Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 7 - Evidence, May 14, 2009
OTTAWA, Thursday, May 14, 2009
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:30 a.m. to examine those elements dealing with the Competition Act (Part 12) contained in Bill C-10, the Budget Implementation Act, 2009.
Senator Céline Hervieux-Payette (Deputy Chair) in the chair.
[Translation]
The Vice-Chair: The Standing Senate Committee on Banking, Trade and Commerce is examining those elements dealing with the Competition Act contained in Bill C-10, the Budget Implementation Act, 2009. The committee has a mandate to examine the changes to the Competition Act arising from Bill C-10 as of March 12, 2009, the very same day on which the Governor General gave the bill Royal Assent.
[English]
Among other things, Bill C-10 changed the Competition Act to include new information disclosure requirements for large mergers, an expanded definition of bid-rigging and amended penalty provisions that are expected to increase consumer protection from misleading advertising and deceptive marketing practices.
[Translation]
I am pleased to welcome today representatives of the Canadian Bar Association to discuss the changes to the Competition Act.
[English]
John D. Bodrug, Chair, National Competition Law Section; Paul Collins, Vice-Chair, Enforcement, National Competition Law Section; Janet Bolton, Chair, Legislation and Competition Policy Committee, National Competition Law Section; and Omar Wakil, Chair, Mergers Committee, National Competition Law Section.
[Translation]
Kindly proceed with your presentations.
[English]
John D. Bodrug, Chair, National Competition Law Section, Canadian Bar Association: Thank you. We appreciate the opportunity to appear before the committee today in relation to the study of the Competition Act. I do not think I need to give this committee too much background on the Canadian Bar Association, CBA; however, the National Competition Law Section is one of the most active sections in the CBA. We have about 1,500 members.
I wanted to thank the Senate and commend the committee on its further study of the Competition Act amendments contained in Bill C-10. The amendments are far-reaching and will affect many Canadian businesses, both large and small.
We have submitted some fairly extensive written comments, so we will try to keep our initial comments brief.
The National Competition Law Section supported some of the amendments to the Competition Act in Bill C-10; we expressed reservations about others and opposed some. In our limited time today, we do not intend to cry over spilled milk or try to revisit the basic principles underlying the amendments that were passed with Bill C-10. We would like to focus on two areas where we believe that additional amendments would assist in both achieving the intended goals of Bill C-10 with respect to the Competition Act and provide some needed certainty for Canadian businesses.
Mr. Collins and Mr. Wakil will talk about some aspects of merger review. Ms. Bolton and I will discuss the new section 45 offence for agreements among competitors and some proposed amendments that we think would help to relieve some of the significant uncertainty created by the new law.
Turning first to the criminal offence for agreements among competitors, one of the key elements of the amendments package was to repeal the existing offence for agreements that unduly lessen competition and replace it with a new per se offence — per se as a legal term — an offence making it illegal for competitors to agree to fix price, fix or limit production or allocate markets, regardless of whether there is any adverse effect on competition. The prohibition applies equally to large and small firms, even small businesses that could not possibly have any impact on market prices.
There is a defence in the new section 45, and that section comes into effect next March. There will be a defence for agreements that are ancillary to and reasonably necessary for a larger or separate agreement that in itself does not violate the section. However, it remains to be seen how the courts will interpret this defence.
Last Friday, Competition Bureau Canada released draft guidelines on how the bureau will apply the new section 45 offence, as well as how they will apply new provisions relating to non-criminal routes to challenging agreements among competitors. We commend the bureau for these efforts. While the guidelines are not binding on the bureau, we believe that the bureau's guidelines will provide Canadian businesses with a significant degree of certainty about when the bureau will pursue criminal charges and seek to put people in jail.
In particular, the draft guidelines clearly indicate that the bureau will pursue criminally only agreements that are so likely to harm competition and to have no pro-competitive benefits that they are deserving of prosecution without a detailed inquiry into their actual competitive effects.
The problem, in our view, is that the actual words of the new section 45 are capable of a much broader interpretation, and the draft guidelines do not attempt to define the outer limits of that prohibition. Even if they did, they are not binding on a court. The draft guidelines do not fully address the uncertainty of the business community about how the courts may interpret the new section 45, for example in civil actions, including class actions. We are seeing an increasing trend toward more litigation in Canada in class actions in the competition law context.
The violations of this new provision expose parties to actions for damages, potentially injunctions and parties seeking to avoid contracts on the basis of illegality, in addition to any risk of criminal exposure.
I will now turn it over to Ms. Bolton to talk about a few specific examples of the types of agreements that we think have uncertain legal status under the new law and some of the exemptions that we think might be helpful in addressing this.
[Translation]
Janet Bolton, Chair, Legislation and Competition Policy Committee, National Competition Law Section, Canadian Bar Association: I am pleased to be here today.
[English]
Let me first say that the CBA is entirely supportive of a legal regime that ensures that parties to hard-core cartels, price fixing and other agreements will be brought to justice. The amendments in Bill C-10 will make it easier for the government to prosecute cartels, and we believe that is a very positive development. However, we are concerned that the law will bring into it certain non-harmful agreements between competitors, including small businesses, at a time when our economy can least afford it.
As Mr. Bodrug has indicated, the CBA's concern arises from the language of the statute itself. The language is extremely broad, and it is not clear that the ancillary defence would be available in all instances to protect legitimate business arrangements.
For example, the new criminal prohibition captures any agreement between competitors to control or fix the price of a product. As you probably know, it is very common for small businesses to band together into buying groups in order to negotiate favourable terms and volume discounts with suppliers. This is really the only way that mom-and-pop type businesses are able to remain cost competitive with larger players.
However, a buying-group agreement is an agreement between competitors, and the agreement is directed at controlling the price of a product. While the bureau has indicated in its guidelines that it does not believe that section 45 extends to buying agreements, this is not clear from the language of the statute, and, ultimately, it will fall to the courts to determine this matter.
It is also not clear that the ancillary defence would apply in these circumstances because the very purpose of setting up a buying group is to control prices, and it may thus be alleged that the pricing arrangements are non-ancillary to a broader agreement.
A further category of agreements that may raise issues are agreements between a principal and an agent. I understand that the Canadian Real Estate Association has written to the committee to talk about principal-agent circumstances in the real estate industry that may raise issues. I will not get into that here, but I urge you to read their letter. We have given you examples of problematic agreements in our written materials. I will not go through them because I would like to focus on how we can remedy the situation.
The CBA is proposing that the uncertainty created by the new section 45 offence be resolved through further amendments to the Competition Act that would exempt certain types of agreements from the new criminal provision. I stress that these exemptions would only be for agreements clearly not intended to be caught by section 45.
Let me now highlight a few of the exemptions from our materials. First, we propose a principal-agent exemption to address the situation highlighted by the Canadian Real Estate Association.
Second, we propose two revisions to the law to address drafting deficiencies. Bill C-10 exempts agreements between corporate affiliates, for example a parent company and its wholly owned subsidiary. That exemption applies both to the criminal provision and to the civil regime for review of competitor agreements. It is settled law that there can be no conspiracy when all actors are commonly controlled because it takes two parties to agree, and you have only a single actor when there is common control. The problem with the exemption in Bill C-10 is that it relies on the definition of "affiliate'' in the Competition Act, and that definition is narrow and technical. It would not apply to many types of business organizations, for example, trusts. The result could be that agreements among related parties could be criminally sanctioned in Canada. This is something that needs to be fixed.
It is also settled law that where a regulator requires or authorizes competitors to enter into an agreement, that agreement is exempt from the Competition Act. In the relatively distant past, there were a number of challenges to the courts from provincial agricultural marketing boards. It was alleged they were illegal conspiracies. The boards were, and in many cases still are, controlled by groups of producers — competitors who jointly set prices for agricultural products as part of our supply-management scheme. The courts, however, found that because the boards were acting pursuant to valid regulation, the Competition Act did not apply. The case law established what is called the regulated conduct defence, or RCD. In Bill C-10, Parliament has attempted to codify the RCD. However, there is a problem with the drafting. Section 45(7) adopts the rule as established in the case law. Unfortunately, in a recent case, the Supreme Court of Canada suggested that the defence only applies where the Competition Act language provides "leeway'' — that is the word they used — for provincial regulation. The courts said that the words "undue lessening of competition'' provide such leeway.
However, as Mr. Bodrug stated, Bill C-10 removes the "undue lessening of competition'' language in section 45. As a result, it is possible that a court would conclude that provincially regulated conduct, including aspects of our agricultural supply-management system, is no longer protected from the application of the Competition Act. This is a drafting problem. I do not think this is what was intended, and it needs to be fixed.
We have also submitted in our written materials and in other contexts that the RCD should be a defence more broadly. In Bill C-10, it should have been added to new section 90.1, the civil competitor agreement review provision.
In our submission, we have also proposed a number of other general and specific exemptions, including the power to prevent block exemptions. Exemptions would provide a safety valve in what could otherwise be an inflexible regime. The power to grant exemptions would be faster and more efficient than having to go back to Parliament to deal with unintended consequences of the criminal regime for competitor agreements.
I want to stress that the list we have given you is preliminary. We, as the National Competition Law Section, are just beginning to debate the details of an exemption regime but think it is something that merits further thought and discussion. Thank you for your interest and your time. I will now ask Mr. Wakil and Mr. Collins to continue the presentation.
[Translation]
The Deputy Chair: I am sorry to interrupt. I simply want to point out that we have until 11:15 a.m. Therefore, I suggest you limit the length of your presentations to ensure that senators have an opportunity to ask questions, if they so desire.
[English]
Paul Collins, Vice-Chair, (Enforcement) National Competition Law Section, Canadian Bar Association: I will be brief. For a few minutes, I will address the implications of Bill C-10 in terms of the Investment Canada Act, particularly one component of that act, namely, the introduction of a national security test and process for reviewing acquisitions by non-Canadians of Canadian businesses that involve potentially a national security test.
The Deputy Chair: If we enter into that aspect, we will not be dealing entirely with this question, which merits a lot of examination. You may proceed. I will not cut you off, but I think our committee would prefer to have a specific consultation on this bill after this one so that we can review the bill by all the stakeholders and Canadians in general.
There is also a time frame — that is, the question of the competition law that will take effect next year. We may be able to make corrections and reintroduce amendments in Parliament. I want to caution you about this.
Mr. Collins: I will take two minutes to register one principle point, namely, the CBA is not objecting to the concept of a national security test. The issue that we think is important is to remove the uncertainty that will exist going forward in terms of the current language of the statute. We are missing two things that are important to bring a greater sense of certainty. One is that there is an absence of a definition of national security. It is important to have that, although we appreciate that it is a fluid concept and one that may be difficult to articulate in the context of a statute.
In the alternative, the CBA would like to see a combination of two things: First, some guidelines so that the business community has a sense of what the government is considering would fall within the realm of national security and the weight of the various factors that would come into play; and, second, a process by which parties could, on a voluntary basis, approach Industry Canada and get some sort of clearance or sense of whether a transaction will be treated in any way, shape or form under a national security test, either in whole or in part.
The national security test is very broad. It would capture even small transactions and has incredible scope. In absence of those sorts of procedural protocols, the parties to a transaction are left with a great deal of uncertainty. My focus is on the process of implementing what this test is trying to achieve in a way that the business community can have certainty as they plan and try to consummate transactions.
I will leave it at that, in light of your remarks.
Omar Wakil, Chair, Mergers Committee, National Competition Law Section, Canadian Bar Association: I will also keep my remarks brief so that we can move to questions as soon as possible.
I propose to speak briefly about the changes to the mergers provisions of the Competition Act. As this committee knows, an important principle underlying the amendments was to implement the recommendations of the Wilson panel. Our section believes that a significant Wilson panel recommendation was not included in the budget amendments. The Wilson panel recommended, "In addition to or in lieu of increasing financial thresholds,'' the increasing of financial thresholds for premerger notification, "consideration should be given to creating more exemptions from merger notification for classes of merger transactions that do not raise competition concerns.'' The Wilson panel also said that such changes — and, it is certainly accurate — can be effected relatively expeditiously by prescribing regulations under section 124 of the Competition Act.
The National Competition Law Section believes that adding additional classes of exemption would enhance the efficiency and effectiveness of the merger review process in Canada. Parties to the exempted merger transactions would face lower transaction costs in the form of reduced legal and filing fees. The Competition Bureau, for its part, would not be required to divert time and resources in processing the clearance of a large number of non-problematic merger transactions.
The Competition Bureau would certainly continue to exercise and maintain jurisdiction over such transactions. It would simply mean that merger parties would not be required to go through a mandatory merger notification review process in all of these cases.
The competition law section believes that consideration ought to be given to adding to or expanding exemptions relating to real estate acquisitions, acquisitions in the upstream oil and gas sector, income trust conversions, sale and leaseback transactions, and corporate reorganizations where ultimate control remains unchanged.
In the past 20 years, the Competition Bureau has not challenged a merger involving any of these sorts of acquisitions. This clearly suggests, in our view, that these categories of merger transactions are largely non- problematic. The competition law section is not aware of any public statement by any member of the bureau that work is being done to consider or actually draft any additional exemptions as advised by the Wilson panel, and we believe it would be helpful if the committee would endorse the Wilson panel recommendation and recommend that additional exemptions for merger notification be added to the act.
Those are all of my remarks and all of the remarks of my colleagues. We would be pleased to take your questions now.
Senator Ringuette: I am pleased you are here today. You have raised a major flag in regard to the agriculture community. We all know that in the last three years the current government has gone through extensive measures to try to disband or dismantle the Canadian Wheat Board.
You have highlighted the amendments in Bill C-10 to the Competition Bureau and the issue that the exemption regime is not there. It is not in the guidelines either. This is a hypothetical question. In regard to the issue of abuse of competition, which is one of the issues, and price fixing, I want to know with your legal expertise if the Canadian Wheat Board could be subject to an offence, whether criminal or civil, under the amendments of Bill C-10. For instance, can the New Brunswick potato board be subject to a criminal investigation by the Competition Bureau, or the milk marketing board?
From my perspective so far, you have highlighted what I see as a major issue, especially when we look at the current World Trade Organization, WTO, negotiations. If we have that sort of legislation, it gives carte blanche to the government to say, based on the Competition Act, that they are not competitive. They are price fixing; by the quota part of production, they are inflating prices. That could be said. This is major.
Ms. Bolton: I agree this is potentially major. I do see this as more of a drafting error than an intent in regard to the criminal provision. The intent was to retain the defence. It is just the way it was drafted in light of the Supreme Court of Canada case. It creates the possibility that you can have two completely opposing interpretations of the same provision, one where the defence applies and one where the defence cannot exist in light of the jurisprudence. That is something that can be fixed.
I want to point out that the bureau has stated — and again, these guidelines are not binding — that it does not intend to go after regulated conduct. The other problem is that this statutory RCD is only in the criminal provision. Therefore, you could have an agriculture marketing board, under the amended law, hauled in front of the competition tribunal and asked to explain itself. It may be difficult in light of the regime for it to pass the scrutiny under the new section 90.1.
This is something that can be fixed with some relatively narrow amendments to the law. Those amendments would be in the spirit of what Parliament intended in the first place.
Senator Ringuette: Could you provide members of this committee with a proposed amendment to this specific issue?
Ms. Bolton: We could. We would take that as a take-away.
Senator Ringuette: I reiterate my concerns because of past actions of the current government. We cannot afford to have a window that could jeopardize our farming community.
Ms. Bolton: We would be happy to propose an exemption.
Mr. Bodrug: In addition to what Ms. Bolton said, the risk of the Competition Bureau actually prosecuting that conduct is low, but the ambiguity invites civil actions by private parties as well.
Senator Ringuette: That increases the risk in regard to discussion with world trade and especially with the free trade agreement we have with the U.S. and Mexico. The milk issue is a major one, as well as the derivatives of milk products. We are opening the door to many conflicts with our trading partners, in addition to putting a major uncertain situation in our farming communities. This is not the time to be doing this.
Senator Gerstein: Ms. Bolton, in your opening remarks, you referred to — and you seemed to be pleased — the principle of certainty that was exemplified by some of the areas of the act. If I then move to another comment you made about the non-harmful agreements, I am unclear as to the position you have as to the degree of certainty you are looking for as to who and how the lines are determined between what might be considered a non-harmful agreement and a harmful agreement. Could you clarify that for me, please?
Ms. Bolton: I will invite my colleagues to jump in as well. It is universally appreciated in the Competition Bureau that harmful agreements are what we call naked cartels: agreements entered into only for the purpose of fixing price, allocating markets or restricting outputs. Those are competition by universals. Unfortunately, it has become a "you know it when you see it'' test.
We are saying that everything else should be viewed civilly. There is this civil position. The tribunal has the ability to look at other agreements, and we think anything else can be shifted into the civil track. If a problem exists, the tribunal can remedy that, but it is no longer a criminal matter. I think we would shift the line as far as we could toward confining the criminal provision to those hard-core, naked agreements.
Senator Gerstein: Thank you for that clarification.
Senator Fox: I have two questions. The first one is to Mr. Collins, if I may. You raised your real concern about the fact that the words "national security'' are not defined. In the absence of a definition, is it the minister who decides what national security is in a given case?
Mr. Collins: Yes, the minister would raise the question, and then it would go ultimately to the Governor-in-Council.
Senator Fox: Is there any way to challenge it? Is there is a difference between national security and national interest?
Mr. Collins: Yes. The standard test for matters not raising national security is whether a transaction is of net benefit to Canada. That is assessed against a number of statutory criteria. While there is some subjectivity to it, that process has worked reasonably well over the years, and there is a fairly well-accepted practice. National security opens up a lot of uncertainty as to how that will be assessed.
Senator Fox: How could you challenge it? Is it a minister's certificate, as in other areas where the minister determines there is a national security element because someone is trying to get into the country? Does this amount to another national-security certificate where the minister determines with his advisers that there is a question of national security here? Is there any possible appeal?
Mr. Collins: The way the process starts, as I understand it — and we are all in uncharted waters as to how it will play out — is that the question is raised. It is not as though the determination is made up front. The question is raised, and the parties have an ability to argue and make submissions as to why it should not be a concern, or, to the extent it is a concern, it is addressable through undertaking.
The fact that a transaction is labelled as one that raises national security issues does not mean it is fatal to the transaction, but it requires the parties to address that issue in some way. If the minister is not ultimately satisfied that it can be addressed, then he or she has the ability to prevent the transactions from occurring.
Senator Fox: Is your main concern that no guidelines exist as to what constitutes national security?
Mr. Collins: We all have a sense of what that might entail. Again, we appreciate that it is a difficult thing to codify in a statute.
The next thing we would look to is some sort of guidance, and while we appreciate that would not be binding, the business community would welcome that greatly. There is precedent for that in other jurisdictions, namely, in the United States under the Committee on Foreign Investment in the United States, CFIUS, rules where they have published a set of non-exhaustive points that could raise national security issues and also, importantly, establish a voluntary process whereby parties can get comfort before a transaction is made public in that process to get some certainty that what they are about to embark on will not raise national security issues.
Finally, leaving it as open-ended as it is right now subjects parties to a frivolous or strategic behaviour by other parties who are not part of the transaction to try to frustrate a transaction or delay it for strategic reasons.
Senator Fox: Obviously, you have looked at the U.S. situation and the guidance they have on circumstances in which foreign investment can give rise to security concerns. Are you satisfied with the guidelines the U.S. developed? Are you saying those guidelines should be incorporated into Canadian practice?
Mr. Collins: This is a personal view. I do not think we should just adopt them. However, they are a good start. They are something we should look at carefully, but we should bring to the table views that are important to Canada as well, which may or may not correspond to what they have.
Senator Fox: I assume we are talking about situations where a foreign group would want to buy, as a random example, all of the potash-producing facilities in Canada. What other examples can you give me?
Mr. Collins: The ones that come to mind immediately are related to the military and defence, things of that nature.
We have heard discussed, in some consultations historically, that it also depends on the origin of the investment and who that investor is. For example, if an investor is U.S.-based, they may not raise national security issues, but in another jurisdiction, the same acquisition could. We appreciate that it is a fluid concept, and that is why guidance is important.
Senator Fox: Will the bar association be articulating the type of guidance rules they would like to see? Will your committee be producing that?
Mr. Collins: We would be pleased to do that. We have given it some thought. We have a subcommittee of the competition law section that focuses on the foreign investment review committee, so we would be pleased to come up with something.
Senator Fox: I am tempted to ask an opinion because I have a distinguished panel of competition lawyers in front of me, but I will refrain from that. Some of the members of the committee will understand where I am going with this.
On section 45, you say the following in your brief:
Canadian businesses, both large and small, will continue to face significant uncertainty that could most effectively be relieved by statutory amendments. In particular, if an agreement between competitors — even small businesses with no market power — contravenes the new section 45, the parties would be exposed to private actions . . . .
That seems to be a serious state of affairs. Is there a way, under this new Competition Act, for people who are in a commercial relationship with a large entity that exercises strong market power to get together to negotiate with that entity, let us say a duopoly in this case, without incurring the wrath of section 45? I am not sure I am clear.
Ms. Bolton: This is one of the areas where issues are possible. The competition bureau will probably not go after legitimate negotiations where parties are trying to negotiate against a larger player with considerable market power.
However, there certainly would be incentive, if that larger player did not want to deal with parties on a joint basis, for it to turn around and allege that you cannot negotiate jointly because that would be a breach of these provisions, and to try to challenge it that way.
Senator Oliver: You are all lawyers. The Canadian bar is made up of lawyers, and there are lawyers in the competition area. You would like to have a law that would make it easier for you to advise your clients on what would happen if they entered into a certain arrangement with other people with whom they are doing business.
Many statutes in Canada have regulations; many have directives; and others have guidelines. It is not surprising to find there are guidelines made pursuant to a statute or amendment to a bill.
The guidelines will, in fact, help lawyers to give advice to their clients as to when actions will likely be brought by the bureau. There is a lot of certainty, but if we hear the representations you have made today, one might get the impression that this law has been passed and received Royal Assent, and there is a huge amount of uncertainty. I do not think that is the case.
Some of the guidelines came out last Friday, and you have not had a chance to thoroughly study them, but I did not want to leave the impression that just because the bureau has come out with guidelines that that has muddied the waters and made things more difficult because I do not think that is the case.
My second question deals with exemptions. You, I think, would like to see many more exemptions to exempt all types of activity that might be caught in the web of competition, and you are basing it on what they are doing in other jurisdictions in Europe and in the United States. In your paper, under "Schedule B,'' for instance, you list a number of things, and I am wondering how far you want to go. You say:
For example in the United States, there is a long list of statutory exemptions (e.g. for standards-setting organizations, agricultural marketing boards, air transport alliance agreements), a number of judicially developed exemptions (e.g. baseball), and more than 100 years of jurisprudence interpreting the "ancillary restraints'' doctrine.
Is that how far you want to go?
Mr. Bodrug: I certainly did not want to give the impression that we thought the bureau's guidelines muddied the water. We think those guidelines are very helpful and as far as the bureau could reasonably go. The problem is in civil actions.
Senator Oliver: The courts do not accept them as binding.
Mr. Bodrug: In some instances the bureau has changed its mind — and they are entitled to do that — and in other instances the courts have not necessarily followed the guidelines set out by the bureau. We are not saying that the world is about to end here, but we are trying to identify what we think is a real issue in terms of advising clients on a day-to-day basis.
Senator Oliver: You would like more certainty.
Mr. Bodrug: We have tried to identify some categories of agreements that we think are unambiguously not intended to be caught by the new legislation and would be helpful to provide certainty to Canadian businesses.
Senator Oliver: However, you know that Bill C-10 is now law; it has received Royal Assent and is now law.
Mr. Bodrug: Yes, except the provision we are talking about, section 45, does not come into effect until next March. Therefore, I believe we have is an opportunity to perhaps make some minor revisions. We think these are relatively minor revisions and in most cases consistent with the intent to deal with these actually. Maybe I am optimistic, but the budget bill went through pretty quickly too, so maybe there is an opportunity to address some of these points before March.
Ms. Bolton: In terms of how far we would want to go, because, as you can appreciate, things happen very quickly and this bill was passed, exemption is really something we have only just started to look at. The list we put together for our submission was based on input from our members over a two-week or three-week period. This is something we would have to look into it further.
I want to stress that the advantage of the exemption regime over just having the bureau guideline or even going to the bureau for advice on whether they would go after a particular agreement is that it would protect parties against civil actions. Competition civil actions, in particular class actions, have started to become quite commonplace in Canada, so it is definitely something that costs businesses.
Senator Oliver: Are you all in agreement that you think there will now be an increase in class action suits brought as a result of the provisions of Bill C-10?
Ms. Bolton: We have looked at some statistics and cannot determine this exhaustively. However, within the past decade, about 30 competition class actions were brought before the courts. There is no way really to count them because we would have to go to each and every court in Canada and figure out what has been filed. We have at least a list of 30. The removal of the burden on parties to prove an undue lessening of competition does facilitate pleading for the plaintiffs. The plaintiffs' bar is becoming very expert in the competition-law field, so it is likely that we will see more class actions in the future.
Mr. Bodrug: It is not necessarily limited to class actions. Part of the issue is that the risk changes negotiating dynamics generally, so it is difficult to measure this. It is difficult to say whether this will translate into more class actions by numbers or more civil actions generally. However, there is definitely a change in the negotiating positions of parties as a result of this.
[Translation]
The Deputy Chair: Some persons I spoke to told me that the European system discarded the option of criminal prosecution. Offences are dealt with as civil matters and much higher fines are imposed.
I am talking about principles. As I see it, financial sanctions have totally different implications. The threat of criminal prosecution is not the ideal way of stopping business men and women from committing offences.
I am interested in hearing your philosophical opinion on the substance of this issue, from a legal standpoint. Should our legal system continue to deal with these offences as criminal matters, when a fine of up to $100 million or even higher could be imposed? Do you have a preference between the European system and the North American one? The evidentiary burden in the case of a criminal offence is much greater. Would treating these offences as civil matters be a more effective way of preventing offences and maintaining an acceptable level of competition?
[English]
Mr. Bodrug: As a general proposition, there is not as much controversy around the addition of the new civil provision of the Competition Act dealing with agreements among competitors. We agree that there is not much opposition to the proposition of a quicker, non-criminal route to address agreements between competitors that fall outside of the hard-core category. It is probably generally accepted that criminal sanctions should be preserved for really bad agreements between competitors that are directed at fixing prices or, as Ms. Bolton described them and they are commonly described, naked cartels. It is generally thought that the category of this type of conduct should continue to be subject to criminal sanctions, even acknowledging that it is more difficult to prosecute, that it takes longer and a higher standard exists. However, there is definitely also room for a non-criminal route as well.
[Translation]
The Deputy Chair: In Quebec, a number of small gas station operators were recently charged with Criminal Code offences. I find it ludicrous that Criminal Code sanctions were applied. Perhaps this kind of collusion could have been avoided had these individuals been told that they could lose their home and their business and that they could be liable to hefty financial penalties.
No doubt, there is a moral aspect to this issue. A government has a responsibility to manage the country's economy efficiently. However, I am tempted to think that civil prosecution would be a more effective approach. We would intervene more often, the evidentiary burden would not be as great and investigations would not last as long. The system would therefore be far more efficient. Europe has long opted for this intervention approach. I am simply throwing this out there for your consideration.
The $25 million fine does not seem high enough to me. Businesses can often come to an agreement amongst themselves. Their sales can be in the billions of dollars. I am still talking about the principle behind sanctions. As I see it, it is better to provide for minimum rather than maximum sanctions so that judges, when dealing with two large multinationals, can always opt to impose a much harsher penalty than the one provided for.
[English]
Ms. Bolton: I would like to point out that the prior level of fine or the existing level of fine until March 2010, which is $10 million, has actually not been a barrier to higher fines. In cases where there have been convictions, which have generally been the result of guilty pleas, parties have pleaded to multiple charges. I believe the highest fine has actually been $50 million in Canada. As well, I would say that the vast majority of the large cartels do not originate in Canada. Therefore, the same cartel may be punished in the U.S. and Europe and in other jurisdictions, so there are principles of international comity that come into play in terms of how much Canada wants to get into double counting of fines.
Senator Moore: Mr. Bodrug, I am looking at your letter of February 3 to Mr. Ron Parker at Industry Canada. The provisions of the Competition Act that we are discussing here today were buried in that omnibus budget bill, which was tabled on January 27 in the House of Commons and received Royal Assent, as you know, on March 12. Your letter is dated February 3, 2009, and you say, "I am writing . . . to provide preliminary views on potential amendments to the merger review process in the Competition Act as recommended by the Competition Policy Review Panel.'' That is the Wilson panel, correct? In February you were writing a note to the department in response to the panel's recommendations.
Did the Canadian Bar Association have any input to possible amendments to the Competition Act before it was tabled in House of Commons? Is this your first attempt to have input?
Mr. Bodrug: The origin of this letter was, first, that we saw this recommendation in the Wilson report. I may have my facts a little wrong here, but I think the Conservative Party platform, before the election — I cannot remember the exact date — included some references to adopting that provision, the recommendations of that panel. We struck a task force, actually some time before this, to respond to this particular recommendation because we felt this was not a recommendation or a topic that had been canvassed. We did not feel that the comments were really solicited in the original paper that the Wilson panel put out to solicit comments. We were surprised by that. It took us time. We had a group with which, I think, Mr. Wakil and Mr. Collins were involved that spent some time on it. You will see that it is a detailed letter.
Senator Moore: Eleven pages.
Mr. Bodrug: We recognized that the bureau had a legitimate concern about getting enough information fast enough. We were concerned that this proposal was not the right path to take. We took some time to put an alternate suggestion together. We did not know the budget bill was coming out the next week, so it was an accident, or fortuitous timing.
Senator Moore: Did you get a response to this letter from Mr. Parker?
Mr. Bodrug: I do not believe so, not a formal response, anyway. I know he received it. I did speak to him, and he acknowledged receipt of it.
Senator Moore: You sent him an 11-page letter and he did not come back to you.
Mr. Bodrug: We may have received a short acknowledgement — I cannot recall specifically — but not a detailed response.
Senator Moore: Did it not deal with the issues you raised?
Mr. Bodrug: Not in any depth.
Senator Moore: At the start of your letter, you mention the panel recommendations, and there are two bullets. The second bullet, in which you quote the panel, says:
"the initial review period be set at 30 days, and the Commissioner of Competition should be empowered, in its discretion, to initiate a `second stage' review that would extend the review period for an additional period ending 30 days following full compliance with a `second request' for information.''
With respect to initiating a second-stage review that would extend the review period for an additional period ending 30 days following full compliance, could you walk me through an example of how that would work?
Mr. Wakil: The parties would submit a premerger notification filing, and they would not be able to complete their transaction, a merger transaction, until 30 days had elapsed. Within that 30-day period, the commissioner could request that additional information be provided to it by the merger parties, and the statute provides that they would not be able to complete the transaction pending the receipt of that information. They would have to gather that information, provide it to the Competition Bureau and, once they provide a response that is complete and correct in all material respects, another 30-day period would start effectively giving the Competition Bureau 30 days to review that information. Following the completion of that second 30-day period, the parties would be able to close their merger transaction. If the information request was a very long and significant one, it could take months or a year for the parties to respond to the information request. If the information request was short, it could be done in a matter of days or weeks perhaps.
Mr. Collins: Within the second 30 days, after substantial compliance, unless there is some other action by the Competition Bureau, the parties would be in a legal position to close. However, the Competition Bureau still has the right to go to the Competition Tribunal and seek an injunction to stop the transaction if they feel the information they received has given them enough evidence to do so. Then they need to meet a statutory test before the tribunal to receive the injunction. Therefore, you are not assured that you will be able to close the deal even with the passage of 30 additional days.
Senator Moore: Do the parties get a letter from the bureau saying that they have received the additional information that was requested, and when they get that letter, is that when the second 30-day period starts to run?
Mr. Wakil: No. I think the expectation is that the parties would certify that their request is complete and correct in all material respects.
Senator Moore: Do you think it is something from the bureau saying, "Okay, you have met that''?
Mr. Wakil: I am not sure if the bureau has developed a process or determined how it will respond to that. They probably will not respond to that because it could be a considerable volume of information, and they may not want to be on the record as confirming that they believe that your request is correct in all material respects.
It would most likely work that you would certify your request as complete and correct, and they would have 30 days to review it and potentially challenge it because they may say that it is not complete and correct in all material respects, that there are gaps here, and there is non-compliance.
Mr. Collins: You are certifying that submission of your material under oath.
Senator Moore: Yes, sure.
Mr. Collins: Obviously, the parties will look at that seriously and do everything they can to ensure that they are complying.
Senator Moore: They want the deal to go ahead.
Mr. Collins: They do not want that to be challenged.
Senator Moore: This is why I find it interesting that the bureau still has the opportunity to seek an injunction. Somewhere along the way, do they not have to tell the parties that they met their requirements and that they can go ahead with certainty and close the deal? I find it extraordinary that you would be going through the process and they could still challenge you after you have given everything they have asked for. Where is the ending?
Mr. Wakil: That may be a preferable outcome, but you are right; there will be subjectivity and uncertainty. The act also contemplates the possibility of fines of $10,000 a day for every day that you, as a merger party, are in breach of the no-close waiting periods under the act.
For example, if you certify compliance with respect to the second request, you wait for the elapse of the 30-day period, you close your transaction and the bureau subsequently challenges you and says, "No, you are actually in breach. You did not comply with the request,'' not only could the bureau seek an injunction, but the parties could also face significant financial penalties for being in violation of the no-close waiting periods under the act.
Senator Moore: You went to great length here to point out the shortcomings of the U.S. second-request process, and you did not get any response to that. You say that that process is notorious in international competition law circles, so why do we go down that road? The bar knows what it is talking about, we know what the international experience is, and you have no response. I find it extraordinary because we are talking about potentially millions of dollars of fines.
Mr. Wakil: We were also concerned that, as Mr. Bodrug had indicated, there was not greater public consultation on this throughout the entire process. In about 150 submissions to the Wilson panel, I am not aware of one — maybe there was one or two — that commented on potential changes to the merger provisions of the act. This blindsided many people. We did not see it coming, and they are massive changes.
At one point in the Wilson panel, they describe some of these changes as relatively modest upgrades to the act, and they are certainly, in our view, quite massive, particularly in the merger and cartel areas.
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The Deputy Chair: I would like to welcome Tim Kennish, counsel for the firm of Osler, Hoskin and Harcourt. You may begin your presentation, Mr. Kennish. We already have a copy of your submission.
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Please give us an overview of your document rather than reading it.
Tim Kennish, Counsel, Osler, Hoskin & Harcourt LLP: I am pleased to be here. I am counsel to the legal firm of Osler, Hoskin & Harcourt LLP, located at its Toronto office, although I am appearing here in my personal capacity and not on behalf of the firm. The views expressed by me are my own.
I wish to thank you for the opportunity to speak to you about the amendments. These are the most significant and far-reaching amendments to be made to the act in over 20 years. I believe that they effect valuable and needed improvements to our competition law. However, I also recognize that the amendments remain controversial for a number of people, even now when the parliamentary process has put an end to further debate over their general merits.
While I agree that it is possible that the provisions may be improved upon in terms of clarifying their scope of application, I recognize that we are dealing with general law that applies to a multitude of transactions. It will necessarily be cast in general language, and there will be some areas of uncertainty. The guidelines we have been talking about this morning go a considerable distance to helping remove some of that uncertainty.
While I am in favour of these changes to the act, I do have some personal reservations about a number of them, and I have included those qualifications in the appendices to the brief, which document you have seen.
Due to time limitations, I will speak about three areas. The first is section 45 reform, the second is merger review and the third is dominance. Other areas are touched on by the bill, but these are the most important areas, and they have the greatest priority in our approach to the law in this area.
I will talk a bit about the legislative process. Contributing a bit to the controversy that continues to surround the amendments was the process by which they were enacted as part of a tightly packaged budget implementation bill. There was effectively no public consultation specifically in relation to the bill. It is regrettable that the legislative process did not accommodate an opportunity to talk about these specific provisions. That is particularly the case with regard to merger pre-notification, which was not previously the subject of any consultation.
However, with the exception of the merger pre-notification, which is definitely an important area of the bill, virtually every other change to the act that was recommended by the panel or appears in the bill has been the subject of extensive public debate and discussion ranging over a lengthy period of time. Some of these matters have been under discussion or have been parts of bills or proposals for over 15 years. We have had white papers, bureau reports, studies done at the behest of the bureau and bills that were tabled and went through several stages of review before they died on the Order Paper. More recently, we had a fairly extensive review of the field by the House of Commons Standing Committee on Industry, Science and Technology and the panel, which was a comprehensive canvassing of views on their topic.
With regard to the reforms in the area of merger pre-notification, the panel did receive from several experienced legal practitioners submissions contending that the system we have had became problematic and was in need of changes, both to speed up the time taken to complete merger reviews for the more run-of-the-mill cases and also to increase time certainty, but also to provide the bureau with increased time in cases that were difficult to analyze.
I think the panel saw in this situation an opportunity to recommend the adoption of a system — I am talking about the U.S. merger clearance system — that could address both of those issues while, at the same time, aligning our merger review system more closely with that of the United States. There are several statements in the Wilson panel report indicating their preference for conformity between the laws in the different jurisdictions where they may deal with the same business transactions.
Foremost among the important changes brought about by the amendments was the correction of a pressing need for reform of section 45. That provision is the cornerstone of our act, and it is celebrating its 120th year as part of the legislation. Notwithstanding that it is the cornerstone of the act, I believe it has been significantly deficient and has lacked enforcement integrity. That is unfortunate, because cartel arrangements are, by common agreement throughout the developed world, the kind of business practices that have the greatest potential for competitive harm. Prosecution of cartels is, therefore, usually the highest enforcement priority for competition authorities around the world.
Although it has been the subject of some controversy, the need for this reform has been fairly obvious to me for some time. Canada has a law that is a critical tool in the control of international anti-trust enforcement cartels, but that is seriously out of step with similar laws in virtually every other developed country in the world. That is due to the fact that the section creates a criminal offence but, at the same time, incorporates a rule-of-reason standard in the legislation.
That requires the prosecution to show not only that the agreement contravened the prescribed action by having an agreement with the competitor, but also that it affected a market to an undue degree. That, in turn, requires measuring and identifying which product and geographic markets are affected by the agreement and then determining whether the adverse effects in those markets reach a level of undueness. That must all be done according to the criminal law standard of proof beyond a reasonable doubt.
By contrast, the comparable laws of virtually every other developed country use a per se evidentiary standard that dispenses with the need for either of those requirements. Also, in most jurisdictions where the relevant provisions are cast in per se form, their application is strictly limited to a narrow list of unambiguously harmful competition arrangements, such as price-fixing, market allocation or supply-limiting agreements, so-called hard-core agreements.
That is not true of section 45 currently, prior to its amendment. It was potentially applicable to all inter-competitor agreements. That is the difficulty on another side for dealing with inter-competitor agreements not of the hard-core cartel variety. Clearly there was a need to have a separate civil provision dealing specifically with these kinds of arrangements that would permit a more nuanced approach involving the assessment of the competitive effects of those kinds of agreements, joint ventures and so on, to determine whether there was a harmful outcome. In the other ones, it was presumed because of the nature of the agreements.
The makeover of former section 45 brought about by Bill C-10 splits the former provision into two separate sections, one of which, the criminal side, continues to be criminal but replaces the rule of reason with a per se standard now only applying to traditional hard-core cartels. That is one segment. The other is a new civil provision, section 90.1, which has potential application to all other horizontal agreements and applies a rule of reason standard and judges the legality of the agreement under civil evidentiary standards, which is more accommodating, more lenient and less strict. The increased enforcement capacity has been significantly elevated by the higher fines that are contemplated, the $25- million limit, and the possibility of increased jail terms for people who contravene the criminal provision.
One of the principle complaints, and this is what is animating people like the Canadian Bar Association coming forward, is that because section 45 in the criminal version will now no longer require a demonstration of harm but presumes it to flow from the type of agreement, there could be many agreements that contravene section 45 but where the parties are not in a position to create harm. An example frequently kicked around is two newspaper vendors on a street corner in the city of Toronto agreeing to charge the same price for their newspapers. That could be, theoretically, a technical violation. However, the fact is that the department, at least the bureau, is under-resourced in its enforcement capacity, and it would be foolish in the extreme for it to spend its time prosecuting such arrangements. I appreciate it is not a legal defence, but in practical situations it probably mitigates a lot of concern people have about taking these to the extreme.
Examples are frequently cited of business arrangements where one part of the arrangement is that there is an agreement that might trip over section 45. An example might be that a vendor agrees to sell to a purchaser a business and, in that connection, enters into a separate agreement not to compete with the purchaser following the acquisition for some period of time. Theoretically, this could be a contravention of section 45 on the ground that it is a market allocation arrangement. At the same time, it is directly connected to the sale of the business because it would not be entered into but for the fact that its purpose is to facilitate the agreement being executed. The practical reality is that the purchaser will not buy the business and pay for the goodwill that he is purchasing if he will be faced immediately following the closing with the old vendor, who may know his customer base much better than the purchaser, competing those customers away. That kind of situation would be a good example of what was referred to in the previous session as an ancillary defence brought into play because it would meet the requirements of that section and many other multiple aspect relationships where this could happen.
Another question has been alluded to: What about private plaintiffs? They are not bound by what the bureau says. Maybe the bureau does not care, but we could bring a private action. I think private plaintiffs are even more constrained in their ability or inclination to go after what you might call competitively neutral transactions that might technically violate section 45. Their rights are limited to collecting damages or trying to recover damages for a violation of the provision. Where there is no competitive harm, they will not have any damages and there will not be a payday. In addition, in this field, litigation is burdensome, and typically what happens in most jurisdictions where they have private litigation as well as public enforcement is that the private litigants often wait until there is a conviction and then come in and assert that they have been harmed by the violation of the law and obtain damages. If the bureau does not take a case, it becomes more difficult for the private plaintiffs to pursue such a thing, even assuming they have a damage claim they can make out.
I submitted about merger pre-notification. Although it was not notoriously deficient, I think the merger process was acknowledged to have some shortcomings. I mentioned before that one was that some of the cases that everyone would recognize would never be challenged before the tribunal nevertheless were taking longer than expected. The other piece was that the maximum waiting period the bureau can rely upon is 42 days under the law. Some cases that raise difficult issues — and there might be 10 a year at most — are not concluded within 42 days. From the bureau's side, for those kinds of cases, there just was not enough time.
The importation of the U.S. system provided the opportunity of doing something about that situation.
A third consideration was that because so many of our mergers reviewed here are also the subject of parallel reviews in the U.S., it is thought to be undesirable to have the two systems not synchronized to create the maximum efficiency and review, but desirable to have greater degree of congruity between the two areas.
Under the U.S. system, which is different from the Canadian process as it has been until now, there are one or two stages. If you go through the first stage and you are not asked for more information in so-called second request, then you are out the door at the end of 30 days and you have a green light to close. If they ask for additional information, a second request is issued; then you are into a longer time period. It was discussed how that works. I will not make light of it. It can be a burdensome process both from a time and a money point of view. However, the U.S. experience indicates, in recent times at least, that over 97 per cent of all filed cases go through in the 30-day initial time period, and fewer than 3 per cent are flagged for a second request.
In the U.S. system, the process forces the reviewing agency to make an earlier decision on the case as to whether or not it will be required to go through this second stage. Therefore, it effectively clears more cases in the first 30 days than we have experienced.
There are definitely trade-offs in adopting the U.S. system, a number of shortcomings that have been experienced in the U.S., particularly with the more difficult cases, which are mentioned in CBA's brief.
I think it is pretty clear that if the bureau follows the examples set by its U.S. counterparts, there would be a greater number of cases cleared in the 30 days and a fewer number that go beyond that. How it actually would work in practice would depend just on what they do, because they are not required to parallel the U.S. practice. Nevertheless, given that Parliament appeared to intend to adopt the U.S. practice to get the advantages out of it, it may be expected the bureau would try to follow some similar sort of record. We will have to see.
Another thing about the U.S. process is that it avoids reliance on the formality and the awkwardness of going through court orders for getting information, whereas the Canadian process has relied upon section 11 orders.
The final thing I want to talk about is the abuse of dominance. There is one major change in this area, apart from taking out the airline abuse provisions, which also happened as part of Bill C-10, and that is providing that administrative monetary penalties be imposed for abuse of dominance.
In the civil area, unlike criminal, ever since we first started putting civil provisions into the act back in the mid 1970s for business practices that were less obviously harmful — things like exclusive dealing and tied selling, sometimes harmful, sometimes not, depending on the circumstances — the remedies for infringement were effectively, "Do not do it again,'' once they determined that it had adverse effects. There was not any way, in effect, of penalizing a party for having infringed the section in the past. That was seen to be a deficiency in terms of deterrence. People would talk about getting one free bite, or we will stop after you tell us that we are offside.
In the area of abuse of dominance, the most important aspect of civil provision, they have one alternative remedy; they can actually mandate the divestiture of the party's business. That is a pretty severe remedy. In fact, that is the problem. Because it is so severe, the tribunal would be hesitant to impose that kind of an ultimate solution to resolve an issue in a sense that these business practices are sometimes hard to figure out as to whether they are offside or onside, and what is purely aggressive good competition and what is actually competition limiting and has harmful public effects.
Even in this area, however, there was no ability to impose a penalty consequence for past behaviour. The amendments effectively address this as well by permitting the Competition Tribunal to impose administrative monetary penalties. The maximums are $10 million for a first order and $15 million for subsequent orders.
I have commented in the paper that I think these maximums are at the high end, but you may have read in the last few days that the European Commission has fined Intel under their abuse-of-dominance provision over a billion Euros for a violation. I have explained in the paper why I think it is probably unnecessarily high. A lot of this stuff is in play right now, and it may be that it is looking more modest.
I want to conclude by saying I appreciate that you have a difficult assignment. You are looking at something on an ex post facto basis, and you did not have an opportunity to provide your comments before provisions became law. All I am here to say is that while I recognize there are some deficiencies — I have tried to mention some of them and certainly the CBA has focused on others — I think the legislation effects some important improvements to our law in the major areas of its application, and I certainly support it. I am happy to respond to any questions.
The Deputy Chair: Thank you, Mr. Kennish. You made quite a comprehensive presentation.
Due to the fact that we have two other witnesses and normally we finish at 12:30, I am in the hands of the committee. Maybe we will ask just two questions and we will proceed, or we will have to extend the time for the next witnesses because we all want to hear from them as well. It is up to the committee to decide. I am in your hands.
Senator Tkachuk: We have a special caucus meeting at 12:45.
The Deputy Chair: Can we say a maximum of five minutes for one question on your side and one on our side?
Senator Tkachuk: I do not have any questions.
The Deputy Chair: You gave us a lot of material, Mr. Kennish; food for thought.
Senator Moore: I will be brief. Thank you, Mr. Kennish, for appearing.
You mentioned the Canadian Bar Association's brief, their letter and comments with regard to the American system, the second request. Do you support the position of the bar? Have you seen their letter?
Mr. Kennish: I have seen it. I have not studied it in great detail. I am supportive of the approach that the panel took. Some of the things that are being sought after as exemptions are also things that, in the current law, are not provided for. I think there is some legitimacy amongst the complaints that are set forth there and others that people have lived with in the past and do not seem to be a problem.
I have not looked at that letter since within the last couple of weeks, so I do not recall exactly what their focus was.
Senator Moore: Thank you.
Senator Fox: One short question, on the regulated conduct defence, which you have appearing in Appendix A on page 2. In view of what has gone on in the past between the CRTC and the Competition Bureau, you are basically saying here that it is not clear that the regulated conduct is a defence in section 45. What would be the situation if it is not clear? Would it not be a defence?
Mr. Kennish: Regulated conduct defence is a judicial principle. It was developed by the courts. It has been applied by the courts even though there are no defences in a number of these statutes, including the Competition Act. The Competition Act has been involved in some of these other cases.
The main concern here is that the last statement on the regulated conduct defence was made by the Supreme Court of Canada in the Garland case. The Garland case looked at the Competition Act as it was. Under the new system, the main point that the Supreme Court of Canada made at the opening for the application of the principle was — Ms. Bolton mentioned this — leeway, and they pointed to the term "undue.'' That is no longer in the statute as far as section 45 is concerned.
What is in the bill, whatever the law was, is still the law. I think we are now in a situation where if you want to provide protection for governmentally mandated or legislated actions, or where it is authorized by legislation, we have to come out and say it. It is not clear at all now that that situation will be protected.
It is intolerable for a board or for people acting pursuant to a board's direction, when someone has been operating under validly authorized legislation, to hit them with a fine in a competition process for doing that very thing. Therefore, I agree with the bar on that issue. The regulated conduct doctrine statement in regard to section 45, as amended, is not affected. There is not a similar one for the civil version, which is section 90.1. A stronger case can be made for the civil version.
That is my view on that. I am hopeful there will be some openness to considering it, although this topic is controversial between the bureau and the bar.
[Translation]
The Deputy Chair: I would like to welcome our next witnesses: Michael Janigan, Director of and General Counsel for the Public Interest Advocacy Centre, and Anu Bose, Head of the Ottawa office of Option consommateurs.
Anu Bose, Head of the Ottawa Office, Option consommateurs: Madam Deputy Chair, Option consommateurs was founded in Montreal in 1983 as a not-for-profit association whose mission is to promote and defend the interests of consumers and to ensure that they are respected.
Over the years, Option consommateurs has developed expertise in the area of financial services, health and agrofood, energy, travel, access to justice, commercial practices, debt and privacy.
With me today is Michael Janigan, General Counsel for the Public Interest Advocacy Centre, a not-for-profit agency with head offices in Ottawa. Founded in 1956, PIAC provides legal and research services on behalf of consumers who do not have the resources to actively participate in decisions involving the delivery of important public services.
For over three decades, PIAC has played a leading role in the regulatory action taken by the energy, air transportation, telecommunications and financial services sector. Our two organizations will be making a joint presentation.
PIAC and Option consommateurs took part jointly in the public debate on changes to the Competition Act arising from Bill C-10, both in the media and in hearings before the House of Commons Finance Committee.
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While the bill before us was not perfectly tailored for the needs of consumers, it represents a genuine attempt to make the promotion of competitive markets and enforcement of prohibitions against anti-competitive conduct a priority.
We maintain that stakeholders are a broader group than shareholders. According to the Conference Board of Canada, consumers account for over 60 per cent of GDP. Therefore, it can be argued that they are the prime stakeholders, since they buy the products and services offered by suppliers. The regulation of markets and products is therefore intimately related to the role of government in maintaining a balance between consumer and producer interests.
As early as 2002, the House of Commons Industry, Science and Technology Committee issued an extensive report on competition policy that touched on many of the legal developments contained in Bill C-10. For example, it recommended the two-track system of criminal and civil enforcement with more rational standards.
In 2004, many of the committee's recommendations were reviewed by the Organisation for Economic Co-operation and Development, OECD, in their comprehensive report on Canada's competition law and policy. Among other recommendations, the report green-lighted such reforms as the two-track approach to anti-competitive conduct with accompanying toughening of monetary penalties and private party access. Since I am not a lawyer, I will pass it on to Mr. Janigan.
Michael Janigan, Executive Director/General Counsel, Public Interest Advocacy Centre: With respect to Bill C-10, we wrote to the chair of the Senate Committee on National Finance, the Honourable Joseph Day, with copies to the committee members, regarding our views about Bill C-10 prior to its passage. We informed Senator Day that, first, the proposed amendments, while quite comprehensive, have been the subject of considerable past discussion among stakeholders. Finally, they represented a fairly balanced approach on necessary refinements to the act.
As we noted in our letter of March 4, 200:
Yet while the changes to the framework, powers, and procedures are likely to be very effective in helping the competition authorities achieve the objectives of the Act, they are, in fact, provisions that have been much discussed and lauded by significant national and international authorities. The government has apparently realized that their adoption by Parliament could represent a much needed boost to competitive markets and a substantial deterrence to job destroying anti-competitive conduct.
The present amendments also complete the reform of provisions on misleading advertising or deceptive marketing that has been the consensus for over two decades. These amendments will help the competition authorities address this abuse in an economic and administrative fashion. By so doing, the intent of the provisions will be more efficiently enforced and appropriate sanctions meted out that are commensurate to the conduct of the offending advertiser.
Naturally, there has been an effort to bolster the effectiveness of non-criminal enforcement procedures to encourage compliance, including more realistic maximums on administered monetary penalties and some new rights for complainants. This package of amendments places appropriate emphasis on the importance of deterring anti- competitive conduct, particularly in the current difficult financial environment.
It is essential that the committee understand that these amendments are designed to make markets work better and to protect the legitimate interests of consumers and suppliers on open markets. These amendments will act as a deterrent to practices that entail conduct that subverts the operation of a competitive market and that prevents the existence of an informed marketplace of customers; and, finally, the ability of suppliers to challenge dominant players with new products and services.
In terms of looking at this legislation as to who wins or who loses, I would note, honourable senators, you generally never get to hear from the businesses that need this kind of protection. For example, you will not be hearing from the independent business person who has used the family assets to finance a new business only to see it crushed by the actions of suppliers of the new business, at the instigation of a market incumbent.
You might read about a scam luring shoppers to purchase a wonder product that is misrepresented and misdescribed, but you will never see before you the pensioner who has had to cut back on necessities because she fell for the scam. She will not be here to tell you that what happened to her is an acceptable risk that allows more creative advertising to take place.
You will not hear from the parties complaining about increases to maximum penalties, that the existence of dollar amounts sufficiently robust to deter the largest of businesses from breaching the act will probably prevent more bureau files from being opened because of business self-policing to avoid such sanctions.
It is of highest importance that senators understand that deterring anti-competitive conduct as proposed here is not the heavy hand of government in operation. Instead, it is supportive of open markets and less regulation. The fact is that a lot of money can be made by misleading the public or unfairly stacking the deck against competitors. Unless government has the tools at hand to prevent such conduct from being rewarded, three unfortunate things will occur. First, informed choice and possible innovation will be stifled; second, possible inefficiency in the delivery of a product or service will occur; and third, incumbents will have little incentive to curb behaviour.
That is not to say that everything was perfect in these amendments. We would have preferred for the exemptions under the merger sections to be examined and reviewed. These allow some business arrangements that may hurt consumers. They are allowed to subsist under the total welfare test for efficiencies as long as such agreements or mergers provide an aggregate benefit to shareholders that is greater than the harm in the form of loss of choice and higher prices. The reason we have not made the test one of consumer welfare is a combination of muddled economics and old-fashioned protectionism that should have vanished in our current economy. Our businesses do not need to be able to merge or work in collusion to be competitive with continental and world rivals. We got over that hump in the 1990s and do not need it now for Canadian business. Mergers and business agreements or concerted action with anti- competitive effects should provide a net benefit to consumers or be disallowed.
As the members of the committee may know, consumer groups, including our own, are active in ensuring compliance with consumer protection laws by way of class actions. Most of these cases are settled or adjudicated with the provision of a percentage of funds to consumer or public interest organizations to carry out education or similar proactive work around the issues in play in the litigation. It is good public policy to have the wrongdoers pay for attempts to stop other wrongdoers.
It is likely that, in the future, civil remedies under this new legislation may be pursued in preference to class actions in provincial courts. In our view, it is important that the use of any leftover funds associated with restitution be directed to enhance the ability of consumer advocates to increase their ability to exercise vigilance to prevent abuses similar to the ones that triggered the cause of action.
We are prepared to take your questions.
Senator Oliver: I would like to go to one of the very last things you mentioned, and that is class actions. Other witnesses appearing before us have said that with Bill C-10 and the change in the test, it seems the floor will now be open for a flood of new class action lawsuits. You do not seem to think that. You said that other civil remedies will be used.
What other civil remedies did you have in mind that will be used instead of a group of people bringing a class action?
Mr. Janigan: In this case, it is the circumstance of the commissioner seeking restitution for misleading practices, in which case there is a class of individuals that will be benefited by that restitution. In that circumstance, instead of a class action that may be commenced under provincial legislation in, for example, Quebec or Ontario, you may see the entire thing get rolled into actions by the Commissioner of Competition that may have the same effect. In that circumstance, we would like to see the same kind of result that occurs in many class actions now, which is that any money left over that has not been compensated to consumers be directed to the use of organizations that deal with these issues on a day-to-day basis and that try to prevent wrongdoing.
Senator Oliver: Restitution has been available before, but now it is codified and it is there, so the tribunal will have the right when requested to have that as one of the possible remedies. It will vary based on the facts of a particular case.
Do you think there will be a lot of new class action suits as a result of these amendments?
Mr. Janigan: It is just too early to say at this point in time. Certainly, class action has been a burgeoning field over the last 10 years.
Senator Oliver: Have you brought them yourself and, if so, how many class action suits have you been involved in, in this area?
Mr. Janigan: No, we are not in a position as an organization to bring actions. From time to time we have advised clients on different issues associated with actions that they brought, the last one being on financial instruments, but we are not in a position to actually bring actions, because they involve a level of legal work that we do not have the resources to provide.
The Deputy Chair: Are there other questions?
You made a very good presentation. I agree with you on the fact that you represent probably a larger number of people, meaning consumers, and we will look at what we can review and strike a balance between those who are selling and those who are buying. We thank you for your recommendations.
(The committee adjourned.)