; second, additional sector-specific regulation in the form of the proposed administrative monetary penalty in air transportation and the failure to delete a now-redundant sector- specific provision related to the same industry; and third, the test for issuance of an emergency interim injunction in respect of non-criminal marketing practices and for the extension of such an order beyond 80 days. We will address each of these areas of concern in sequence.
First, inconsistencies in the competitive effects test in section 75. The ``refusal to deal'' provision of the Competition Act is found in section 75. The provision permits the Competition Tribunal to make an order to remedy the harm suffered when a person is refused supply of a product in circumstances where there is insufficient competition among suppliers of the product.
Bill C-23 proposes to add a competitive effects test to section 75. The Canadian Chamber understands that the proposal is a response to concerns expressed that private litigants, who could now initiate a proceeding under the proposed new private access regime, would bring cases that were not motivated by adverse effects on competition per se, but only by adverse effects to themselves.
The proposed competitive effects test, which was added at the end of the industry committee's review of Bill C-23, and after the Canadian Chamber of Commerce had provided its input on the bill, would require that the conduct in question is ``having or is likely to have an adverse effect on competition in a market.'' This new competitive effects test is problematic as it creates a lower threshold for remedial action than the ``substantial lessening or prevention of competition'' test found elsewhere in Part VIII of the act. In turn, if Bill C-23 is passed as currently drafted, it will introduce an inconsistent standard of adjudication with regard to the competitive effects of impugned business conduct.
Moreover, when coupled with Bill C-23's proposal to permit private access to the Competition Tribunal, the lower competitive effects threshold set out in the proposed section 75(1)(e) is, in the view of the Canadian Chamber, highly problematic. In practical terms, the use of a test that requires merely proof of ``an adverse effect on competition in a market'' in conjunction with a right of private access to the tribunal, raises the spectre of private litigants demonstrating a relatively minor degree of competitive harm as opposed to the substantial lessening or prevention of competition the commissioner must demonstrate under other provisions of the act before they will be entitled to relief from the tribunal. Thus, a private litigant will be able to invoke the Competition Act and the tribunal's remedial powers to address conduct that may only have a slight impact on competition.
The Canadian Chamber fears that the very provision apparently designed to protect against strategic litigation — section 75(1)(e) — will do very little to discourage or prevent such litigation. The Canadian Chamber therefore recommends that the proposed section 75(1)(e) be amended to read, ``the refusal to deal prevents or lessens, or is likely to prevent or lessen, competition substantially in a market.''
The second area we wish to address is additional sector-specific amendments in the form of the proposed administrative monetary penalty in air transportation and the failure to delete a now-redundant, sector-specific provision related to the same industry.
The Canadian Chamber believes that by extending the scope of the tribunal's powers in one particular sector — in this case airlines — the proposed provisions regarding administrative monetary penalties exacerbates a deeply troubling trend of using the Competition Act, a statute of general application intended to govern all sectors of Canadians economy, for sectoral regulation.
At the same time, the Canadian Chamber would like to point out, now that emergency interim orders are to be permitted in respect of a wide range of reviewable conduct in all sectors of economy under section 103.3, that section 104.1 is redundant. Thus, the Canadian Chamber agrees with the conclusion drawn by the Parliamentary Research Branch in its initial commentary on Bill C-23 in September of 2001, that the proposed new section 103.3 was based on the existing power of the commissioner to issue an interim order in respect of potentially anti-competitive conduct by a domestic air line pursuant to section 104.1.
There would seem to be no justification for continuing to single out a particular industry for special treatment where a general power exists to permit the commissioner quickly to obtain interim relief from the tribunal. The Canadians chamber urges the Senate, therefore, to amend the bill such that it repeals section 104.1 of the act.
The Chairman: If we repeal that section, what do you do with what is left in the Competition bill? There is still a 104 in the Competition Act, I believe.
Ms Susan Hutton, Member, Competition Law & Policy Task Force, Canadian Chamber of Commerce: Section 104 in the existing part of the act refers to the issuance of interim orders on application by the commissioner where an application has been made.
The Chairman: I am just curious as to whether your suggestion of throwing out what there is in Bill C-23 solves the entire problem. I do not know.
Ms Hutton: With respect, I do not think Mr. Ivis is suggesting throwing out what is in Bill C-23.
The Chairman: He is not?
Senator Oliver: He just said that section 104 should be deleted. That is what I heard him say.
Ms Hutton: As a consequence of what is included in Bill C-23, which expands the current power under 104.1 to apply to the economy generally, as a consequence of adding 103.3, the current section 104.1 becomes redundant. Section 104.1 was added to the bill a year ago. Perhaps that would assist.
The Chairman: Are you suggesting we can use this as a lever to remove section 104.1 entirely?
Senator Oliver: From the main framework legislation?
Ms Hutton: Yes.
The Chairman: Are you sure of your ground on that?
Ms Hutton: Procedurally, no.
The Chairman: Neither are we. I am sorry. Go ahead with your presentation.
Mr. Ivis: That is a good question.
The Chairman: I know it is a good question; I would like a good answer.
Mr. Ivis: Not only does Bill C-23 fail to cure this redundancy, it exacerbates the problem by seeking to give the Competition tribunal the authority to levy an administrative monetary penalty of up to $15 million against a domestic air carrier in addition to granting injunctive relief where the tribunal finds that the air carrier has abused its dominant position in the market.
Therefore, the Canadian Chamber recommends that proposed sections 11.4 and 11.5 of Bill C-23 be deleted in their entirety. If retained, however, the Canadian Chamber urges the Senate to reconsider the potential quantum of the penalty imposed. The maximum fine of $15 million for non-criminal behaviour is out of all proportion to fines imposed for criminal behaviour under the act and sets a disturbing precedent.
My colleague Ms Hutton will discuss the test for issuance of an emergency interim injunction and for the extension of such an order beyond 80 days.
Ms Hutton: This relates to the very issue that Senator Kolber was asking about, which is the proposal in Bill C-23 to extend the ability to obtain an interim injunction prior to the filing of an application with the Competition Tribunal. This is at the outset of the Commissioner of Competition's investigation into a civilly reviewable practice. That power currently exists under section 104.1 of the act, only with respect to airlines. The proposed legislation in Bill C-23 would add a new section — section 103.1. This section would provide the commissioner with the ability to — at the start of an investigation, before he has sufficient evidence to make an application and to start an action before the Competition Tribunal — apply under section 103.3 for an ``emergency interim injunction,'' something that would occur even before an application and an action has been started before the tribunal.
Bill C-23 addressed the Canadian Chamber's most fundamental concern with the proposal that had been recommended in Bill C-472. Bill C-472 would have allowed the commissioner himself to issue the temporary order, whereas Bill C-23 requires the commissioner to apply to the Competition Tribunal to obtain such an order. This modification preserves the important distinction between investigator and adjudicator that would have been eradicated by Bill C-472. The Canadian Chamber supports that.
However, Bill C-23 does not address certain other deficiencies that were identified with Bill C-472 as it related to emergency interim orders. In particular, it precludes a right of appeal from the issuance of such an order, it allows temporary orders to be made without any notice whatsoever to the affected party, and it contains an inordinate focus on the potential impact of the impugned conduct on individual competitors rather than on competition.
In this latter regard, the test for potential harm to competition that must be satisfied in order for the commissioner to obtain an emergency interim order is found in paragraphs 103.3(2)(b) and (c). This would permit an order to be made if the tribunal simply found that a person is: likely to be eliminated as a competitor; likely to suffer a significant loss of market share; likely to suffer a significant loss of revenue; or is likely to suffer other harm that cannot adequately be remedied by the tribunal.
The Canadian Chamber feels that this threshold, as drafted, is unnecessarily low and could lead to the prevention of significant pro-competitive behaviour as its focus is on taking business from a rival as opposed to harming competition. Taking business from a rival is just what competition is all about. This test for harm to competition will be met even when behaviour is pro-competitive.
Therefore, the Canadian Chamber submits that these provisions should be deleted from the bill. This would leave a straightforward and appropriate test to be satisfied, which is whether injury to competition that cannot adequately be remedied by the tribunal is likely to occur.
The Canadian Chamber would also like to comment on the test in the proposed new subsection 103.3(5.3), pursuant to which the tribunal may extend an emergency interim injunction beyond the initial maximum of 80 days. This extension may be granted for as long as the commissioner requires, in order to receive and review outstanding information requested for the purpose of conducting his inquiry.
As written, the order can be extended regardless of from whom the information has been requested. It ought to be confined to a situation in which the party under investigation has not provided information, thus delaying its own investigation and potentially leading to a situation in which the order expires and the investigation has not been significantly advanced.
It ought not to be possible for delay by someone other than the person against whom the order has been issued — delay on the part of someone else in not providing information — to cause the order to be extended and thereby perpetuating in an open-ended manner the extraordinary interim order.
We also note that as written, section 103.3 does not require the tribunal when extending such an order beyond 80 days, to consider whether sufficient grounds continue to exist for the continuance of the order. This loophole ought to be closed and the tribunal ought to be required to consider whether the potential harm to competition continues to exist.
We respectfully suggest that section 103.3(5).3, should be amended, first, by clarifying that the information must be outstanding from the person against whom the order is issued, and, second, by repeating the test for potential harm to competition and thus requiring that the conditions which justify the issuance of the extraordinary remedy continue to exist before it is extended beyond 80 days.
Rather than reading aloud through these lengthy clauses, I would refer you to our submission.
In conclusion, we greatly appreciate the opportunity to provide these comments to the committee and look forward to working constructively with the committee, the minister and the Competition Bureau to improve the Competition Act to ensure it contains the tools required to permit Canadian business to continue to enjoy the benefits provided by the Canadian market-place.
The Chairman: You are a lawyer. Could you just shed light on one thing? You mentioned an emergency and a situation where the commissioner must have an injunction immediately. How long does it take a normal lawyer in a normal court to get an injunction? What would be the timelines?
Ms Hutton: Typically an action would need to be started. You would need to file an application asking for the final relief.
The Chairman: This is before the tribunal.
Ms Hutton: In front of the tribunal.
The Chairman: Right.
Ms Hutton: Procedurally, that would take as long as it takes to get the tribunal together. I do not think you can get the tribunal to hear you in three seconds, but it could be done, I would expect, in a day or two.
The Chairman: Is this a power the commissioner needs? That is what our committee wants to know.
Ms Hutton: His justification, as I understand it, for having this power is that otherwise he would have to wait until his investigation was sufficiently advanced and he had gathered enough evidence to actually file an application in the main action. He is asking for this power so that he need not wait until he has gathered all the evidence. It is not a question of how long it takes him to get before the tribunal.
The Chairman: Same evidence, same test he needs anyhow?
Ms Hutton: No. To file the main application, he would need evidence of a substantial lessening or prevention of competition, which is different from potential harm to competition that the tribunal cannot remedy.
Mr. Garth Whyte, Senior Vice-President, National Affairs, Canadian Federation of Independent Business: On behalf of the 102,000 small- and medium-sized enterprises owners across Canada who the Canadian Federation of Independent Business represents today, we want to thank the committee for allowing us to appear today to talk about the Competition Act.
The purpose of our presentation is threefold. First, we want to talk about the importance of small and medium-sized enterprises in the Canadian economy; second, we will describe the long-standing concerns of our members with respect to the Competition Act; and, third, we will outline the main reasons for our support for Bill C-23 — specifically the changes relating to limited right of private access, which we support. Our presentation is based on surveys and comments from our members across the country.
Small- and medium sized businesses play and important role in Canada's economy. Of the approximately 1 million businesses in Canada, over three-quarters employ five or fewer people, and over 95 per cent of businesses have less than 50 employees.
We also want to address the question as to why policy changes are being looked at and why we need to change the Competition Act. Our economy has changed. The share of total employment by small- and medium-sized enterprises, SMEs, and its importance to the Canadian economy has been steadily growing over the years. Today, small and medium-sized enterprises account for 50 per cent of the GDP, over 50 per cent of total employment and virtually all the new jobs being created in last several years.
Small businesses not only play a major role in job creation and economic growth, they are also a major contributors to their communities' well-being. However, to fulfil their role, SMEs need not only fair rules of competition but also fair and efficient redress process.
The stated purpose of the Competition Act is to maintain and encourage competition in Canada to promote the efficiency and adaptability of the Canadian economy to ensure, among other things, that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy to provide consumers with competitive prices and product choices.
CFIB has repeatedly pushed over the years for review of the Competition Act to address its apparent inability to deliver on its intended purpose, which is to enforce fair rules of competition while not impeding the dynamic nature of the Canadians economy. We have also seen in recent years industry and consumer groups turn to provincial governments for help as a result of perceived lack of effectiveness of the Competition Act. CFIB made several representations to boards of inquiry into the issue of gasoline pricing, for example, set up both by the Quebec and New Brunswick governments.
In 1999, we surveyed members across Canada on the issue of whether the federal government should strengthen the Competition Act. Of the 8,700 respondents who had an opinion, 64 per cent said yes and 35 per cent said no. CFIB wrote to the House Standing Committee on Industry, Science and Technology in April 1999 to express support for Bill C-235, sponsored by Member of Parliament Mr. Dan McTeague, which sought to strengthen the predatory pricing provisions of the Competition Act. We commended the House Standing Committee at that time for its decision to take a closer look at the Competition Act and its enforcement.
Subsequently, a series of studies was commissioned by the Competition Bureau. In the Van Duzer Report, which looked into the effectiveness of the Competition Act and the performance of the bureau, the authors pointed out that over a five-year period, the Competition Bureau had received 931 complaints about alleged unfair pricing practices, but that very few had been the subject of formal inquiries and even fewer were the subject of litigation. In fact, out of 931 complaints, there were only three formal enforcement proceedings.
It is impossible to determine how many businesses have refrained from complaining to the Competition Bureau, believing that it is a waste of time or out of fear of retaliation from the sources of unfair competition. However, anecdotal evidence heard by the Canadian Federation of Independent Business, CFIB, over the years, tells us that this is a significant problem.
The Van Duzer Report also highlighted the need for more jurisprudence. The authors pointed out that some minimum number of formal enforcement proceedings is essential to private sectors to attach any credibility to the Competition Bureau and hence be motivated to comply with the law.
Mr. André Piché, Senior Policy Analyst, National Affairs, Ottawa, Canadian Federation of Independent Business: We know of independent gas retailers who had to subsidize operations with significant injections of capital just to survive the effects of eroding price margins imposed by their wholesalers. Another example is independent auto-glaziers who had to seek an invoice number from a national competitor before initiating work on an insurance claim. These independent operators have to forward their invoice to their competitor who discounts it by up to 40 per cent before sending the invoice to the insurance company. The cheque then comes back to the competitor who takes a $15 administration fee and eventually pays the independent operator's invoice.
A retail grocery chain in the Annapolis Valley of Nova Scotia was driven out of business through predatory pricing. This was the result of a combination of predatory pricing and control of the wholesale market by the two largest supermarket chains in the region. These types of pressures have also affected other small grocery chains, such as Capitol Stores in the Halifax region.
[Translation]
Nova Scotia greenhouse operators provided examples of price intimidation and dumping on the part of local dominant retailers, which resulted in a reduction in the number of greenhouse operators in the province from 16, five years ago, to 7 as of June of this year. For instance, you would have a large producer in Ontario with an order for 100 tonnes of tomatoes for the Boston market. In order to ensure the best quality, 120 tonnes would be produced with the remaining 20 tonnes dumped in the Nova Scotia market.
Last fall, the CFIB contributed to an issue being dealt with by the Competition Bureau regarding the acquisition of Multi-Marque by Canada-Bread. Without any intervention, this would have lead to a control of 90 per cent of the Atlantic Canada market, with the remaining 10 per cent divided among several small players. Following an extensive review by the Competition Bureau, market shares were divested to some other players and minimal level of competition was maintained.
More recently, some foreign manufacturers of printing equipment have been trying to squeeze out Canadian small and medium-sized businesses that remanufacture printing supplies such as ribbons, toner cartridges and ink jet cartridges. These SMEs have created 5,000 direct and indirect jobs in Canada and saved through recycling 3,200 tonnes of plastic and metal last year.
The Competition Bureau has limited resources, as the Commissioner pointed out in his presentation to the House Standing Committee on Industry, Science and Technology last fall, and the Bureau has to give priority to issues of national importance, such as merger proposals in the banking sector or air transportation sector. Hence the need to give SMEs an alternate process to get redress.
[English]
Late last fall, CFIB surveyed its members across Canada about whether individuals or businesses should have the direct access to the Competition Tribunal. Of the 13,500 business owners who responded, 50 per cent said, yes; 17 per cent said, no; and 33 per cent were either undecided or had no interest in the question. The results are in graph 3 of the presentation and we can provide more details upon request.
In conclusion, we believe that the proposed amendments are a step in the right direction to improve the fairness and effectiveness of the Competition Act. With respect to the private right of access, we strongly support the proposal. The amendment will ultimately benefit both large and small businesses because it will help clarify certain aspects of the law for all. There is little jurisprudence regarding reviewable matters under the Competition Act. Private access will help to alleviate that problem, as was the case in Australia, the U.S. and New Zealand when private access was introduced.
We are satisfied that the proposed measures to prevent strategic litigations will prevent potential abuse because remedies available to the tribunal are in the form of an injunction as opposed to monetary damages and the award of costs.
We firmly believe that any small- and medium-sized business, whose very survival is being threatened by an unfair competitor, ought to have the right to fight back and have its day in court. We are heartened by the fact this is also the position of the Competition Commissioner and his predecessor.
Finally, with respect to the need for consensus to proceed with the private right of access, we respectfully submit that there is strong support for the proposed amendments. As our survey results clearly show, small and medium-sized business owners favour private right of access. Given the predominance of small- and medium-sized businesses in Canada we believe that strong support exists for this progressive change in the legislation. Not to proceed at this time with these amendments would be tantamount to giving veto power on matters of public interest to a few large, corporate concerns.
We believe that you have an opportunity with Bill C-23 to make a significant improvement in respect of the fairness of the workings of the Competition Act. We urge you to give it your full support.
The Chairman: Ms Hutton, at some time today or at a later date, could you call Mr. Kieley, who is seated on my right. The answer you gave is a little confusing, because I either posed an improper question or I did not understand the answer. However, it does not seem to square with what I am reading. Just to set the record straight, it would be helpful if both of you could discuss it so that we could issue a statement about our intent.
Ms Hutton: Certainly, I would be happy to do that.
Senator Oliver: Mr. Piché and Mr. Whyte, I gather most of your presentation was a summary of what has happened in the past, of how Mr. McTeague got his amendments into the House of Commons and of what we now have in Bill C-23 in respect of private access; and you are in agreement with that.
You said that the Competition Act should be contemporary. Would you agree to the inclusion of a clause that says that every five years, a framework piece of legislation like that must come before both Houses of Parliament for a review?
Mr. Whyte: If not sooner — that is a very good point.
Senator Oliver: I am a little surprised at item two in your summary where you state that to prevent strategic litigation — which is really an American concern not a Canadian concern because we have no experience with it here — you feel that there should be no award of damages. However, if a person felt aggrieved because of predatory pricing and finally came before a tribunal that agreed there was such an activity and the person suffered a great deal of monetary damages, why would award of damages not be appropriate? It is appropriate in other areas of commerce in Canada. Why do you say that?
Mr. Piché: We believe that the current recommendation is a good first step, and we believe that more could be done. The idea of damages may be appropriate and so that should be looked at.
Mr. Whyte: That is an excellent point. We were, perhaps, overcompensating for being concerned about frivolous submissions, but yes, there are some industries — not just businesses — that have been damaged. That may be something you would want to look at.
Senator Oliver: You were sitting there when the Canadian Chamber of Commerce made their points of view known in respect of sections 75 and 104. Those views are contrary to your position. You did not address either section 75 or section 104. I would like to here your view on their concerns.
Mr. Whyte: I have not seen their brief; the first statement said it all. We will back off from contesting it with the frontal attack, and we will try to water it down from behind with clauses 71(e) and 104. Whatever one they are going after, let us water down as much as we can. We trust the commission on this one. We trust the process. We think it has been working in Australia and New Zealand and we do not see the need to do that.
I am not a lawyer, but I have been involved with drafting of consumer legislation. When you add words like ``significantly'' without defining it, all you are doing is adding words. I do not understand why, quite frankly, other than trying to water down this whole idea of giving people a day in court.
Senator Oliver: I have a question for Ms Hutton. In your analysis, you are against section 104.1 as presently written. What you would like to see is 103.3.2 strengthened. Could you elaborate on that for me? Assuming that 104.1 is removed, how would you like to see 103 strengthened to ensure there is this protection?
Ms Hutton: Thank you for asking that. I believe section 103.3 as written is designed to extend 104.1 without changing it. That is, take it from being a special application to only one sector and make it a general application to the entire economy. There are some significant differences that the Canadian Chamber of Commerce wholeheartedly supports. That is, that 103.3 requires the commissioner to apply to the tribunal to have the order issued; he cannot issue the order himself.
The test for potential harm to competition, which is currently contained in section 103.3, is exactly the same, I believe. It is in slightly different format, but it is essentially the same test that is contained in the provision that applies only to airlines. It is the position of the Canadian Chamber that it is hard to conceive of any situations in which that test could not be fulfilled. Any competitive practice, whether anti-competitive or not, that makes a successful sale will, by necessity, take potential revenue away from a competitor.
It is our position that the test for harm that must be satisfied before the extraordinary measure of issuing an interim injunction — even before an application is filed with the tribunal — is actually too low in the current section 104.1 and it has been repeated in the proposed section 103.3.
Senator Oliver: Are you saying there is redundancy?
Ms Hutton: Section 104.1 will be completely replaced by seection 103.3, but will remain on the books. We are suggesting that Bill C-23 could be amended by simply deleting 104.1. That would not deprive the commissioner of the power to deal with an emergency situation, be it in airlines or any other sector of the Canadian economy.
Senator Oliver: I would like to ask you the question I asked the other people sitting on your left. What did you think of their conclusions, where they are so much in favour of the right of private access as put in C-23? Do you have any concerns about what they had to say today?
Mr. Ivis: Thank you for that question. I do not know if the Chamber has concerns with what was said. Our position continues to be the same that we have held before the industry committee: That private right of access should be positioned so as to help small- and medium-sized businesses have more efficient and effective access to enforcement for competition issues.
We are not fully convinced that private right of access is the best instrument to achieve what goal. Let me underscore that we are a strong ally in ensuring small business have access to efficient and effective enforcement in competition issues.
Senator Oliver: Do they support the right to have direct access to the tribunal?
Mr. Ivis: Our concern is that that may not be the most effective instrument to achieve effective enforcement.
Senator Oliver: What would be most effective?
Mr. Ivis: If you would like to refer to our brief to the industry committee, we put forward a number of alternative approaches that may better address SME concerns.
For example, increased funding to the Competition Bureau for more effective enforcement, particularly with respect to SMEs; the possibility of creating a SME fast-track branch within the bureau that can concentrate on the concerns and complaints of the SME community; introducing a mechanism similar to the one that we understand exists in France now, whereby the bureau would be required to provide a written response explaining why it has decided not to take enforcement action in response to a complaint. This would increase the accountability and transparency of both the system and the bureau in this respect.
Finally, another possibility would be to decriminalize the provisions of the act relating to predatory pricing, price discrimination and price maintenance while reinforcing the abuse of dominance provisions by inserting an administrative fine power and lowering the anti-competitive threshold that must be satisfied to trigger the potential application of those provisions.
We believe that these approaches should be seriously considered not only as alternatives to private access, but alongside private access through a thorough consultation process where all these potential instruments could be weighed to achieve the goal of ensuring efficient access and enforcement for small businesses.
The Chairman: Just to clarify, in section 75 they use the words ``adverse effect on competition.'' You are suggesting that we stay with what the rest of the act says, which is substantial lessening of competition on which there is a body of jurisprudence. Are you able to tell us what the difference between adverse effect and substantial lessening is?
Ms Hutton: From my perspective as a lawyer, there is jurisprudence interpreting what substantial lessening or prevention of competition means. Without the word substantial, I am not quite sure what any adverse effect could be. That would be something the tribunal would have to create new law on. I would also suggest that the jurisprudence has established a meaning for substantial lessening or prevention of competition.
The Chairman: Bringing in a new expression would be a mistake?
Ms Hutton: That is certainly our position.
[Translation]
Senator Poulin: I would like to thank the representatives from the Chamber of Commerce and from the Canadian Federation of Independent Business for their excellent presentations.
It is interesting to see two associations representing Canadian businesses and taking a healthy and competitive environment to heart take a different stand on the same piece of legislation.
My question is for the representatives from the Chamber of Commerce. You stated that you were not comfortable with the amendments to Bill C-23 or to the existing competition act, because they would result in changes to the role of the commissioner as well as the tribunal.
Did I understand correctly, Ms Hutton, that you were uncomfortable with broadening the investigative role of the commissioner and the tribunal's role as judge? I would like to know why you are uncomfortable with that.
[English]
Ms Hutton: That is certainly not an area of discomfort for me. I have no trouble whatsoever with section 103.3 permitting the commissioner to apply to the tribunal for an emergency interim order with respect to any aspect of the Canadian economy. Our concern was with respect to a previous version of this legislation, in which the commissioner would not have been required to apply to the tribunal for an order, but would have been allowed to issue the order of his own volition. He would be acting as investigator and adjudicator in respect of the same matter, which is an area of significant concern to us. That aspect was addressed in Bill C-23 and we have no further concern in that regard with respect to section 103.3. It continues to be the case in 104.1.
[Translation]
Senator Poulin: Mr. Piché, are you comfortable with the definition of the role of the commissioner and the tribunal as it appears as a result of the changes made to Bill C-23?
Mr. Piché: We agree with what is being proposed in Bill C-23. We do not have a problem with that.
[English]
Senator Tkachuk: Would the Canadian Federation of Independent Business have a problem if the provision of the act that deals with airlines applied universally to all business?
Mr. Piché: I do not see why not. What applies to airlines should apply to all sectors of the economy.
Senator Tkachuk: You could do an order without going to the tribunal and prevent someone from doing business in any sector of the economy under the provisions that exist in the bill now?
Mr. Whyte: If I may, Mr Chairman, we have one point. I am sitting here trying to stay calm. Business people come to us and say, ``I am going under. My wholesaler is competing with me directly and is charging less than the wholesale price at which he sold it to me.'' They have no redress. If the Competition Bureau cannot help, where do we go? Can we go to Industry Canada, Can we go to the provinces? Some of the practices that have been happening would not be allowed in the United States or other places. Take gas prices, for example, where it is two, three or even five cents below the wholesale price.
We could go through it clause-by-clause but as long as there is a principle. It is not just one small business, it is a collection of small business owners who have come together. Do you know how hard it is to be form an association? An independent gas retailers' association formed because they felt they were being crushed by the industry; an association of independent grocers formed because they felt they were being crushed by the industry. These groups are getting together and have not had a chance to have their day in court.
Another point the commissioner made was that we need to build up more up-to-date jurisprudence on how to deal with the changing economy because the fact is that now 50 per cent of the economy are from small and medium-sized enterprises. As long as these changes are in there, then we would support the bill.
Senator Tkachuk: What is there in this bill that increases competition outside of the fact that it makes it easier to stop what a business would consider an organization that was practising predatory pricing?
Mr. Whyte: I think the commissioner said it best: That they would look at limiting the bill to deal with four particular issues, one was predatory pricing — I cannot see the rest — with which we agreed. We thought those four issues were appropriate. I guess the Van Duzer report, when there were 938 cases and only three actions, spoke volumes to us. It certainly was not our members who had the three actions. You can set up all the processes you want, whether it is with internal trade or NAFTA. Small business does not go through those processes. Therefore, this will help them at least have a day in court, through organizations such as our own, and be able to go forward to the tribunal because we do not have a team of lawyers or large sums of money to do so.
Senator Tkachuk: The way I understand the process now is that if a business who feels it has been inappropriately dealt with in the marketplace, it can go to the department now and begin a process to get to the tribunal. There are the investigations that go on, et cetera, and it gets to the tribunal. I am trying to get at — not that I am not on the side of competition because I am; I do not like predatory pricing either — what seems to be the problem now. Is it that people had to investigate the facts, which slowed down the process — in other words, the bureaucracy itself was not very helpful to the laws that exist. Is that what the problem is?
Mr. Piché: In part, with today's economy, time is of the essence and this probably applies to the situation with Air Canada, for example. If Air Canada has some policies that they want to put a company under, they can do so in very little time and the process through which anyone could have recourse are lengthy. The company may not survive. The issue today is the fact that companies cannot survive very long in today's economy without having things redressed.
Mr. Whyte: It is not just tight selling; it is a refusal to deal, exclusive dealing and market restrictions. If I may, Mr. Chair, I would like to give an example that I know of concerning trademark legislation. It is not about competition. As some may know, independent operators Fred and Cynthia Brick owned Brick's Fine Furniture. They were sued by The Brick furniture. Under the law and $100,000 later, Fred and Cynthia won. Most businesses will disappear before that happens. The way the process is set up; right now, you need $100,000 to get through it.
I went to the Web site of the Competition Bureau today to check out how easy it is to find out what the rules are and what you have to do. Meanwhile, you are trying to support your business and survive. I do not see this as a one-off frivolous case deal where one independent gas station or grocer comes forward. I do see it as a community of gas owners coming forward saying, ``There are no longer independent gas stations in Newfoundland and there are fewer in Nova Scotia and we see it happening in Quebec. Maybe we should have a chance to go forward en masse to the tribunal to do something about this.'' I do not see that it is frivolous at all.
Senator Tkachuk: Let us go to the survey you conducted to make sure I understand it. When you surveyed your members on whether they should have direct access to the Competition Bureau, 50 per cent said yes, and you give the actual numbers in your document. How many felt that they would attempt to gain access to the Competition Bureau presently — did you ask that question?
Mr. Whyte: We did not ask that question. We worked with the Competition Bureau; we worked with the committee, because at the time people were saying, ``No-one has asked small business.'' In fact, it was the Chamber that said no- one is really asking for this. We thought we would survey our members and ask the exact question and give the results to the committee. We provided a background; we outlined what supporters and opponents had said. We did not give the question a bias, we gave the background in order to gauge small business's opinion. Of course, some business people have no interest or who are undecided — it is like people unconcerned about people running through stop signs until they get hit and then they are interested.'' Of those who expressed an opinion, three to one were in favour of this question.
We bring to the table a significant response of 13,500 following the House of Commons committee and we are releasing it today in your committee. We are prepared to say, ``Here is what small business thinks.'' We checked it out by sector and by each province; in every sector it was the same ratio. I thought it would be useful information for the committee on this one issue about which many other groups, predominantly big business groups, were saying there is no demand for it. We wanted to give a different point of view.
[Translation]
Senator Hervieux-Payette: Thank you for your presentation. My question is for the members of the Chamber of Commerce. When we adopted special legislation to allow Air Canada to acquire Canadian International, did you take a stand either for or against the merging of these two airline companies?
[English]
Mr. Ivis: I would have to go back to check on that. I do not believe we did, but I could get back to you on that question.
[Translation]
Senator Hervieux-Payette: Since we have such an important national carrier, it is good to know your position.
I have read through your recommendations. If the committee does not eliminate the clause that you were recommending we eliminate, considering your proposal to reduce the penalty in accordance with other legislation, would you say — even if this is not what you prefer — that the measure should apply to other sectors generally, without targeting a sector in particular? I would like to hear the Chamber of Commerce's philosophy on having a measure, in a piece of legislation, that applies solely to one sector of the economy.
[English]
Ms Hutton: The Canadian Chamber does not think that the Competition Act is the appropriate place to regulate any particular sector of the Canadian economy, any particular industry, be it airlines, the grocery industry, et cetera. Therefore, we would not support continual amendments to the Competition Act to deal with sector-specific regulation.
I hope that answers your question.
[Translation]
Senator Hervieux-Payette: Earlier, the chairman talked about a remedy via normal injunction before a civil tribunal or the possibility of going to a specialized tribunal such as the Transportation Agency. Instead of amending the Competition Act, should we take remedial measures that would prevent competition, but that would also allow for a choice in transportation in the sector itself? Would your remedy be a general civil tribunal or a specialized commission in the sector?
[English]
Ms Hutton: I believe our position is that the Competition Act, as amended by Bill C-23 with the addition of clause 103.3, which provides the commissioner with the power at the outset of his investigation to obtain an emergency interim injunction, provides him with the tools of general application that could be used to address and prevent anti- competitive behaviour in any industry. The definition of abuse of dominant position in clause 79 is extremely broad and it permits extension beyond the specific enumerated examples in clause 78. This provides the commissioner with adequate tools to address, on a case-by-case basis, anti-competitive behaviour that arises. Structural difficulties with particular industries are more amenable to being dealt with by sector-specific regulations, special purpose legislation, and that may require a particular regulator. I cannot comment on any particular industry and I do not think the Canadian Chamber necessarily has a position on a particular industry.
The Chairman: Does clause 103 allow the commissioner to go to the tribunal for any industry?
Ms Hutton: Exactly.
The Chairman: Does clause 104 restrict them with what some people think are horrible powers, but only for airlines?
Ms Hutton: That is right. Clause 104.1 permits him to issue the order himself without asking a third party.
The Chairman: Is that only for airlines?
Ms Hutton: Exactly.
Senator Fitzpatrick: I have a supplementary question. I heard what you said with respect to the Competition Tribunal not acting as a regulator. You commented on regulations being drafted. In the case of clause 104.1 and the airline industry, whom are you suggesting to be the regulator?
Ms Hutton: I do not believe we have a particular regulator in mind. The government's job is to determine that. We are not here today to express a policy on any particular industry, rather that the Competition Act is an act of general application. It applies to the entire economy; it sets the ground rules for economic behaviour that keeps the Canadian economy competitive and efficient. In a great number of industries there are rules and regulations that apply over and above the touchstone of the Competition Act, and we ought not to move the Competition Act from that position as a piece of solid framework legislation.
The Chairman: How about the Department of Transport as a possible answer to your question?
Senator Fitzpatrick: I wanted to pursue that. I think from your comments you indicated that regulation might be required and so who would be the regulator? Would it be the Department of Transport or would you have some other body? I realize you are not the government but I would like to have your view on that.
Mr. Ivis: I would echo what my colleague has said before, and that many industries have industry specific regulators. If there is something particular to that industry then I think it would be possibly better dealt with there, whereas the Competition Act framework legislation that is a statute of general application, it is the position of chamber that it should not be used to engage in sector-specific legislation as for a particular industry, so we do not have a position on that.
Senator Kelleher: Can someone explain why there is a clause in the proposed legislation that deals specifically with the airline industry? Who prompted this, who is behind it and why is it necessary?
Ms Hutton: It is our position that the clause should not be there. You would have to ask the people who moved to amend the act in the first place about a year ago.
Senator Kelleher: As a witness, can you not suggest to us why you think this happened?
Ms Hutton: I could express personal views but I do not think they would be relevant to this conversation; they are certainly not to the Canadian Chamber of Commerce.
Senator Kelleher: They might be relevant to my question. I am not part of the airline industry. I was not involved in the consultations. I would like to know the underlying reasons for the particular clause before I decide whether I think we should or should not approve this bill. What do you think prompted this?
Ms Hutton: It is my belief that the commissioner supports the extension of the emergency interim power to the economy generally, and that is reflected in Bill C-23 in clause 103.3. I can only speculate that at the time when he was introducing it in clause 104.1, he saw the need first and foremost with respect to that particular industry. However, now he has requested that Parliament include clause 103.3 in this bill, which extends the emergency interim power generally and makes it applicable to the entire economy and to all sectors.
Senator Kelleher: Why do we single out the airline industry?
Ms Hutton: That is a very good point and the Canadian Chamber of Commerce would not support such a thing.
Mr. Ivis: That is an excellent question. We have continually advocated and held the position that there should not be sector-specific or targeted provisions in framework legislation of general application such as the Competition Act. Our position is similar to yours.
Mr. Whyte: Air Canada is not a member of ours. I do think it is worth looking at the commissioner's testimony to your committee when he said that, with the departure of CanJet, Royal and Canada 3000, Air Canada now accounts for approximately 80 per cent of the domestic airline market.
The Chairman: I am not sure that that is accurate. You should check on it. I could be wrong.
Mr. Whyte: I am reading what he said.
The Chairman: Senator Kelleher, I have the same question you do. When the government allowed these two major airlines to merge, they created a dominant airline. I am guessing that perhaps they wanted to give the Competition Bureau or the Competition Commissioner the powers to ensure that it did not get out of hand. That is a possibility.
Senator Tkachuk: That is hard to swallow. They gave them 85 per cent of the action and then said, ``Oh, we have created a problem here, so now we have to pass legislation.''
The Chairman: I do not think it is anywhere near 85 per cent.
Senator Eyton: I think our witnesses are telling us that they cannot express an opinion on Air Canada and its importance in the market until Air Canada, as is inevitable, becomes a medium-sized business.
The Chairman: I thank you all for attending this afternoon. It was very interesting.
Our next witness is Stanley Wong. Mr. Wong, would you care to tell us who you are and make your opening statement, please, sir.
Mr. Stanley Wong, Davis & Company: I apologize for not having a written brief. I am not here to represent anyone but myself. I am a partner with the law firm of Davis & Company. I practice both in Vancouver and Toronto, and I am certainly a frequent user of Air Canada. From that perspective, I am happy to comment on airlines.
I practice principally in the area of competition law, although I do some work in the intellectual property area. I both litigate as well as advise on acquisitions and competition practices.
Prior to becoming a lawyer, I was a professor of economics for 11 years. I left that honourable profession to become a lawyer. I think my mother thought that was a fall from grace. I am immediate Past-chair of the National Competition Law section of the Canadian Bar Association. I am still on the executive, but I do not speak on behalf of the section today. The National Competition Law section will be appearing before this committee I believe on March 13.
My background in practice includes having acted for the Commissioner of Competition in the Southam case, which went to the Supreme Court of Canada. I speak with experience having acted for government as well the private sector, where I have acted for a range of industries, large and small.
I want to make some general comments, but I will principally focus on the context. I have said a lot of things before the Industry Committee. Mr. Conway, one of the staff members, reminded me he has read it thoroughly. I would not want to contradict myself with anything that has been written.
I will commence with the consent provisions in the proposed bill, section 105. Currently, under the Competition Act, when the commissioner and a party consent, they apply for an order before the Competition Tribunal, which was formed in 1986. At that time, when there was consent, it went before the tribunal and it would, among other things, be open to intervenors.
The early days of the consent process were very tortuous. Some may remember that the Imperial Oil consent proceeding took longer than if it had proceeded on a contested basis. Through the passage of time, the tribunal has altered its rules and made interventions more difficult. It is at the stage now that interventions are not such a great issue.
What has caused the commissioner grief and what drives this proposal, is that he has been unhappy — and, correspondingly, the party that has agreed with the commissioner is also unhappy — that on several occasions the tribunal has rejected a consent order on the grounds, for example, that it is not enforceable. That is the background.
It is proposed that the consent process be taken out of the tribunal process in the first instance. In other words, when the commissioner and a party make an agreement — this also applies when we deal with private access with — the tribunal just has to register it. It is no more than a registry office. The tribunal does not look behind the paper.
That is terrible public policy. Let us not forget that in 1986, the competition tribunal was brought into place because there was widespread feeling that the restrictive trade practice commission had served its usefulness, and we needed an independent adjudicative body. That is what brought in the competition tribunal, which is composed of judicial and lay members. The tribunal was also to address the issue of fairness and due process and the like.
At present, the tribunal is bypassed unless there is an application at some later date to amend the order.
Contrast this with the United States. In the United States, they have the Tunney Act. This act applies to agreements made by the U.S. government. With respect to the Microsoft case, nine of 18 states, as well as the U.S. Department of Justice, have settled with Microsoft. They have applied for approval under the Tunney Act.
The test for the court is one of public interest. While that is ongoing, the nine states that have not settled are pressing ahead with litigation. The two processes will clash shortly.
The reason we had the tribunal was to act as an independent adjudicator of the process in the public interest. Wearing my private hat, if I have an agreement with the commissioner and the agreement is registered, then that is great. Wearing my public policy hat, I think that is terrible.
Next, I would like to comment on private access. One must appreciate the context of private access. Currently we have two parts to the Competition Act, the criminal and non-criminal provisions. The criminal provisions go through the courts. The non-criminal provisions or the reviewable practices or part A — all mean the same thing — go before the tribunal.
With the criminal provisions, there is a right of private access, if you will, in the ordinary courts. Section 36 of the act gives you a right of action for damages suffered, as a result of conduct contrary to a criminal provision. That is now available has been since 1976. The Supreme Court of Canada upheld its constitutionality in the 1980s. There have been few cases, but the landscape has changed as a result of the availability of class actions. Last Wednesday's newspaper featured a notice of an application to certify and approve a settlement with respect to the international conspiracy involving citric acid.
In Quebec, Ontario, British Columbia and Saskatchewan, the Supreme Court Canada has determined that the rules of procedure in virtually all the common law provinces provide for class action, notwithstanding the earlier jurisprudence in a case called Naken v. General Motors.
On the reviewable side, the commissioner bringing an application to the tribunal does not have a remedy in damages. He applies for an order asking that the merger stop, and the like. One small exception that has gone unnoticed is a provision for administrative monetary penalty with respect to advertising matters that go before the tribunal. We have a dual track. There is a criminal misleading advertising provision that goes before the courts and there is a non-criminal provision that goes before the tribunal. This provision provides for administrative monetary penalties.
There are very few countries in the world where there are criminal competition offences. The United States and Ireland have them. The U.K. has announced it will bring them in. The European Union does not.
In the international vitamins cartel, Hoffmann-La Roche of Switzerland was fined U.S. $500 million. In Canada, they were fined Can. $50 million. We have a lower dollar; I guess 10 per cent is the rule of thumb. That is for conspiracy. In the European Union, they have no criminal offences. Hoffmann-La Roche was initially fined 900 million euros. A euro is worth Can. $1.40. In mitigation, the fine was reduced to 450 million euros. Hoffmann-La Roche is still a very viable business today. You can see the context; the landscape is very different.
With respect to non-criminal provisions of our act, there is no monetary penalty. Outside Canada, people do not understand why there is not a penalty. In the United States, it is called the ``offence of monopolization''; in the EU, it is called ``abuse of dominance.'' There is no reason there should not be monetary penalties. ``Monetary fine'' is a phrase you only use on the criminal side. A monetary payment should be extracted from the wrongdoers. There is nothing in principle.
In that context, you now see private access. In this environment, private access is about allowing a party to go to the tribunal only in limited circumstances, which are set out in sections 75, 76 and 77 of the act: Refusal to deal, market restriction, exclusive dealing and tied selling. Abuse of dominance is not contained in the act, and that is really what the non-criminal side of the act is about, other than mergers. There are basically three things. There are mergers where people wearing eyeshades in the middle of the night are making deals; there are mergers where people are making deals in public, and then there is abuse of dominance where monopoly power or dominant power is used inappropriately.
There is no provision for abuse of dominance in the current bill.
You might ask ``Why not?'' That is a good question. You want to ask the commissioner that.
The motivation for the current bill is that small businesses, which I have acted for, come before the commissioner saying, ``Take this case on. Look what they have done to me. They have cut me off so-and-so.'' The commissioner says, ``I have very limited resources.'' He is increasingly getting more powers, some of which he has asked for, but he has more things to do. He says, ``I cannot take on cases without national significance'' and that is very understandable.
This is an avenue for private parties who feel aggrieved and feel they cannot convince the commissioner to bring a case in the name of the government, if you will. Remember that all the litigant will do is step into the shoes of the commissioner and go through a number of tests. He has to seek leave from the tribunal before the case can start.
The remedies that the private litigant can get are exactly the same kind of remedies the commission can get, except that the commissioner, under this bill, will get the Air Canada penalties dealing with the administrative monetary penalty of up to $15 million. Putting that aside, they will get exactly what the commissioner gets.
We have a rather bizarre situation. If one were to rewrite the act, one would want to provide for some monetary penalties for reviewable matters. There is nothing wrong with a party who has been aggrieved by anti-competitive conduct — whether criminal or non-criminal — saying that, as these people have been judged to have breached the Competition Act and, as a result of that bad conduct, I have suffered damages, I should be compensated. That is the way it would work.
The trouble is that we have not yet arrived at allowing the commissioner, other than in the Air Canada case, or cases of misleading advertising, to say there should be monetary awards for non-criminal conduct. The act is not designed to protect the individual or the independent small business that may be out of business for a whole host of reasons. It is designed to protect the competitive process.
That is why you hear time and again — certainly from the group that preceded me — and throughout competition law and policy debates, about protection of the competitive process and not competitors per se. The nature of the competitive process, of course, is that there are winners and losers.
With regard to section 75, I share with my colleagues their concerns about the adverse effects. In the Competition Act, there are basically two types of tests. Remember that it is not all anti-competitive conduct that you want to capture in the act. It is only that which is substantial — which is most of the act — or unduly, which is found in the criminal provisions. There is yet another provision, section 32, which deals with IP matters.
By and large, the existing jurisprudence is all around the concept of ``substantial lessening'' and ``unduly.'' Putting ``unduly'' aside, ``substantial lessening'' is the test that is used in the United States, which test we certainly rely on in the development of our own jurisprudence, and it is a concept that the European Union will probably move toward in their laws.
With regard to adverse effects, depending upon who is paying me, I could argue that adverse effects is a higher standard than substantial lessening or that it is the other way. That is what lawyers train to do. However, as a matter of policy, I think it is bad policy. I do not know how we got there. Everyone can point fingers about who did it, but the point is that it is bad and it should be corrected.
There is one more little wrinkle here. In section 106.1 of the act, there is a provision for settlements between private parties. Section 106.1(4) says:
The consent agreement shall be registered within 30 days ...
That is to say, when you have two parties, they should be registered within 30 days. However, the French version is completely different. It reads:
Le consentement est enregistré à l'expiration d'un délai de trente jours suivant sa publication [...]
That is saying that after it is gazetted you wait 30 days and before you can register. The English version says that you can register within 30 days of publication. There is clearly a mistake here. It is not a question of reading the French and the English in order to figure it out. You cannot do that. That is a minor point.
With regard to airlines, the problem we have is that in our public policy we have chosen by and large to not regulate transport. The authority under the Transportation Act is really one of a complaints process. It is not like the old days of the Canadian Transportation Agency. The Canadian Transportation Commission is relatively inactive, with all due respect to those who know more about it than I.
Our airline situation is very complex. We are a large country with a very scattered population. We have rules about foreign ownership and we believe that every community must be served by an airline. I have sympathy with the situation in which Air Canada is placed. It has made all these arrangements to serve every small community, and it is clearly losing money. This is a problem and there is no easy solution. The problem with which we as a country are faced is that we do not want foreign ownership and that every little community must have an airline service.
We know that the government will never allow Air Canada to fail. It is kind of a brinkmanship game. Air Canada says, ``If you do this to me, I may fail.'' The government would not want Air Canada to fail. It would be catastrophic. Apart from the issues I have identified, there will be issues about employment, which is, of course, not a Competition Act issue. That is another reason this should be dealt with in a different forum where all these social, political, economic and regional policies can interplay. Putting it in the Competition Act is really bad.
The commissioner himself has said that the competition situation could be solved if we allowed foreigners to set up domestic airlines. He has had a few tussles with Minister Collenette about that.
In addition to this $15 million penalty, we have this interim order that a number of people have talked about. One must also appreciate the context of the interim order. This was brought in in Bill C-20, where the commissioner issues the order and the dominant airline — that being Air Canada — can challenge.
After that was done, there was a view that it should be generalized. In the House of Commons private members' bill there was a proposal to generalize, which had the commissioner's support. It was basically to make section 104.1 available to the rest of the non-criminal side.
After the private members' bill came out, the Commissioner of Competition retained me to advise on what I thought would be an appropriate interim order. As a term of my retainer — which I extracted from his staff — I am free to talk about the legislation. Obviously, I cannot share with you what I told the commissioner, but I can freely comment on it. I want that background to be on the record.
There are criminal provisions under the Competition Act that we will put aside. On the non-criminal side, interim powers are generally available after the commissioner has applied to the tribunal on a foreign order. That is section 104. If he has applied, he can go and get it, but he must apply first. That is, he must make a full application saying that so and so is engaging in an abuse of dominance and he wants a certain type of order.
Senator Oliver: Is that ex parte?
Mr. Wong: No, it is not. Once he has filed an application he goes before the tribunal on notice, and they argue it. I did that in the Southam case with respect to the merger. I argued that the merger must be held apart and that we must not scramble the eggs, as they say, because it will lead to difficulty for the tribunal in making a remedial order.
Section 100 of the act allows for application before an application is filed. That was only available for mergers. You could do it on an ex parte basis if there were exigent circumstances.
That is the background. The first to come up was the Air Canada situation. We now have that in section 104.1. Section 103.3 is really a different version of 104.1 in the sense that the commissioner cannot issue out of his own office. He must go to the tribunal to apply.
However, many of the problems with section 104 are present, and I will identify some of them. First, let us think about injunctions. Typically, an injunction is where you say that someone is about to commit an offence or to breach a contract and here is the harm that follows from which I need protection now.
You will note that in section 104, which is the post-application injunction application, you apply the normal test of interlocutory injunctions in Superior Courts. That is basically what it says. However, proposed section 103.3 is quite different. I hate to take you through the wording, but please bear with me. It is important to understand the intent of the proposed 103.3, which you can find on page 31 of Bill C-23.
Proposed section 103.3 (2) states:
The Tribunal may make the interim order if it finds that the conduct or measures could be of the type described in paragraphs (1)(a) and (b) ...
They are actually saying that an interim order prevents the continuation of conduct that could be the subject of an order, which essentially means that if this conduct could be the subject of order, then we have jurisdiction. I will return to that.
In addition, it has to make a finding about, let us put it loosely, ``irreparable harm.'' I will return to the ``harm'' issue. In a typical injunction, you have to show that there is a likelihood of a breach of the act. That test is missing here. There is no requirement for the commissioner to prove that there is likelihood, whether high or low, that there will be a breach of a section of Part 8 of the act. Nothing is required. It may be buried in section 10.1(b), which says that the commissioner can initiate an inquiry if he has reason to believe that the grounds exist for making an order. That part is not subject to challenge.
Essentially, he is saying only that this type of conduct can be subject to an order, such as abuse of conduct and tied selling. Those actions could be subject to an order. That is all he has to demonstrate.
Then he has to demonstrate that injury to competition cannot be adequately remedied and then there are the ``ors.'' The act should stop right here, but it does not. It states that a person is likely to be eliminated as a competitor or a person is likely to suffer a significant loss of market share and revenue, or suffer other irremediable harm.
Remember, it protects the competitive process. If there are only two competitors, then you will certainly lead to a serious loss of competition if you eliminate one competitor. However, if there are 50 competitors, losing one competitor may be because that competitor was incompetent in the marketplace. It is completely redundant if you are faithful to the concept of protecting competition.
There is a need for an interim order power — pre-application — that is, to apply for an interim order, but this is not the right one, in my view.
Senator Tkachuk: Are you referring to section 104?
Mr. Wong: I refer to both section 104 and proposed section 103.
Senator Tkachuk: In answer to my first question, in other words, do you want the elimination of 104 and 103?
Mr. Wong: Nobody has asked me to rewrite the act, but if you were asking me what I would like to see happen, I believe that there should be one provision for this issue. I would recommend that you take 100, which is currently only available for mergers, and generalize it to include all parts of the jurisdiction of the tribunal. That is what I would do. We are far too detailed.
One observation: unlike the United States, which rarely amends their antitrust statutes, we seem to have a habit of amending everything. Each time there is an unhappy result in the courts or the tribunal, we try to amend it. It makes it increasingly difficult to read and to figure out. You almost feel that we should start over and rewrite the act.
Senator Tkachuk: What is the relevance of the commissioner's proposition that because the airline industry is specific in its nature? We have also heard the stories about the cable industry, which is so unique compared to other industry that it needs the unrestrained power to move at will against a dominant carrier.
Mr. Wong: If that is the case, the commissioner can apply to the tribunal. I heard an earlier question: How fast can you go in the tribunal? You can go as fast as you are prepared to pay for. We have injunctions all the time in the civil courts, and it can be done within hours. There is no reason why you should not go before an independent, adjudicative body. I am not here to defend the tribunal; rather I am trying to defend the process we have.
Senator Tkachuk: The act bypasses the process in the name of expediency or efficiency.
Mr. Wong: Section 104.1 clearly does that. Proposed section 103.1 looks like it would repair some of the deficiencies of section 104.1 but there are some serious flaws, which I have just identified.
Senator Hervieux-Payette: Since you know the act very well, I would be interested in having your proposed remedy in writing, because you said that you did not want to contradict yourself. It would be useful for us to have your version of the remedy, unless you claim that the previous act is perfect.
Mr. Wong: Would the beginning of next week be soon enough?
Senator Hervieux-Payette: Yes, if my colleagues agree to that.
Mr. Wong: I can send that to the members of the committee, who can accept it or reject it.
Senator Hervieux-Payette: It would be useful for us to make comparisons. Of course, because of your experience, we would probably regard this as something quite useful. I thank you for this because I know that, as an ordinary citizen you take your own time and money to appear before the committee and that as a lawyer, you would usually work for a client. I do appreciate your time and it is a good civil gesture on your part to assist our committee.
Senator Kelleher: You do not seem to be as reluctant about expressing opinions as the former witnesses so I will put this question again to you. Why has the airline industry been singled out in this act, and, depending upon your answer, is it necessary or should it apply to all types of anti-competitive behaviour?
Mr. Wong: I have the luxury of reading the transcript. I believe that you and other senators asked on March 5 and 6 questions about each industry being a special case. Each industry is a special case, and I am not diminishing the fact. The problem, as I said earlier, is that in our transport policies put us in an impossible situation. You could have the regulation of airlines and put it in the transport commission, but the government chose not to do that. Therefore, we have the commissioner to deal with certain issues when the real solution, in the commissioner's view — and I agree with him — is such that we are no longer in a world where you have to own an airline to be a real country.
At one time, you had to own your steel mills. It is not a matter of national pride to have to have your own airline. I hope the strength of our country is more than owning airlines, railways and the like. However, we have decided that is the only way to operate, and that is why we are in this awkward situation. There is a movement to deregulate, generally, throughout western industrialized countries.
Contrast that with the fact that we are a small country with a sparse population that cannot let an airline fail. On the other hand, consumers are complaining that they are paying too much or that the service is declining, which is inevitable. That is because no one is keeping them on their toes. I certainly know that from all the flying I have done over the years. It is simply the competitive process: why service is better when you have more than one player.
Senator Kelleher: If you had the power — which you do not have — how would you settle this? Would you remove that section, would you make it a general application, or would you keep it specific the way it is in the bill?
Mr. Wong: There is no need to have special provisions in the act. If you want administrative monetary penalties for Part VIII of the act, that is something that should be studied. Perhaps it is not a bad idea. However, you do not want to bring it in just to do Air Canada in, because it is no more than just to do Air Canada in. It is called a dominant airline, but you could say it is Air Canada.
Senator Kelleher: I am concerned about that. Like you, I am a reluctant fan. I do not travel quite as much as you do, but I travel a fair amount. Surely there must be a better way to handle this than singling out Air Canada.
Mr. Wong: There should be a general power with section 104.1. The commissioner can convince the tribunal — the independent body — to say we need these emergency orders. The tribunal is trying to do its job. You may not always get the result you want, but that is why we have independent adjudication. We do not say, ``Gee, I did not get the result I wanted at the Supreme Court of Canada, so we should abolish the Supreme Court of Canada.'' That is not the right thinking here.
Senator Kelleher: Why would you not make the section of general application?
Mr. Wong: I would. I am responding to Senator Hervieux-Payette's suggestion. I am advocating a general provision for interim powers pre-application; take Section 100 and generalize it.
Senator Kelleher: I am concerned that if another problem arises in industry ``X,'' and we do not put it in this act as proposed, then we will have to come back and make another amendment because the tribunal will say they do not have that power.
Senator Oliver: It is there in section 103 now, though.
Senator Kelleher: If we are satisfied.
Mr. Wong: There have been bills in the House of Commons that have not gone to a final vote. There have been bills concerning the grocery industry, the gasoline industry and the cable negative option. It is very difficult to resist. I say it is also bad policy.
Senator Kelleher: It is good politics, though.
Mr. Wong: That is not my job.
Senator Kelleher: I understand that.
Senator Furey: Thank you for your erudite presentation. As a follow-up to Senator Tkachuk's question regarding the length of time it would take for the commissioner to make application to the tribunal, we heard a previous witness say that it would take a matter of days, and we just heard you say it would depend on how much money you want to spend. Are you talking days or hours?
Mr. Wong: It depends. In a typical injunction, you have to show that there is some serious imminent harm coming. It depends on the circumstances. It could take a day or two days, depending what it is. You have to prepare your materials. You have to convince an independent adjudicator.
Notice that this is all one-sided, all done ex parte, and courts generally hate ex parte applications. They say that fairness dictates they should hear the other side. It is only in very special circumstances that you want to allow for ex parte applications.
Senator Furey: It is your view that 104.1 is unnecessary.
Mr. Wong: I think it is unnecessary. That is the law. I think section 103.3 is too much tilted towards the commissioner. It is not properly balanced. In an injunction, there is typically likelihood, there is irreparable harm, and there is some balancing. Remember what section 103.3 does: It is telling a business to not do what on the surface it looks like legitimately it can do. There are consequences. You may eliminate a competitor but there could be millions of dollars lost on the other hand. There is no balancing required under the provision. That is the problem.
The Chairman: Do I understand that we have an overlapping power here? In other words, if the commissioner goes under section 103 and they turn him down, he can do it on his own under section 104?
Mr. Wong: That is a good question. In flipping through this — and I have not thought of it — I do not see there is a bar to using section 103.3 or 104.1, having failed on one. I do not see that, but I do not want to say that is my definitive answer. I have not thought of that issue, but it is conceivable.
The Chairman: In the final analysis, you would advise us, then, to veto section 104, and on section 103, to take out (b) and (c)?
Mr. Wong: In the first instance, and rework subsection (1) on a kind of likelihood test.
The Chairman: I see. Thank you for being with us. You have been a terrific witness. May we call you again some time?
Mr. Wong: Absolutely.
The Chairman: Our last witness today is Duff Conacher from Democracy Watch.
Mr. Duff Conacher, Coordinator, Democracy Watch: I hope the honourable senators have the submission we have made, which is a summary of our position.
Thank you for the opportunity to testify. Democracy Watch is a citizen advocacy group that works on issues of democratic reform, government accountability and corporate responsibility in Canada.
Unfortunately, my colleague, Daniel Martin Bellemare, was unable to join me today. He is our expert on competition law. However, I will endeavour to present our position and answer your questions.
I would like to outline what we set out in our report in May 2000, which I will be leaving with the committee, a report entitled ``Revolving Doors: The Undue Influence of Corporate Lawyers on the Competition Bureau.'' In that report, we documented seven cases in which outside lawyers had moved in and out of the bureau. In one case, an outside lawyer was working for the bureau and a private corporate client at the same time. The corporate client had a case before the bureau. We are seriously concerned when lawyers from the private sector are representing large corporations and also working periodically in the bureau. Obviously, in their private practice, those lawyers would be opposing stringent antitrust enforcement action; when they work for the bureau, we believe it would also influence their advice to the commissioner because stringent antitrust enforcement action might eventually be directed against their clients or potential future clients.
Therefore, we do not believe that outside lawyers can be expected to litigate cases aggressively before the tribunal as they would argue in favour of a liberal interpretation that would help their outside clients.
Second, we believe that by routinely appointing outside lawyers to assist or represent the commissioner, the Attorney General of Canada and the commissioner have delegated the administration and enforcement of the Competition Act to a few lawyers representing Canada's largest corporations. Another concern about this practice is that outside lawyers develop close links to the commissioner and the staff within the bureau, and they learn how the commissioner and the Attorney General prepare and litigate cases. We believe outside lawyers may use their contacts in the commissioner's office to negotiate favourable settlements or to obtain the discontinuance of an investigation on behalf of a client.
Overall, we believe that the use of outside lawyers discredits the Competition Bureau and the Department of Justice. In addition, we believe it violates the Department of Justice's own conflict-of-interest provisions in its civil litigation book. Essentially, the Department of Justice is classifying competition law cases as class 3 type cases, which they believe can be handled by outside counsel. We believe a class 1 case is a matter touching on new developments in the law, where it is crucial that the appropriate policy perspective be brought to bear in the early stage, consistency is required and work can be unreasonably costly or difficult to supervise if contracted out. We believe the competition law cases meet the class 1 criteria. Class 1 cases, according to the Department of Justice, are cases that must be done in- house.
We see a problem with internal enforcement. Unfortunately, there is no independent ethics watchdog to watch over the Department of Justice to enforce their conflict of interest rules. In addition, it is a problem of the resources of the bureau. The bureau cannot hire and retain counsel sufficient to handle the caseload, which is ever increasing.
I would urge you to examine this more closely and use our report as a basis for that examination. If you believe that we have presented the evidence for serious conflicts of interest that need to be resolved, I would urge you to encourage the government to provide the resources to the bureau and the Department of Justice so they can enforce the conflict- of-interest provisions to prevent this ongoing practice. We documented seven cases — including one involving the previous witness — where outside counsel were moving in and out of the bureau or had connections with other lawyers at firms who were litigating before the tribunal at the same time the outside counsel was within the bureau.
With respect to Bill C-23, particularly the private right of access, we do not believe that the proposal in the bill strikes an appropriate balance, mainly because of the absence of awarding damages. Without damages, why would anyone comply with any law? I ask you to point to a law where you can violate it and suffer no damages. It essentially becomes a voluntary code. Some may say there is the stigma of being found guilty in these cases, but if you are found guilty of putting a competitor out of business, how are your customers going to punish you? By going to the competitor? The competitor is out of business.
We believe this private right of action should apply to injunctive relief and damages for both criminal offences and all reviewable practices, not just the limited list. Beyond that, the damages should include specifically punitive damages.
I welcome your questions on why we believe this particular private right of access measure needs to be strengthened. In particular, allowing penalties to be awarded and damages to be awarded to the aggrieved parties.
Senator Eyton: I am looking at your brief. Item two, at the bottom of the page, ``Reviewable practice should be formally forbidden instead of being merely reviewable by the Competition Tribunal.''
What does that mean? I would not have thought there is any practical significance to that.
Mr. Conacher: I am somewhat at a loss today because our expert in competition law is not available. I am happy to talk with him further and provide you with more details.
Senator Eyton: It looks significant, but I do not think it has any practical effect.
Mr. Conacher: In everything we approach in terms of corporate responsibility we believe in clear, strong rules, independent enforcement agencies that have the resources to enforce the law, and penalties that actually discourage large corporations from breaking the law. We see many of these key elements missing from our current competition law regime. As I mentioned, the bureau is not as independent as could be, it does not have the resources it really needs, and the rules are missing in many cases.
If there are no other questions, I would endorse the idea that the interim order power and the penalties should be of general application as well — not just applicable to the airline industry — because, again, the penalties and powers are not strong enough in the competition law area to prevent many of the anti-competitive practices that occur in our country.
The committee adjourned.