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Canada: Cartel Regulation
Hard-core cartels are subject to criminal prohibitions in Canada under the Competition Act ('the Act'), a federal statute that applies across Canada. The core prohibition is contained in section 45 (the general conspiracy provision), which was amended effective 12 March 2010. In addition, section 46 (implementing foreign conspiracy), and section 47 (bid rigging) may also be applicable depending on the circumstances. 1
Section 45 - conspiracy
Section 45 provides that:
• every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges:
- to fix, maintain, increase or control the price for the supply of the product;
- to allocate sales, territories, customers or markets for the production or supply of the product; or
- to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product; and
• every person who commits an offence under the above-
mentioned subsection is guilty of an indictable offence and liable on conviction to imprisonment for a term not exceeding 14 years or to a fine not exceeding C$25 million, or to both. Section 45 is a criminal offence and, as such, to obtain a conviction, the prosecution has the burden of proof to establish the offence 'beyond a reasonable doubt'.
Unlike its predecessor, section 45 is now:
• a per se offence - it no longer contains a requirement that the agreement or arrangement has or is likely to prevent or lessen competition 'unduly';
• applies only to horizontal agreements or arrangements (ie, agreements or arrangements among actual or potential competitors); and
• on its face, only applicable to horizontal agreements among sellers of products and services (ie, it does not apply to buying agreements). 2 Recognising that the criminal prohibition in subsection 45(1) may have the unintended consequence of capturing competitor agreements that should not be condemned as per se illegal (eg, legitimate competitor collaborations and joint ventures, which may have pro-competitive effects), the Act provides for an 'ancillary restraint defence' ('ARD'). The ARD applies as a defence to a charge of conspiracy under subsection 45(1) where it can be established by an accused, on a balance of probabilities, that the competitor agreement is:
• ancillary to a broader or separate agreement or arrangement between the parties;
• is directly related to, and reasonably necessary for giving effect to, the objective of that broader or separate agreement or arrangement; and
• the broader or separate agreement or arrangement, considered alone, does not contravene subsection 45(1).
Section 46 - implementing foreign conspiracy
Section 46 makes it a criminal offence for a corporation carrying on business in Canada to implement any foreign directive intended to give effect to a conspiracy entered into outside of Canada that would contravene section 45 of the Act if such conspiracy had been entered into in Canada. 3 Corporations convicted under section 46 are subject to criminal fines, which are at the discretion of the Court.
Note that only corporations may be found liable under section 46. In contrast to the position under section 45, directors and officers of a corporation may not be found liable under section 46, although they may be liable under the aiding and abetting and counselling provisions of the Criminal Code. 4
Section 46 is targeted specifically at international cartel activities affecting Canada and permits the application of the Act even in situations where the actual conspirators are not located in Canada. The Canadian corporation is not required to have actual knowledge of the foreign conspiracy. While there have been convictions by way of guilty pleas under section 46, there is serious debate as to whether section 46 would survive constitutional scrutiny insofar as it can result in a conviction of a Canadian subsidiary for a criminal offence where the directors and officers of such subsidiary may not have had a guilty mind.
Section 47 - bid rigging 5
Bid rigging is a criminal offence defined by section 47 of the Act and will be found to exist when each of the following four elements is satisfied:
• there was a call for tenders;
• there was an agreement between two or more bidders where:
- one or more agreed to not submit a bid or to withdraw a bid, or
- two or more submitted bids that were arrived at by agreement or arrangement;
• bids were submitted in response to the call for tenders; and
• the person who called for the tenders was not made aware of any agreement or arrangement, at or before the time when bids were submitted.
Conviction for bid rigging under section 47 carries penalties of imprisonment for up to five years and/or a fine at the discretion of the court.
Note that there are certain exceptions and defences to the above provisions. For example, there is a regulated conduct defence which may be available where conduct under investigation has been prescribed (or in some cases merely authorised) under lawful legislation. Also, there is a limited export cartel defence to prosecution under section 45.
Although, as noted above, the law permits courts to impose substantial prison sentences where the law has been violated, to date such sentences are only rarely imposed and have been relatively modest. Courts, however, have imposed significant criminal fines on those convicted of the cartel provisions of the Act.
The enforcers and enforcement structure
The Competition Bureau ('Bureau'), the head of which is the Commissioner of Competition ('Commissioner'), is the Canadian governmental agency that administers and enforces the Act. In the context of cartels, investigations are conducted by the Criminal Matters Branch of the Bureau. Where the Commissioner concludes that a criminal offence under the Act has been committed, a recommendation is made to the Director of Public Prosecutions (the 'DPP') that charges be laid.
The DPP, who is the head of the Public Prosecution Service of Canada, fulfills the responsibilities of the Attorney General of Canada in the discharge of his criminal law mandate by prosecuting criminal offences under federal jurisdiction. It is the DPP who is ultimately responsible for initiating and conducting prosecutions under the criminal provisions of the Act. 6 Such criminal prosecutions can take place before the superior court of a province or the Federal Court of Canada, although the Federal Court of Canada cannot hear jury trials.
In the exercise of its investigative function, the Competition Bureau has a variety of tools at its disposal, most notably section 11 orders, search warrants and wiretaps.
Section 11 orders
Orders made pursuant to section 11 of the Act can be sought ex parte by the Commissioner in the course of a formal inquiry commenced under section 10 of the Act. It is a powerful investigative tool that has been used by the Commissioner in the context of civil inquiries (eg, mergers and abuse of dominance), as well as criminal inquiries (eg, cartel investigations). Section 11 orders are essentially subpoenas, which are obtained and used by the Commissioner to obtain information in the possession of a person (including a corporation) that is likely to have information that is relevant to a matter under inquiry.
Information can be obtained upon the issuance of a section 11 order in the following ways:
• oral examinations, under oath, of individuals on any matter that is relevant to the inquiry;
• the production of records, including electronic records; and
• written returns requiring a person to create or prepare detailed information under oath and provide it to the Commissioner.
Also, subsection 11(2) explicitly contemplates an order compelling a Canadian corporation to produce records in the possession of the corporation's Canadian or foreign affiliates where the issuing judge is satisfied that such affiliate has records that are relevant to the inquiry. As such, under subsection 11(2), the Commissioner can seek a court order requiring a Canadian subsidiary to produce records of its foreign parent or sister companies.
Furthermore, subsection 11(3) states that persons are not excused from complying with an order on the grounds that their testimony, records or written returns may incriminate them; however, the section goes on to stipulate that any such testimony or return cannot be used against the individual that provided it in any criminal proceeding against that individual. It is noteworthy that subsection 11(3) does not explicitly state that a 'record' produced by an individual cannot be used against that person in a criminal proceeding, nor does it provide such individual with derivative use immunity in relation to his or her testimony or written return. In addition, subsection 11(3) does not preclude the use of an individual's testimony or written return against third parties, including, for example, that individual's corporate employer.
It should be noted, however, that the constitutionality of the use of section 11 (including subsection 11(2)) in a criminal cartel investigation is currently being challenged.
The Act also authorises the Commissioner to apply ex parte to a judge for a warrant allowing officers of the Bureau to conduct searches and seizures, including searches of computer systems and seizure of electronic records. Prior to issuing a warrant, a judge has to be satisfied that there are 'reasonable and probable grounds' to believe that one of the Act's provisions has been or is about to be breached and that there will be relevant evidence on the premises being searched. 7
A search warrant issued to the Bureau will be very specific. It must list the individuals who are permitted to conduct the search, the information that is being sought and the specific premises they are allowed to search. While a search warrant authorises the Bureau to enter and search premises, examine records or other things named in the warrant and copy or seize them, it does not entitle Bureau officers to interview company representatives.
Before seizing the records, the Bureau officers must provide the party being searched with a reasonable opportunity to claim solicitor-client privilege in respect of any of the records to be seized. Section 19 of the Act (which is also applicable in the context of a section 11 order) sets out the procedure for dealing with records to which a claim of solicitor-client privilege is made.
The Act also enables the Commissioner to utilise judicially authorised wiretaps in respect of certain criminal offences, including conspiracies and bid rigging. In order to obtain a wiretap, the Commissioner must submit a sworn affidavit in accordance with the requirements of subsection 185(1) of the Criminal Code. The affidavit must set out certain information, including: the facts relied on to justify the belief that the authorisation should be given, together with particulars of the alleged offence; the type of private communication proposed to be intercepted; particulars with respect to the individuals whose communications will be intercepted; and how and where the officers propose to accomplish the interception.
The issuing judge must be satisfied that granting the authorisation is in the best interests of the administration of justice; that other investigative procedures have been tried and failed; and that the matter is of such urgency that it would be impractical for the officers to carry out the investigation without the assistance of the wiretap.
In a Canadian competition law context, conceptually, 'immunity' and 'leniency' are treated differently. 'Immunity' refers to complete immunity from prosecution (ie, no criminal charges are laid), whereas 'leniency' refers to lenient or more favourable treatment (eg, reduced penalties) in return for a guilty plea and cooperation.
The Bureau refers to the immunity programme, which was formally launched in September of 2002 as the 'single most powerful means of detecting criminal activity'. Although it has evolved over time, the essence of the programme has remained the same.
Under the current immunity programme, 8 a party implicated in activity in contravention of any of the criminal provisions of the Act may apply for immunity. While the application for immunity is made to the Bureau, the Bureau only makes a recommendation to the DPP that immunity be granted. Ultimately, it is the DPP who will make the grant of immunity upon the Bureau's recommendation.
The Bureau may recommend a grant of immunity in the following two scenarios:
• where the Bureau is unaware of an offence in relation to a particular product or service and the party is the first to disclose it; or
• where the Bureau is aware of an offence and the party is the first to come forward, before there is sufficient evidence to warrant a referral of the matter to the DPP.
In addition, generally speaking, in order to qualify for immunity, an applicant must:
• be the first to disclose the illegal activity to the Bureau;
• terminate its participation in the illegal activity;
• not have coerced others to be party to the illegal activity; and
• cooperate in a timely manner, at its own expense, with the Bureau's investigation and any subsequent prosecution by the DPP of other cartel participants.
If a company qualifies for immunity, all current directors, officers and employees who admit their involvement in the illegal anti-competitive activity as part of the corporate admission, and who provide complete, timely and ongoing cooperation, also qualify for the same recommendation for immunity. Former directors, officers and employees who offer to cooperate with the Bureau's investigation may qualify for immunity, although such determination is made on a case-by-case basis.
The Bureau published for comment its Revised Draft Information Bulletin on Sentencing and Leniency in Cartel Cases on 25 March 2009, which articulates the Bureau's policy and enforcement approach in respect of leniency and sentencing. As with the case of immunity, the Bureau can only recommend that leniency be granted; the ultimate decision rests with the DPP.
Where the party under investigation cannot take advantage of the immunity programme (eg, because it is not the first to disclose the illegal conduct to the Bureau), it may be possible to seek leniency. In order to qualify for leniency, an applicant must:
• terminate its participation in the illegal conduct; and
• cooperate in a timely manner, at its own expense, with the Bureau's investigation and any subsequent prosecution by the DPP of other cartel participants.
According to the draft bulletin, the first leniency applicant will receive:
• a reduction of up to 50 per cent of the fine that would have otherwise been recommended; and
• a recommendation that no separate charges be laid against the party's current directors, officers or employees who agree to cooperate with the investigation in a timely fashion.
Subsequent leniency applicants may receive a reduction of up to 30 per cent of the fine that would have otherwise been recommended. In addition, the Bureau will recommend lesser penalties for individuals who cooperate relative to non-cooperating individuals who played a similar role in the offence.
Enforcement of Canadian competition law, particularly in relation to cartel enforcement, continues to benefit from a high degree of international cooperation. Indeed, such cooperation appears to have strengthened over the past several years, particularly with the cooperation engendered by the International Competition Network. There is an especially close working relationship between the Bureau and antitrust authorities in jurisdictions such as the US and the EU.
Canada has signed 36 Mutual Legal Assistance in Criminal Matters Treaties ('MLATs') with other governments including the US, the UK, Germany, France, Italy, Australia and South Korea. The MLATs provide that either signatory to the treaty can request certain assistance of the other party. This assistance can include executing searches and seizures, taking evidence, locating or identifying persons and serving documents.
In addition, Canada has entered into 10 agreements with other jurisdictions in relation to cooperation in respect of the enforcement of competition laws, including agreements with the US, the EU, the UK, Brazil, Korea and Japan.
Recent enforcement activities
Cartel enforcement has been, and remains, a high priority for the Commissioner and the Bureau. The Bureau's cartel investigations have resulted in numerous guilty pleas and significant fines in relation to both domestic and international cartels. On the domestic front, in 2009 and 2010, 10 individuals and six companies have pleaded guilty in relation to the Bureau's investigation into a price-fixing cartel in relation to retail gasoline in Quebec, with fines totalling over C$2.7 million and terms of imprisonment for six of the 10 individuals totalling 54 months. The investigation and prosecution of this case continues with other individuals and companies having been charged under section 45 of the Act.
On the international cartel front, in 2009 and 2010, the Bureau's investigation into an international air cargo cartel has yielded numerous guilty pleas to price-fixing charges, with British Airways, Qantas, Air France, KLM, and Martinair admitting to communicating with competitors about the amount and timing of fuel surcharges. These guilty pleas resulted in fines in excess of C$14.6 million. Within the last two years, guilty pleas were also obtained from two chemical manufacturers, Solvay Chemicals and Azko Nobel, for fixing prices of hydrogen peroxide in Canada, with fines totalling C$5.65 million.
Civil actions for damages
Section 36 of the Act
Consideration should also be given to the availability to plaintiffs of private enforcement in respect of alleged cartel activity. Subsection 36(1) of the Act provides for a civil remedy to 'any person who has suffered loss or damages' as a result of a breach of certain enumerated sections of the Act, including section 45, set out above. If liability is proven, an amount equal to the loss suffered is payable together with an amount in respect of costs of investigation. Notably, the Act provides only for single damages, rather than the treble damages available in the US. 9 It is common practice for cases brought pursuant to subsection 36(1) to also include claims for common law damages based on civil conspiracy, claims for restitutionary relief and for punitive damages.
Sections 45 and 36(1) have been relied on in numerous class actions that seek recovery for alleged cartel activity. In many instances such proceedings are commenced after convictions or similar class actions in the US. To date there has not been a trial in Canada in respect of a cartel class action. However, there have been numerous settlements, often entered into following a settlement in similar class action proceedings in the US.
Private proceedings must be brought within two years of either the day on which the conduct was engaged in or the day on which any criminal proceedings are 'finally disposed of', whichever is later. 10 Given that it is often not known if or when criminal proceedings will be commenced, this provision can arguably provide for an expansive limitation period. For example, if a proceeding was to be commenced more than two years after a day conduct was engaged in, the civil limitation period could arguably be 'refreshed'.
The current Canadian landscape
Key issues in Canadian class actions involving cartel allegations have included:
• the evidentiary standard a court will require in order to be satisfied that an action should be certified;
• the extent to which indirect purchasers will be able to pursue claims; and
•the role of restitutionary remedies in cartel class actions.
Until recently, the leading case in the area was Chadha v Bayer. 11 In that case, which by the certification stage included only a claim on behalf of indirect purchasers, the Ontario Court of Appeal carefully considered with approval the approach taken in the US in In re Linerboard Litigation. 12 The Ontario court held that whether such a case should be certified turned on whether the plaintiff could demonstrate class-wide harm and a methodology for proving class damages. Absent such a methodology, given that subsection 36(1) requires that the person seeking a remedy has suffered a loss, an individual inquiry would be required with respect to each class member to determine liability. Given such extensive individual inquiries a class proceeding would not be the preferable procedure for the resolution of the dispute. 13
Subsequent to Chadha, several cases were certified in the context of the court approval of settlements, but until recently there had not been a further contested certification motion. However, in the last few years there has been significant activity with respect to cartel class actions and evidentiary issues relating to such proceedings and similar actions pursuant to the Act. 14
Significantly, in cases in both Ontario and British Columbia, courts have recently certified cartel class actions. To date the two most significant of these are DRAM 15 in British Columbia and Hydrogen Peroxide 16 in Ontario.
In the DRAM case, certification was initially denied. However, on appeal, the British Columbia Court of Appeal reversed this decision and for the first time in Canada a cartel case was certified on behalf of classes of direct and indirect purchasers. Leave to appeal the decision to the Supreme Court of Canada was sought and denied.
The DRAM decision signalled the beginning of a comparatively relaxed certification standard in respect of cartel class actions in Canada and made it clear that both direct and indirect purchasers could proceed with their claims in the same case. The Court also permitted the case to go forward on common issues relating to restitutionary remedies, which focus on disgorgement of a defendant's gains rather than compensation to the plaintiffs. Damages aggregation provisions in the applicable class proceedings statute were also used to ground common issues for the class.
In autumn 2009 in Ontario, the Hydrogen Peroxide case - which also involved direct and indirect purchasers - was also certified. The defendants sought leave to appeal that decision but leave was denied. In the Hydrogen Peroxide case the court held that it was not necessary to conduct a rigorous analysis of the expert evidence at the certification stage in order to determine whether there was a methodology to prove harm on a class-wide basis. Rather, the plaintiff need only demonstrate that such a methodology may exist.
The approach of the Ontario court is in stark contrast to the view taken in the parallel Hydrogen Peroxide action in the US, 17 in which the US Court for the Third Circuit held that the court below had not conducted a sufficiently rigorous analysis of the expert evidence and remanded the matter back for determination on the basis of such an analysis.
The seminal decisions in DRAM and Hydrogen Peroxide have for the moment resulted in a much lower bar for certification of cartel class actions in Canada. The courts have also found it appropriate to certify classes that include both direct and indirect purchasers, and have certified common issues with respect to common law, restitutionary and statutory remedies. It remains to be seen whether such cases will be able to proceed through common issues trials given these issues (and the thorny issue of passing on) or whether it will become apparent that there is not sufficient commonality for such actions to proceed on a class basis.
(1) Any person who has suffered loss or damage as a result of
(a) conduct that is contrary to any provision of Part VI; or
(b). the failure of any person to comply with an order of the Tribunal or another court under this Act, may, in any court of competent jurisdiction, sue for and recover from the person who engaged in the conduct or failed to comply with the order an amount equal to the loss or damage proved to have been suffered by him, together with any additional amount that the court may allow not exceeding the full cost to him of any investigation in connection with the matter and of proceedings under this section.
(2). In any action under subsection (1) against a person, the record of proceedings in any court in which that person was convicted of an offence under Part VI or convicted of or punished for failure to comply with an order of the Tribunal or another court under this Act is, in the absence of any evidence to the contrary, proof that the person against whom the action is brought engaged in conduct that was contrary to a provision of Part VI or failed to comply with an order of the Tribunal or another court under this Act, as the case may be, and any evidence given in those proceedings as to the effect of those acts or omissions on the person bringing the action is evidence thereof in the action.
(3). For the purposes of any action under subsection (1), the Federal Court is a court of competent jurisdiction.
(4) No action may be brought under subsection (1)
(a). in the case of an action based on conduct that is contrary to any provision of Part VI, after two years from
(i) a day on which the conduct was engaged in, or
(ii). the day on which any criminal proceedings relating thereto were finally disposed of, whichever is the later; and
(b). in the case of an action based on the failure of any person to comply with an order of the Tribunal or another court, after two years from
(i) a day on which the order of the Tribunal or court was contravened, or
(ii). the day on which any criminal proceedings relating thereto were finally disposed of, whichever is the later.
- . In addition, s.49 of the Act contains a specific per se prohibition against certain types of agreements between federal financial institutions, although it has rarely been used.
- . Agreements or arrangements among competitors that do not fall within the ambit of section 45 (eg, legitimate competitor collaborations and joint ventures), may nevertheless be subject to civil administrative review by the Competition Tribunal under section 90.1 of the Act. In such circumstances, however, such an agreement can only be subject to a remedial order by the Competition Tribunal if it results in, or is likely to result in, a substantial prevention or lessening of competition.
- . Section 46 provides as follows: "(1) Any corporation, wherever incorporated, that carries on business in Canada and that implements, in whole or in part in Canada, a directive, instruction, intimation of policy or other communication to the corporation or any person from a person in a country other than Canada who is in a position to direct or influence the policies of the corporation, which communication is for the purpose of giving effect to a conspiracy, combination, agreement or arrangement entered into outside Canada that, if entered into in Canada, would have been in contravention of section 45, is, whether or not any director or officer of the corporation in Canada has knowledge of the conspiracy, combination, agreement or arrangement, guilty of an indictable offence and liable on conviction to a fine in the discretion of the court."
- Criminal Code, sections 21 and 22.
- Section 47 provides: "(1) In this section, 'bid-rigging' means:
- (a). an agreement or arrangement between or among two or more persons whereby one or more of those persons agrees or undertakes not to submit a bid or tender in response to a call or request for bids or tenders, or agrees or undertakes to withdraw a bid or tender submitted in response to such a call or request, or
(b). the submission, in response to a call or request for bids or tenders, of bids or tenders that are arrived at by agreement or arrangement between or among two or more bidders or tenderers, where the agreement or arrangement is not made known to the person calling for or requesting the bids or tenders at or before the time when any bid or tender is submitted or withdrawn, as the case may be, by any person who is a party to the agreement or arrangement.
- . In May 2010, the DPP and the Commissioner entered into a Memorandum of Understanding with respect to the investigation and prosecution of offences under the Act, among other statutes.
- . Warrantless searches are also authorised by the Act where, by reason of exigent circumstances (eg, where delay would result in the loss or destruction of evidence) it would not be practical to seek judicial authorisation.
- . The immunity programme is set out in the Bureau's Immunity Program Bulletin (June 7, 2010) and 'Responses to Frequently Asked Questions', both of which can be found online at http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03248.html and http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03250.html.
- . Section 36 provides:
- Subsection 36 (4) of the Act.
- Chadha v Bayer, (2003), 63 OR (3d) 22 (C.A.).
- . In Re Linerboard Antitrust Litigation, 203 FRD 197 (ED Pa., 2001); affirmed 305 F3d 145 (CA3 Pa., 2002)
- Class Proceedings Act, 1992, SO 1992, c. 6, subsection 5(1).
- . Notably, there have been a number of certifications of class proceedings brought pursuant to price maintenance provisions in the former Competition Act. As a result of the changes in 2010 to the Act, price maintenance cases no longer give rise to a remedy under section 36.
- . Pro-Sys Consultants Ltd v Infineon AG, (2008) 98 BCLR (4th) 272, leave to appeal denied,  SCCB 794 ('DRAM').
- . Irving Paper v Atofina Chemicals Inc et al,  OJ No. 1427, leave to appeal denied 2010 ONSC 2705 ('Hydrogen Peroxide').
- . In Re Hydrogen Peroxide Antitrust Litigation, 240 F.R.D. 163, reversed 552 F.3d. 305 (3rd Cir. 2008)