Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 33 - Evidence
OTTAWA, Wednesday, March 13, 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 3:45 p.m. to give consideration to the bill.
Senator E. Leo Kolber (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I see a quorum. We have two groups of witnesses.
Our first witness is Mr. George N. Addy, who also happens to be a former commissioner of the Competition Bureau.
Mr. George N. Addy: Honourable senators, I have not prepared a formal submission for the committee. However, I have provided to the clerk the formal submission that I made to the House of Commons committee considering the bill.
[Translation]
My remarks will be mostly in English but I'll be glad to answer in French the questions you may have after my presentation.
[English]
I am here, Mr. Chairman, to share some observations as a lawyer who has advised clients, big and small, including the commissioner's office, as a former commissioner, a competition policy advocate and a former business executive.
I will only speak to Bill C-23, which is what the committee is considering. I had provided to the House committee some additional amendments they might wish to consider that did not clear the gate and are not included in Bill C-23. If honourable senators are interested, that submission is with the clerk.
The remarks I will be making today are not meant, in any fashion, to qualify any views or thoughts of the current commissioner, the staff or the bureau. I have the utmost respect for Mr. Von Finckenstein and the bureau officials and I appreciate the challenges they face on a daily basis.
My principal concern with the bill relates to the overemphasis on what I term ``enforcement efficiency'' and the movement away, in some cases, from a focus on competition to a focus on competitors. I should like to focus first on the lack of an appropriate balance between the need for enforcement efficiency and the rights of individuals to be protected from inappropriate intervention by the government into their business affairs, as a result of legal tests or thresholds to be met prior to enforcement action being taken under the act.
Second, there is a lack of balance and due process in the mutual legal assistance provisions of the bill, the MLA provisions. I raise an issue in relation to the deceptive prize notices provisions and also a lack of fairness in allowing only the commissioner to unilaterally refer a matter to the tribunal under proposed section 124.2.
First, with respect to the MLA, I believe mutual legal assistance is a good thing. When I was commissioner in 1994- 95, I tried in the last round of amendments to include mutual legal assistance, but an intervening Airbus decision cast a juridical cloud over the issue and it was dropped. However, I am a great believer in mutual assistance and I am glad to see that revived now.
When the committee considers the mutual assistance provisions, it is important to keep a few points in mind. One of the cornerstones of any MLA mechanism, including the one in Bill C-23, is reciprocity. Canadians have been, are and will be in the future, victims of foreign anti-competitive activity. That activity can only be addressed with the assistance of a foreign agency. It is a good thing for Canadians to be able to rely on an instrument such as an MLA.
Second, the reality of competition law is that not all authorities are independent of their respective governments, nor are all competition laws the same. There is usually ample room for differing interpretations of statutory language. In addition, the scope for the exercise of enforcement discretion in setting enforcement priorities is usually quite broad.
The third point to keep in mind when thinking about the MLA scheme is that Bill C-23 establishes a means for the commissioner to exercise enforcement action against Canadians at the request of a foreign government. Information gathered from Canadians will then be transmitted to a foreign competition agency. As tightly as one might try to craft any type of mutual assistance agreement, ultimately, we will not control what goes on in that foreign jurisdiction. Canada does not control what happens to the information once it leaves this country. However, we can control the issuance of orders by our courts against Canadians.
[Translation]
I mention this at the outset to underscore the importance of the determination to be made by the Minister of Justice in clause 30.01.
[English]
In my view, it is not in our national interest to subject Canadians to enforcement action at home at the behest of a foreign agency or government, unless we are sure that they will not be at any legal disadvantage relative to similar proceedings in Canada.
A fundamental precondition to any type of mutual assistance agreement is that Canadians potentially subject to foreign enforcement or foreign-driven enforcement action should be no worse off as a result.
I draw honourable senators' attention in this regard to proposed section 30.01. The language of 30.01(a), as presently drafted, is worrisome, particularly the part that reads:
...regardless of whether the conduct is dealt with criminally or otherwise;
If conduct is considered reviewable in Canada, and by that I mean a non-criminal practice that may or may not be unlawful, depending on the circumstances, but is considered a criminal offence in the foreign agency's jurisdiction, then I question whether a compulsory process should be available. The provision is worrisome because it seems to suggest that consideration of whether the foreign activity is criminal or civil is irrelevant.
Intervention by government, by search warrant or order for production of documents or oral information returns, should not be undertaken lightly, in my view. Even though, from a competition policy perspective, I may find that conduct underlying a foreign request for assistance, if true, to be offensive, I am more concerned about the inappropriate use of compulsory process by the state than the continuation of anti-competitive behaviour abroad.
I would rather see anti-competitive practices allowed to continue unchecked in a foreign country than sanction our government's use of compulsory process in a manner that does not respect due process or preserve the legal rights of Canadians.
I suggest that the MLA scheme suffers from two fundamental flaws. However, they are not irreparable. First, the legal tests and thresholds to be met in order for enforcement action to take place do not provide an appropriate balance between the need for enforcement and the rights of individuals to be protected from inappropriate compulsory process.
Second, by failing to enshrine some form of notice in the provisions, it does not allow for due process. This requirement for procedural fairness is fundamental to our legal system, as honourable senators are well aware. The notion of due process is being specifically included in agreements the government enters into with increasing frequency.
In the latest, yet-to-be-completed version of the draft FTAA text that I have been able to locate, those specific issues of transparency, non-discrimination and due process are included. We are incorporating them into our treaty obligations. They also surfaced most recently in the Doha Declaration.
In my view, transparency and due process suggest that the MLA regime should not be exercisable on an ex parte basis, except in exigent circumstances. The scheme as we have it now is reversed.
Mr. Chairman, I have set out an example in my document. If you permit me, I can walk you through an example of how the MLA scheme would work in practice, so that honourable senators may have an appreciation of what it means for Canadian enterprises.
Assume that we have entered into an agreement under this regime with Brazil. Assume that you are a senior executive with Bombardier, perhaps the CEO. Assume one of the other committee members is an avionics supplier to that company. An employee of a competitor, say Embraer, or perhaps someone else, files a complaint with the Brazilian authorities alleging that your company has engaged in inappropriate behaviour in Brazil. The Brazilian authorities prepare a declaration that they believe that complaint is valid. They fire it off to Canada. They claim in their complaint that you have knowledge and that there is information within your company that would assist in and support their investigation. The authorities would forward that request to Canada. The Minister of Justice would verify that, indeed, we do have a treaty in place with Brazil, and then transmit the request to the commissioner for action.
What happens then? The commissioner then goes to court, without your knowledge, and seeks orders, potentially including search warrants, document production orders, orders requiring an information return, or an order requiring you to show up and be examined under oath.
There you are in your office on Monday morning. The commissioner's representatives come in and serve you with all this process. They seize documents from your desk, the plant and so on. They serve you with the order directing you to attend to be questioned under oath. You do not know what this is all about because there is no obligation for them to share with you any of the Brazilian authorities' declaration proceedings. You are not quite sure what is going on. All you know is that you have an order to show up.
As they leave your offices or your plant with documents, they happen to take away some that originated with this avionics supplier of yours. You are annoyed and you want to see what action can be taken. The scheme as presently drafted indicates there is very little you can do. Frankly, you are out of luck.
You attend at the date, time and place ordered to be examined under oath. You may be told that you are not entitled to have counsel present. There is no provision for representation by counsel. You may be told — and it happens on occasion — that the commissioner's representatives or counsel will allow your counsel to attend. More often than not, that is as an observer as opposed to any full counsel role.
In addition, because you have been so preoccupied with the order and its implications for you and your business, you forgot to tell your avionics supplier that some stuff has been seized from your plant and may be subject to an order shipping it abroad to Brazil. He does not even know about the events and does not know about your being examined under oath.
During the examination, you are asked questions about your business affairs in Canada and in Brazil, and those, probably, of your avionics supplier, who, by the way, is not in the room, is not represented, and may not even know that all of this is taking place.
Having been examined, you leave with the suspicion that this process may be used for something other than legitimate anti-competitor or competition-enforcement purposes and ask your lawyers what you can do. You want to appeal. The grounds for appeal are very limited under the provision. Again, you are out of luck.
At the end of the process, by the way, a report is made to a judge on the execution of the search warrant, the production of the documents, the information return and the examination of witnesses. You do not get to see that report. You do not know what the judge is being told about all of this process and how it was conducted.
The judge to whom that report is made authorizes the transmittal of the seized information to the foreign requesting agency and may include terms and conditions in that order that safeguard the interests of third parties or persons claiming an interest in the material or documents seized. Again, the flaw is that the third parties, such as your avionics supplier, who may have an interest in those documents, may not have any idea that any of this is happening.
Later on, you are reporting on these events to your board. You ask how much it actually cost your company to comply with what you perceive to be a spurious request from Brazil. You are told it is $150,000, because of data runs and so on. You realize that you cannot even send Brazil a bill for that.
In my example, the company is actually the subject of the complaint, but these provisions can also apply to third parties. You may have to go through all this process even though your company is not the one accused of acting anti- competitively in Brazil.
All of this is in relation to activity that we, in our legislation, have judged not to be criminal. This relates to reviewable practices. I have sketched an example that some have suggested is deliberately inflammatory — so be it. However, I do not think it is out of the realm of the possible.
I could have crafted one that dealt with softwood lumber with the U.S., pasta with Italy, and the list goes on. There are a host of scenarios where some of these issues might create concerns.
The process that we have established for the civil side — the commissioner said as much when he testified before the committee — mirrors the criminal practice. That is exactly my problem with it. We are not dealing with morally reprehensible behaviour here and criminal law; we are dealing with things that may or may not be reviewable practices under our legislation. Yet the process we have put it in place does not enshrine, in my view, a basic component of due process and procedural fairness — notice. Why should the commissioner not have to tell someone that he or she is going to go to court to seek an order for a warrant, production of documents, et cetera? I do not understand why notice is such an egregious constraint in the civil context.
I recognize that the commissioner may voluntarily wish to provide all this information to individuals subject to the orders, and more power to him. The problem is that that is not enshrined in the proposed legislation. If the commissioner is faced with a request from the foreign agency, ``Please do not disclose when you are exercising assistance powers,'' he may be hard-pressed to even voluntarily share information. It puts him in a bind.
Lastly, there is no final check before assistance is provided. Nobody ever asks the question: Is it in Canada's best interests to provide the requested assistance in this particular instance?
In sum, the mutual legal assistance regime is flawed because ex parte notice applications are the norm, not the exception. Foreign requests are accepted without any requirement that there be an allegation of a breach of the foreign law, merely that they are investigating. There is no requirement to provide notice to the targets of orders or third parties whose rights may be impacted by them. There is no requirement for a hearing to deal with objections during the oral process. There is no right for any party who may be subject to this process to have access to all of the information in the commissioner's hands that support his actions under the MLA. There is a very limited right of appeal. More importantly, there is no check as to whether or not it is in Canada's best interest to respond in each case.
I want to address very briefly proposed subsection 53(5), which proposes to impose liability even on those with no personal knowledge of or involvement in the offence. This is the deceptive notices provision. The Canadian Bar Association made a submission before the House committee suggesting that that be struck, and I agree. I have some difficulty with criminal liability attaching to people who do not have actual knowledge.
There may be a broader issue here that the committee may wish to consider — that by imposing this type of liability you will instil greater compliance with the law. I do not know if that is still valid. We are seeing it quite frequently in other legislation now. The corporate process, as honourable senators will know, will be that the board will ask the senior management, ``Give us the quarterly or monthly check-off that we have not violated any securities laws, any environmental law,'' and so on. They will now add this to that checklist. I am not sure whether that will actually change conduct within enterprises. I am not putting any faith in this type of a provision to enhance compliance. That is a much broader issue honourable senators may wish to study on another occasion.
The third element I wanted to touch on briefly is the consent order process. Bill C-23 varies the current process and the current approach. In the current act, when an application for an order is made to the tribunal, the terms of which are agreed to by the commissioner and the party in respect of whom the order is sought, the tribunal has the right to review the order and, if satisfied, make the order on those terms. The proposed amendment in Bill C-23 removes the tribunal's discretion to review a consent order and basically turns it into a filing, or rubber-stamp process. It will be effective on filing. It may well be that a judge will never see it, that the registrar will stamp it and away it will go.
Proposed section 106(2) says that a third party can apply to the tribunal to rescind or vary the order within 60 days of its issuance. There are two weaknesses with that. First, the third party's right can only be based on a lack of authority of the Competition Tribunal to issue the order in the first place, not that the remedy is excessive or that an alternate remedy may be more pro-competitive.
Second, I have some questions as to how a third party would even know that an order had been issued. In the private access provisions of Bill C-23, proposed section 106(1) says that consent orders arrived at in a private access action are not effective on filing, but 30 days after publication of a notice. Thus we have a notice provision. Strangely enough, there is a mandatory notice provision in a private dispute, as I understand it. However, there is no requirement to publish a notice in public interest litigation. That may be addressed in due course under the regulations. However, I have not read any statements by the commissioner or anyone else that deal with that issue. When the commissioner is exercising that type of public interest responsibility, there should be some opportunity for public input in the context of that consent order.
I recall discussing with some of my predecessor commissioners their annoyance at being criticized for doing backroom deals. This may also lead to that type of suggestion by not allowing for some formal public input into the consent orders.
My last point deals with references to the tribunal. Proposed section 124.2 is a positive addition that will allow matters to be dealt with discretely and will hopefully speed up the process. The one question I still have on that provision is that it allows for a reference to the tribunal jointly by the commissioner and a person who is the subject of an inquiry, or unilaterally by the commissioner only. I do not see why we should not also have a provision that would allow unilateral access to the tribunal on that type of issue by the targeted party. This is another example in my theme of enforcement efficiency over due process or balance.
That is all I had by way of opening comments. Thank you.
Ms Tamra Thomson, Director, Legislation and Law Reform, Canadian Bar Association: Honourable senators, the Canadian Bar Association, and in particular, the National Competition Law Section, is very pleased to have an opportunity to appear before this committee today on Bill C-23.
The CBA is a national organization representing over 37,000 jurists across Canada, approximately 1,400 of whom are members of the competition law section. Our primary objectives include improvement in the law and in the administration of justice. It is with those objectives in mind that we have prepared the submission that honourable senators have in front of them and the optic with which we make our remarks today.
With me today is Mr. Kennish, who is chair of the Competition Law Section. I will ask him to address the substantive issues raised in the submission.
Mr. Tim Kennish, Chair, National Competition Law Section, Canadian Bar Association: Honourable senators, as Ms Thomson said, we very much appreciate this opportunity to make known our views about Bill C-23.
Our section presented a broader submission to the House of Commons Committee on Industry, Science and Technology last fall on the bill as it was originally introduced. Some of our submissions were adopted and some were not.
We recognize that there is probably a practical limit to the number of points on which we might persuade you. Thus, we have tried to confine ourselves to those that we thought might be of particular interest and importance.
That list has been further compressed by virtue of the fact that, somewhat unusually in the legislative process, amendments to the bill were introduced after we had made our submission. Until now, we have not had an opportunity to present our views on those. Two of the submissions relate to what were, effectively, new provisions in the bill after our initial submission.
Our section is generally in favour and supportive of the package of amendments in Bill C-23. On balance, we think it effects improvements in the law. Still, there are some areas where we think these provisions can be further improved, and we should like to comment on those.
Mr. Addy mentioned the mutual legal assistance regime contemplated by the bill. We also applaud that initiative, but there is one area where we continue to have concerns. While we generally support the international exchange of information between law enforcement agencies in Canada and elsewhere on the civil side, which has not been the case heretofore, we are worried about doing so in respect of information that relates to mergers. This is typically very sensitive business information that would include the specific strategic plans of the corporations involved, as well as some of their key historical information. The exchange of such information warrants the greatest degree of protection that can be afforded to confidential information.
If parties are concerned that the information provided to the Competition Bureau might find its way unrestricted into the hands of third parties, it might inhibit them from participating in future merger activity.
We are aware that some other jurisdictions are not as respectful of business confidences contained in these information exchanges as we would like them to be. In some extreme cases, there have been instances in which foreign enforcement authorities have made the information provided available to merger opponents and competitors.
That is likely why the United States antitrust authorities are not allowed to share Hart-Scott-Rodino filings that relate to mergers without first obtaining a waiver from the parties. The European Union follows a similar practice before releasing merger filings with other countries. We think the Canadian bureau should be similarly limited in the release of information. In other words, they should have to secure waivers from the parties before being allowed to provide information to other jurisdictions that are also examining the same transaction. In that respect, I can say from personal experience that parties seldom refuse reasonable requests for waivers from jurisdictions that are respectful of this kind of confidential information.
The second point relates to one of the new provisions in the bill that was added by the Industry Committee. Proposed section 79 would amend existing subsection (3.1) to permit the Competition Tribunal to order the entity — effectively, in this case, Air Canada — to pay an administrative penalty of up to $15 million in connection with its making of a determination of abuse of dominance under the act.
That raises two concerns. First, this is a further step in the direction of using the Competition Act, which is intended to be the law of general application — framework legislation, if you like — to regulate particular industries. In this case, it is an even tighter application because only one industry competitor is affected.
That reflects a discernable trend. The act now contains specific provisions dealing with travel agents and airlines, and the bureau has released guidelines dealing with the retail grocery industry and bank mergers.
Our view is that the bureau is not really qualified to undertake the role of sectoral regulator. Involving the bureau in this kind of activity, which is more likely to relate to high-profile and unpopular industries such as banks and airlines, may also indirectly undermine the public perception of their independence.
Second, this administrative fine is being imposed in respect of a civil reviewable practice. The act has separate criminal and civil provisions. A large number of the civil provisions are reviewable practices. The concept behind ``reviewable practice'' is that typically, it is a business activity that may not be inherently bad. Depending on the circumstances, it may have an anti-competitive effect.
The approach is to allow for the matter to be brought before the tribunal. The tribunal examines the business practice in the context of the facts and determines whether it crosses the line into anti-competitive behaviour. The tribunal then prohibits the anti-competitive behaviour and that company is forbidden to engage in such activity in the future. However, it does not impose any sanctions on past behaviour. This would impose the potential for fines or penalties for behaviour that was engaged in prior to the determination of unlawful activity.
Moreover, the penalty consequence contemplated, $15 million, is $5 million more than the maximum fine for criminal price-fixing under the Competition Act. However, it is not really a question of the appropriate amount. We are opposed to the penalty being visited on this kind of reviewable conduct at all. It is civil, and as I say, the concept is that it is a lawful activity until determined to be otherwise after examination of the facts, after which it is forbidden for the future.
On a broader front, we are worried about such provisions because we believe it will promote the adoption of administrative fines for other reviewable practices and will inhibit businesses from engaging in these kinds of activities, most of which are normally pro-competitive, such as, for example, exclusive dealing.
I understand that there has been considerable discussion before this committee on interim orders. Our point on interim orders is a fairly narrow one. The bill contains an important provision permitting a person against whom an order is made — the respondent — to request the Competition Tribunal to review the order, which it must do within 10 days of its coming into effect. These orders are typically made ex parte or on very short notice. The Competition Tribunal must determine whether one or more of the preconditions to making the order has been satisfied.
These are: harm to competition; the prospect of elimination of a competitor; prospective harm to a competitor.
In these circumstances, the bill does not specify who has the burden of proving the point in the application for review. We think it clearly should be the commissioner. He is the one who should bear the burden of upholding and continuing the order. Otherwise, there is effectively a reverse onus. The respondent in an ex parte order situation has been presented with an order that was granted in a hearing at which he was not present and has 10 days to bring the matter before the Competition Tribunal to have it reversed. Traditionally, it is the party that obtained the ex parte order who is required to support its continuance. We should like to see that made explicit in the relevant subclause, 103.3(7).
A further issue relates to the standing of persons who may be affected directly by a temporary order. The bill grants automatic standing to people in that category, which permits them to present evidence and make representations. We think this could be counterproductive and substantially slow down proceedings before the tribunal.
We think that the rule that has been established for interveners in competition proceedings elsewhere is more appropriate. That would limit the right of persons in this category to have standing and to participate in the proceedings to those whom the competition tribunal, in the exercise of its discretion, thinks appropriate.
To give you an example, 140 different people might be directly affected by an interim order in a similar way and have nothing substantially different to say about the matter. However, under this scheme, any one of them could insist upon being heard.
Another point that is also fairly narrow, but important, relates to the consent agreement arrangements under the bill. The consent agreement provisions can be varied or rescinded if circumstances change. A party can apply to have that order rescinded or varied. The bill does not provide for any kind of record of the changed circumstances or historical background to be filed.
As is the case currently with consent order arrangements, where the commissioner files a statement of grounds and material facts, the bill ought to be amended to provide for a similar filing. In the future, therefore, if someone wishes to bring an application for rescission or variation, there would be some evidence of the changed circumstances.
The Chairman: In the interim orders section, you did not discuss 104(1) of the bill. I know it is technically not before us, but do you have any opinion on that?
Mr. Kennish: I am here, Mr. Chairman, in a representative capacity. Our section established a task force that presented these comments that you now have. We did make some other submissions to the Industry Committee. The ones that you have are the ones that our group agreed to present to you. I cannot really speak on behalf of the association about other issues.
The Chairman: You are here representing the association, are you not?
Mr. Kennish: I am, but we have an agreed submission that is reflective of a working group to which I was not a party.
I am happy, in my personal capacity, to give you my thoughts on that.
My final point relates to private access provisions that were added to the bill by the Industry Committee, and specifically to proposed section 75, which permits an order to be made in respect of refusals to deal. That will now allow private parties to seek authority to obtain such an order, not just the commissioner. The important thing here is that heretofore, there has been no requirement in obtaining an order to establish a material adverse competitive effect from the refusal to supply or the refusal to deal. We submitted to the Industry Committee that there should be a requirement to show substantial lessening of competition before such an order is made. It has not been a problem up to now because the commissioner has only invoked this authority in circumstances where there has been adverse competitive effect.
In partial response to the submissions that we, and others, made, the bill was amended to provide that an adverse effect on competition had to be shown. However, it is very simple to demonstrate any adverse effect on competition. The standard in the act for other civil provisions is a requirement for substantial lessening or prevention of competition. Therefore, we are advocating that this threshold be elevated from merely an adverse effect on competition to demonstrating that there would be a substantial effect of that type.
To give honourable senators an example of where this provision could have application, any distributor who was eliminated from a distribution network might claim that that will reduce the number of competitors, where it may simply be a more efficient product delivery structure and, in fact, pro competitive. We are advocating that the word ``substantial'' be added there.
Senator Meighen: Mr. Kennish, many people seek your opinion, and some actually pay for that. Of course, I do not have to do that today. I should be grateful if you would give us your personal opinion, taking off your hat as a representative of the section.
Mr. Kennish: Could the chairman reiterate the point on which he specifically wanted me to respond?
The Chairman: Clause 104 (1) gives the commissioner the right to obtain an ex parte order without proving anything. It need only be something questionable in his opinion. It has struck some honourable senators that this is wrong.
Mr. Kennish: I share your concern about that.
The Chairman: I am somewhat thunderstruck that it is not mentioned in your submission.
Mr. Kennish: I cannot speak to why it is not a specific point.
The Chairman: I am not asking you to speak to it. I am simply telling you that that is my reaction.
Senator Tkachuk: What is your answer?
Mr. Kennish: I share a concern that the standard is too low. It introduces a process that will continue for some time and involves the respondent in reacting to an initiative for which a very strong case may not have been made.
Senator Meighen: You commented at some length, rather critically, on 79(3.1). That clause was introduced after your submission; is that correct? Some refer to it as the ``Air Canada provision.''
Mr. Kennish: Yes, it was. The Industry Committee added that to the bill after we, and others, had made submissions to the committee and before we had an opportunity to comment on it further.
Senator Meighen: Do you have any information to share with this committee as to why it was added then, and whether it was added in response to any evidence that was heard?
Mr. Kennish: I have no information in that regard.
[Translation]
Senator Poulin: I would like to than our three witnesses to be here today. As you know, we are carefully considering the proposed changes to the two laws regulating competition in Canada.
Mr. Addy, if I am not mistaken, you have been in the past Commissioner of the Competition Bureau?
Mr. Addy: You are right.
Senator Poulin: Which years where you a commissioner?
Mr. Addy: I managed the Merger Review Branch from 1989 until 1993. Afterwards, in 1993, I became Director of what was then called the Research and Enquiries Branch, until 1996.
Senator Poulin: Were the roles and responsibilities of that position the same as today?
Mr. Addy: Yes.
Senator Poulin: Only the title changed in 1996?
Mr. Addy: Yes.
Senator Poulin: If I understand correctly, you practice today commercial law?
Mr. Addy: Yes, I have gone back to practicing law.
Senator Poulin: I would like to get a clear picture of the commissioner's governance philosophy.
[English]
I should really like to understand your views on certain issues that we have discussed in the last few weeks, including injury to competition, loss of market share of a company, loss of revenue of a company, structural performance and contestability of markets. In your opening remarks, you noted that these changes to the existing act move us from a competition focus to a competitor focus. I should like to hear your governing philosophy.
Mr. Addy: My vision, if you will, of the role of the commissioner is that of a public official who is trying to enforce legislation dealing with market dynamics in the public interest.
I view the commissioner as more of a border guard than a coach. He is there to police the boundaries between acceptable and unacceptable behaviour.
I do not think that the commissioner, or his office, as well-intentioned and hard working as we were then and still are today, can ever be sufficiently expert in all areas of the economy to be able to second guess many other people who are involved in day-to-day commercial activities.
That is a broad overview, and Mr. Kennish flagged one of the provisions. Provisions that are narrowly focused on a sector or on the particular circumstances that an individual competitor may be facing at a point in time put the commissioner and the bureau in a very difficult position. It is very difficult to not make a bad decision.
One of the most difficult challenges in that job is trying to remain alert to that line between the competitive forces in the market and the interplay. People will come and go. Competitors will lose market share; they will lose money. They will be squeezed out of the market. That is the way competitive markets work.
It is a constant challenge, in that position, to ensure that you are focused on the right level, of the dynamics of supply and demand, as opposed to particular stratagems of individuals.
Senator Poulin: As a commissioner, were you concerned about your information limitations?
Mr. Addy: Not particularly. It depends on what you mean by ``information limitations.''
There were ways of obtaining information. If you are focusing your attention on the big picture and the larger schemes, all data, frankly, has holes in it. As we have seen in the post Enron environment, what people might think of as accurate financial statements may not be revealing or insightful. There are problems with data all the time.
Did I ever feel that I did not have enough information to do my job? No.
Senator Poulin: How did you distinguish between a loss of revenue that was linked to ordinary competition and a loss of revenue that was linked to anti-competitive behaviour? Do you feel that we should be concerned about the loss of revenue for any given firm or industry?
Mr. Addy: The focus would not be on trying to track down loss of revenue to a sort of minute level. It can be an indication that a company is just not competitive any more. They may not be earning their customers' dollars any longer and suffering the consequences.
On the other hand, they may be the victim of abuse by a dominant player. You have to roll up your sleeves, get into it and make the best decision you can. That is what the job is all about.
Senator Tkachuk: I would like to follow up on the Air Canada provision, and then I wish to address a couple of other matters.
This bill should be about preserving competition. I have some concerns about some particular provisions of the bill, the penalties imposed and the requirement for the commissioner to act.
At the same time, we have a monopoly here. Air Canada, for whatever public policy reason, has become the dominant player in this country. Do you think that there should be provisions in the Competition Act to address this?
How do we preserve competition when one company holds 85 per cent of the market share? My view is that that was created by government policy. How do we redress it?
Mr. Addy: To get straight to the point, I do not like clause 104(1). I do not think it is appropriate for the commissioner to become an airline regulator and I fear that we are running into that with the present regime.
We have a history in Canada of markets that are not competitive by virtue of policy dictates or otherwise regulating them. We see that in the telecom industry and in several others, such as pipelines. I am not the one to make the policy decisions here.
However, when we see the drain on the commissioner's resources and staff today in trying to cope with the Air Canada issue in the proceedings before the tribunal, trying to become experts in airline costing — what is an avoidable cost, what are acceptable depreciation rates on airplanes, turnover time for refits and all of that sort of stuff — I feel that the bureau is not the place to be getting into that level of detail. The drain on their resources in just trying stay current with what is going on must be phenomenal.
Senator Tkachuk: I feel sorry for them, but at the same time, we have a question of competition in a market economy. The Americans broke up a monopolistic telephone company into — I do not know how many — five or six pieces, because they believed the consumer was no longer being served.
Air Canada — and we discussed moral hazard in relation to the banks — is such a dominant player that they can go into the marketplace, believing, I think, that they can put other people out of business, even if they lose money doing it, because the government will bail them out. If they believe that — and I think we all believe that the government will not let Air Canada go down — management will behave in that manner. That puts WestJet and other small companies at a tremendous disadvantage because they know that if they go broke, it is over. How do we resolve that issue without taking extreme measures? It is a problem. If we take that provision out, I know what will happen.
Mr. Addy: I have two comments in response to that. It is a very complex issue, as you recognize. First, Air Canada's market position today is partly enhanced by virtue of other policies that are protecting that market. Typically, the bureau looked at commercial markets and the flow of trade in defining the geographic market.
That boundary has been artificially drawn in the airline industry by virtue of policies that prevent cabotage. By way of example, other competitors might be interested in offering service. Maybe American Airlines would like to fly the Toronto-Vancouver route and compete with Air Canada. Who knows? However, by virtue of some policy decisions, the market has been artificially cut off at the border. One thing to bear in mind is that you are not comparing this to a completely open market, where a company has gradually worked its way up to an 85-per-cent threshold.
The second point relates to the confusing roles that we are now placing on the commissioner and his staff. With the cease and desist power, for example, the commissioner is now investigator, judge and jury. I would be uncomfortable in that position, frankly.
Some people have argued that we need that remedy because of the urgency. I do not accept that argument because you can obtain an interim injunction. It is done every day in the courthouses of the country on a day's notice. That still allows us to maintain the balance of judicial oversight that I frankly cherish, and that I think we cherish as part of the legal framework here.
Senator Tkachuk: Turning to the MLA regime, on page 4 of your brief you give the example of Bombardier and the Brazilian company and you go on to say, ``If you were being questioned in front of a judge, which can be a foreign judge...'' How does that happen? Do they fly the guy or the girl in?
Mr. Addy: There is a provision that allows the oral testimony to take place in front of a foreign judge. That is how you can have objections to questions determined on the spot.
Senator Tkachuk: How does the bill apply to agreements between countries? Is it a guide and is it the law that governs the agreement? How does it work when the other country's laws may be in total contradiction to ours?
Mr. Addy: At the Commons committee, the commissioner tabled a draft mock-up of what one of these agreements might look like. The Attorney General, who has the nominal lead in negotiating these things, would analyze the foreign law and determine under proposed section 30 whether it is ``substantially similar'' to the Canadian law. In doing that, they would look at, what is the merger law like? What are the abuse or monopolization provisions like? Are there criminal provisions, and if so, how close are they to our law? If they are substantially similar, then we will enter into an agreement with that state to cooperate and exchange information.
The issue I was flagging was that if we do not consider a practice to be criminal but in another country they do, then I think that is a sufficient dissimilarity that we should not be allowing exercise of compulsory process in Canada against Canadians.
Senator Kroft: There are two or three areas I want to raise. The first is on the so-called ``Air Canada provision,'' the proposed section 104 on which you cut to the chase and gave us a straightforward opinion, Mr. Addy. I was going to pick my way through provisions to see where we might massage, mitigate or find grounds of acceptability in a concept that I otherwise found difficult, but I am really pressed to ask you the direct question or pick up on the comments you made. Is there any point in our doing that?
My view is that that provision is fundamentally flawed in two aspects. First is what I believe you called the ``border patrols,'' which is basically the concept that a police action is not a replacement for a regulatory framework. Perhaps you will be comforted, or perhaps not, to know that when I asked the present commissioner whether he thought we could ever achieve stability in the market by virtue of just the powers in this bill, he said he did not. I do not think you are that far off the same opinion. Nevertheless, he is here as an advocate of the section and you are here as a severe critic.
Is it fair to say that both on the ground that it does not represent a proper policy approach to the needed regulatory environment, and on the ground of the rather uninhibited powers given to the commissioner, you feel this is fundamentally inappropriate? I think you said you would not be comfortable with it. If we take both the fundamental purpose and the techniques away from this section, there is not much left, in my reading of it.
Mr. Addy: You could address it. The better way to go, in my view, from a public policy perspective and given the degree of expertise, knowledge and ongoing involvement that is required in monitoring the airline industry, is to park it at the Canadian Transportation Agency.
If it is kept within the Competition Act, there is a broader issue that Mr. Kennish and the CBA have touched on: how much do we want this framework law to have industry-specific provisions? Putting that aside, if the objective is to maintain something in the Competition Act, then I would argue that the power should not be resident in the commissioner's office. Rather, the commissioner should be entitled to seek an order and should have to apply for that order from the Competition Tribunal, as opposed to issuing it himself.
Senator Kroft: Thank you for that. You have been very clear.
I should like to turn now to mutual legal assistance. I became somewhat confused, because you set out proclaiming a belief in the importance of this type of arrangement, but then you gave what I found to be a rather horrifying example. I do not know whether you were taking it to the extreme in order to make a point, or whether that could quite reasonably happen. I take it that the latter is your view. It is not a wild flight of the imagination, but something that you believe could realistically happen.
Given all of the risks that you pointed out, do you think that we could work our way through that provision and take out all of the things that might lead to lack of due process, or unfair exposure of third parties and all of the other things — let alone accommodate what is criminal in one jurisdiction and not criminal in ours? I am preoccupied with that fundamental issue. By the time I follow you through and take away everything that causes the concerns, it is difficult for me to see what is left. Is there something salvageable in the fundamentals?
Mr. Addy: There is much that is salvageable. I structured the example to illustrate the weaknesses that I see in the system. In my submission to the House committee, I included a schedule, which I left with the clerk, of a clause-by- clause review of the scheme and what changes might be made.
The fundamental issue, frankly, is the one that you have focused on — the criminal versus the civil parity and the lack of notice. If we are dealing with civil conduct, I do not see why we should not allow our normal process to take place whereby parties who may be subject to these orders would be notified that the commissioner will be seeking that type of an order from the court and would be allowed to be heard by the court. Ex parte applications should be the exception and not the norm. That issue is readily addressable.
Senator Kroft: I wish to take you to another aspect of this. Let us use the U.S. as an example, because it is perhaps the most likely and the one that we need to focus on. In a straight civil remedy situation — a private pursuit of a perceived violation of a competitive position — is there any connection with these rights to gather information? Are those only attached to a foreign agency of some sort and not to private parties engaged in a civil lawsuit?
Mr. Addy: The provisions in Bill C-23 limit the use of the information by that foreign agency to its own activities. They are not even supposed to share it with other departments of that foreign government. The information should not be accessible to private parties in litigation. That is the plan.
That is why I think it would be better if we had a full airing of the issues before an impartial arbiter, perhaps a judge. The respondent — the party who may be the subject of this order — can get up and say: ``Your honour, the party requesting this is government X and we know that its agencies leak like a sieve. We are in the middle of a huge trade war with that government's Crown-owned entity, and as a respondent, I have some concerns about what might happen to my sensitive, commercial corporate information if it is transmitted abroad.'' In such an example, if there were notice to the parties, at least there would be an opportunity to raise that type of issue.
I suggested adding a public interest test, because even the Americans have a ``national security'' rider on everything. The Americans even have an out on agreements entered into under their International Antitrust Enforcement Assistance Act, IAEAA. We do not have that. If you had an airing and someone who was able to opine on the public policy or national interest side of it — in the earlier consultative rounds it was suggested that the Attorney General do that, as opposed to the Competition Commissioner — that would be of some benefit too.
Senator Kroft: You have not touched at all on the issue of the private access provisions of the bill. I do not know if you have any views on that.
Mr. Addy: I am on the record as supporting private access, which I sought to introduce in the 1995 round. There was no consensus at that time and so it was withdrawn for further study and analysis. It has come forward again now.
I was the commissioner when I first considered private access, and I grappled with the issue of the resource crunch. For example, I did not see it as a worthwhile expenditure of public funds to finance a dispute between well-financed, multinational enterprises. Why should they not take their dispute to the tribunal directly and not have that funded out of the public purse? That was largely the impetus for raising the issue at that time.
As I understand it, the impetus today is the desire to create an opportunity for small or medium businesses that do not feel that they are getting the attention of the commissioner's office to take action themselves. I am not convinced, but I think it is worth a shot.
Frankly, I am not convinced that this is the appropriate tool. Litigation is very expensive. For a small enterprise to take on its large supplier, for example, in private litigation would be very costly. I am not convinced that we will see a significant amount of litigation.
Senator Kroft: Private litigation works in a particular environment. I am from Manitoba and I do not know what the Quebec and Ontario law societies' governance provisions are on contingency fee arrangements. Obviously, in a purely civil action, where there are remedies measurable in damages, that will enter into the equation. Can you tell me about the Ontario process?
Mr. Addy: In the civil context, there are contingency fees and class actions permissible, but not in this proposed legislation.
Senator Kroft: I did not know if contingency fee arrangements were possible in those jurisdictions and you have answered that.
Mr. Kennish: If I may, the private access issue split the bar, and we were unable to reach agreement. I would say that one half of the professionals who weighed in on this felt that there was a real problem with strategic litigation that could not be dealt with through appropriate provisions and safeguards. Others felt that there were appropriate provisions and safeguards.
There are safeguards in the current bill that address the kind of concerns that people have expressed. There continues to be divided opinion on whether or not we should have these provisions in the bill. The one additional feature we thought important to add was the requirement for some substantial degree of competitive injury before an order could be issued under proposed section 75. I raised that point earlier.
Senator Kelleher: Are there other instances of where this Competition Act is being used to regulate particular industries? Is this so-called ``intrusion'' into the airline industry somewhat unusual?
Mr. Addy: Yes and no, in the sense that I cannot recall another instance — Mr. Kennish might — where provisions have deliberately targeted practices in a particular industry. However, there are provisions that exempt certain industries from the application of the act, for instance, fisheries, professional sports and, recently, travel agents.
Mr. Kennish: That is sort of the companion provision to the airline rules regarding travel agents.
Senator Kelleher: Do you think that it is a good thing that the government is bringing in specific clauses in this bill to deal with specific industries? From answers to earlier questions, I understood that you were not wild about that idea.
Mr. Addy: You are correct. I am not wild about that at all.
Mr. Kennish: I mentioned earlier that we have specifically opposed that on a number of occasions. Section 104 is already in the act. It is being expanded through the addition of administrative penalty consequences. We hope that there will not be a further enlargement of this kind of provision.
Senator Kelleher: Mr. Addy, Mr. Kennish told us about his concern that at the time he made his intervention, a number of the amendments that later appeared in the bill were not there, and he did not get the opportunity to express any views on those before the committee of the House. Were you confronted with the same situation?
Mr. Addy: I was asked virtually the same questions I was asked today on private access and gave the same answers. My written brief was provided to the House committee before this issue arose. I did have an opportunity to speak to it and I have been on top of the issue since the mid-1990s. I was comfortable dealing with it at the committee.
Senator Kelleher: When I hear that at the last moment in the legislative process, apparently out of nowhere, these amendments suddenly appear, I find that before I can tackle that problem, it is useful to try to find out what was the impetus for that. Can you tell me what prompted these last-minute amendments? There must have been some impetus from somewhere. Presumably, it came from a perceived concern by some people who want to remedy some evil. Can someone tell me what the basis is for these amendments in the first place? What were they trying to correct?
Mr. Addy: The best people to respond to that would be the members of the House committee, who are the proponents.
Senator Kelleher: I am prepared to take your answer.
Mr. Addy: My understanding is there was a perception among certain segments of Canadian society that they were not getting the attention that they thought they should from the commissioner. Therefore, they should have the right to take action themselves before the tribunal — end of story.
Senator Kelleher: That has to do with the question of private access.
Mr. Addy: That is right.
Senator Kelleher: What about the other amendments dealing with sections 104 and 103?
Mr. Addy: I really do not have a response to that one. Administrative fines were introduced initially. The concept is found quite frequently, I understand, in Canadian legislation. Parks Canada now levies administrative fines. We have administrative fines in the legislation for telemarketing, or what we used to call ``misleading advertising.'' I cannot recall, frankly, when that provision was introduced into the process leading up to this bill.
Senator Kelleher: After listening to the presentations this afternoon, and those we heard the other day, many committee members have concerns. Sometimes, as a lawyer, I ask myself whether a bill that comes before a committee is salvageable. Is it possible to take care of the major concerns without a laborious rewriting of the whole bill?
Mr. Addy: It depends on what you mean by ``laborious.'' I have included some suggestions on a clause-by-clause basis. On the MLA, the issue is amending the provision that says the applications will be ex parte, and all of those provisions within the new MLA part of the bill, to ensure notice to the parties potentially affected. I do not think that is a significant rewrite.
As for section 104.1, I will leave it to honourable senators' judgment as to whether that is salvageable or not.
Senator Kelleher: From a lawyer's point of view, would this require — forget whether you should do it or not — a considerable rewrite, or can it be done with a few simple amendments?
Mr. Addy: I have read some of the submissions that have been made here. For instance, I was reading one that I believe was from the Canadian Chamber of Commerce on 103. They were suggesting changing the test so that it would be a substantial lessening or prevention of competition, thus taking the market test that appears elsewhere in the act and planting it in that section. I do not think that would be laborious; however, there is a principle at stake here that you have to determine.
Senator Kelleher: I understand that. I am trying to differentiate between the principles and the actual wording. It strikes me, in my simple legal mind, as being laborious. Are you saying that you do not think it would be a substantial rewrite?
Mr. Addy: I believe it can be done.
Senator Kelleher: The bill is salvageable then?
Mr. Addy: I do not think that any of the flaws I have identified are irreparable.
Senator Furey: I have one question regarding private access and the competitive effects test. What are your views on raising the standard from adverse effect to substantial lessening? Do you think that is appropriate for private access?
Mr. Addy: That is consistent with my view of framework legislation. The focus of the legislation should be to target market impacts as opposed to narrow ones. If you narrow it down to an individual impact, you are talking about litigation that is no different from what goes on in normal courts every day.
Senator Furey: Would a substantial lessening test be too high for private access?
Mr. Addy: It is difficult to say outside of a factual context.
Senator Furey: You believe simple adverse effect is somewhat too low?
Mr. Addy: Perhaps it is too low. Mr. Kennish used the example of a distributorship. If you are running a business using third party distributors, and for reasons of efficiency, which is an objective of the legislation, you decide to internalize your distribution function, all of those distributors could fit within these provisions. They would become competitors disappearing from the market, and that would be an adverse effect.
It may be a good thing from an efficiency perspective, but they may still be able to initiate a claim. Do we want to go there?
The Chairman: Would you both support a five-year review?
Mr. Addy: Yes, I would. When we met with the then minister of Industry, we went through the process in 1995, because the history of this legislation is that of review once a decade. It takes years to get it amended. We wanted to have an ongoing, continuous improvement type of model for amending the legislation. An ongoing review, whether it is three or five years, is a good idea.
Mr. Kennish: We are very supportive of regular review and examination of this legislation. We recently met with the commissioner and members of senior management to present our recommendations for changes in the law that came out of our experience with it.
We have established a dialogue on desired amendments. We had not suggested that it be done through a five-year review, but we all seek definite improvements in the legislative process.
The Chairman: Thank you for your presentation. We will reconvene at 10:00 tomorrow morning.
The committee adjourned.