July 20, 2011
COMPETITION LAW PRIVATE ACTIONS & CLASS ACTIONS
Significant changes have recently been made to the federal Competition Act(the “Act”) that impact private actions in Canada (making it easier for private plaintiffs to commence private actions under the Act’s criminal conspiracy provisions). At the same time, there have recently been several plaintiff-favourable class action decisions in Ontario and British Columbia that make it easier to certify competition law class actions. The combined result of these recent developments is that competition law private actions are now of more importance to plaintiffs seeking remedies for anti-competitive conduct under the Act. At the same time, there appears appears to be an increasing number of private and class actions currently being commenced in Canada.
Generally speaking, parties may commence private actions under the Act for contraventions of either the criminal provisions of the Act or a breach of a court or Competition Tribunal (the “Tribunal”) order made under the Act. Private competition law actions in Canada have typically been commenced in the context of (i) consumers alleging damages as a result of a conspiracy between suppliers (e.g., a price fixing conspiracy relating to a product or key input), (ii) consumers alleging damages as a result of misleading advertising claims (e.g., false or misleading claims in relation to a product, investment or other business opportunity, etc.) or (iii) competitors alleging damages based on misleading claims made by a competitor or alleged conspiracy entered into among other competitors.
Process
Section 36 of the Act creates a statutory cause of action for private parties seeking to commence a private action under the Act.
Section 36 provides that any person that has suffered loss or damage as a result of conduct that is contrary Part VI (the criminal provisions of the Act, which include the criminal conspiracy, bid-rigging and criminal misleading advertising provisions), or failure to comply with a Tribunal or court order under the Act, may commence a private damages action.
Private actions cannot be commenced, however, under the Act’s civil “reviewable matters” provisions (e.g., under the Act’s abuse of dominance, tied selling, exclusive dealing or market restriction provisions, although limited rights of private access are available, with leave, under the latter three provisions, as well as under the Act’s refusal to deal provision). For example, see: British Columbia Supreme Court Rejects Novus’ Section 79 Predatory Pricing Claim Against Shaw
Private actions may be commenced for contravention of the criminal conspiracy (e.g., price fixing agreements), bid-rigging or criminal false or misleading representations provisions. Private parties do not, however, have a right to commence private actions for breaches of the civil “reviewable matters” provisions of the Act, which include the merger, abuse of dominance, price maintenance and civil misleading advertising sections.
In the past, the majority of competition law private actions have been commenced for alleged breaches of the criminal conspiracy or criminal misleading advertising provisions (e.g., in relation to alleged price fixing conspiracies, misleading representations in relation to the sale of products or claims in relation to business opportunities).
It has been relatively uncommon for private plaintiffs to commence proceedings under other criminal provisions, although there have been some cases – for example, one case brought for alleged predatory pricing which was, until recently, a criminal offence.
With respect to private actions commenced under the conspiracy provisions of the Act, private action activity may increase following the coming into force of new U.S.-style “per se” criminal cartel rules in March, 2010.
This is because, whereas formerly private plaintiffs, as well as the Competition Bureau, were required to establish anti-competitive effects as a key element of a conspiracy offence (i.e., that the alleged illegal conduct prevented or lessened competition “unduly” in one or more relevant markets), this competitive effects test has now been removed from three forms of “hard core” criminal cartel offences as follows: price fixing, market allocation and output restriction agreements. The key impact of this amendment is that both private plaintiffs and the Competition Bureau will have a lower burden to establish these three forms of “hard core” criminal cartel conduct.
Moreover, the fact that both the former and impending new cartel rules can have a bearing on many forms of common commercial agreements (e.g., joint venture, franchise, dual distribution and licence agreements, among others), it remains to be seen how the Competition Bureau, private parties as well as Canadian courts treat the application of the new cartel rules on commercial agreements and arrangements in Canada. In this regard, while the Competition Bureau has issued new enforcement guidelines in relation to dealings between competitors, and which address some of the commercial contract issues associated with the new cartel rules, the Competition Bureau’s guidelines are not law and are not binding on either the courts or private parties seeking remedies under the Act.
At the same time, however, some of the former criminal offences in the Act have been repealed, with the result that private actions are no longer possible for certain types of conduct – for example, for predatory pricing, which used to be a criminal offence, but is now dealt exclusively under the Act’s civil abuse of dominance provision. Also repealed as a result of the recent amendments are the criminal promotional allowance, price discrimination and criminal resale price maintenance provisions (which has been replaced with a civil “reviewable matters” provision, under section 76 of the Act).
Jurisdiction
Under the Act, private action proceedings may be commenced in provincial superior courts or the Federal Court. However, as the Federal Court has limited jurisdiction, plaintiffs that wish to rely on causes of action in addition to those under the Act – for example, common law causes of action – must commence their proceedings in provincial superior court.
With respect to asserting jurisdiction in relation to cross-border cases, Canadian courts have generally relied on the “real and substantial connection test” to determine whether a court has jurisdiction in the private action context. The jurisdiction of Canadian courts to hear private actions under the Act is particularly relevant in the context of international price fixing conspiracies, where the agreement may have been formed outside Canada with potential anti-competitive effects in Canada. There is now, however, authority for the proposition that where a conspiracy is formed abroad, with anti-competitive effects in Canada, a Canadian court will have jurisdiction.
Test
To establish a private action claim under section 36 of the Act, a private plaintiff must establish that the defendant contravened one of the criminal provisions of the Act (e.g., establish all of the elements of a criminal price fixing conspiracy) or breached a Tribunal or court order under the Act and that it has suffered actual damage or loss as a result of the conduct. In other words, a private plaintiff must establish both the elements of the alleged criminal offence and that it has suffered actual loss or damage as a result of the conduct (and that the damage or loss was caused by the defendant). Moreover, the absence of a prior criminal conviction does not act as a bar to parties commencing private actions.
The necessity under section 36 for private plaintiffs to establish actual damage may, in many cases, mean that it is easier for downstream purchasers (as compared to a direct competitor) to establish and quantify damages (e.g., consumers paying an overcharge as a result of a price fixing conspiracy engaged in by suppliers, based on misleading claims made by a supplier in relation to a product that does not work, etc.).
Rebuttable Presumption
Section 36, which is the provision under which private actions under the Act are commenced, also contains a helpful rebuttable presumption for plaintiffs. It provides that the “record of proceedings” in a matter that results in the conviction for a criminal offence under the Act (or a failure to comply with a Tribunal order) is “prima facie” evidence of the alleged conduct in a civil action. The impact of this presumption is that unless sufficient evidence is adduced to the contrary, a guilty finding in a criminal proceeding, and likely pleadings and agreed statements of fact where a defendant is convicted or has plead guilty, can lead to potential civil liability in subsequent civil proceedings.
Burden
It has been held that the elements of a private action claim under the Act must be established on a higher burden than the normal civil burden of proof (i.e., on balance of probabilities), as a private action is based on an alleged breach of a criminal provision of the Act.
Class Actions
It is also possible to commence class actions under the Act. For example, competition law class actions can be commenced in British Columbia under the British Columbia Class Proceedings Act and Ontario under the Ontario Class Proceedings Act. To date, Ontario, Quebec, British Columbia, Alberta, New Brunswick, Saskatchewan, Manitoba and Newfoundland have adopted class action legislation.
The introduction of class action legislation has led to a relative increase in competition law private actions in Canada, largely as a result of consolidating the considerable expenses of commencing competition law private actions. Competition law class actions are also in many cases “follow on” actions, following announcements by the Competition Bureau or international investigations (and which in many cases did not seriously proceed until guilty pleas or convictions had been obtained).
In order to commence a competition law class action a representative plaintiff must as a first step obtain leave (“certification”) to commence the action as a class action after which, if certification is granted, the action will proceed on its merits.
The test for certification of a class action in most provinces is as follows: (a) the pleadings of notice of application disclose a cause of action, (b) there is an identifiable class of two or more persons, (c) the claim of the class members raises common issues, (d) a class proceeding is the preferable procedure for the resolution of the common issues and (e) there is a representative plaintiff that: (i) would fairly and adequately represent the class, (ii) has produced a workable plan for advancing the proceedings on behalf of the class and of notifying class members of the proceeding and (iii) with respect to the common issues, does not have interests that may conflict with other members of the class.
One of the primary issues relating to the certification of competition law class actions to date has been difficulties arising from the calculation of damages and, in particular, the challenges in some cases of calculating damages in the context of indirect purchasers (i.e., where it is alleged that that direct purchasers passed on, for example, a price-fixing overcharge to a second downstream level of consumers). As a result, much of the contested activity in relation to Canadian competition law class actions has been at the certification stage of proceedings.
The leading Canadian case on indirect purchaser class actions had been Chadhav. Bayer, in which certification was denied on the basis that the plaintiffs in that case had not adduced sufficient evidence to establish or calculate harm for the entire class. As such, the Ontario Court of Appeal found that a class action was not the preferable procedure for resolving the claims (and therefore, that the action should not be certified).
However, as a result of several recent plaintiff favourable class action certification cases in British Columbia and Ontario, these earlier obstacles are thought to have been overcome in part, and it is expected that competition law class action activity in Canada (as well as competition law private actions generally) will increase.
In particular, the British Columbia Court of Appeal, in Pro-Sys Consultants Ltd. v. Infineon Technologies AG, involving a class action on behalf of a class of purchasers of dynamic random access memory referred to as “DRAMS” (the “DRAMS” case), recently took a highly flexible and plaintiff favourable approach to the certification of competition law private actions in British Columbia.
The DRAMS case followed shortly after another plaintiff—favourable competition law class action decision in Irving Paper Limited v. Atofina Chemicals Inc. et al., in which the Ontario Superior Court of Justice certified a contested price-fixing class action involving indirect purchasers. This was, in fact, the first Canadian decision certifying a contested price-fixing class action on behalf of indirect purchasers.
It is now widely thought that the recent amendments to the Act (removing the competitive effects test from section 45), together with several plaintiff-favourable competition class action decisions, has substantially lowered the bar both to commence private actions in Canada, as well as to commence class actions.
Limitation Period
The limitation period during which plaintiffs must commence a private action under the Act is two years from the later of: (a) the day on which the relevant anti-competitive conduct was engaged in (or court or Tribunal order was contravened) or (b) the day when any criminal proceedings were “finally disposed of”.
Remedies
Under section 36 of the Act, the potential remedies for a successful competition law private action are the actual damages (i.e., compensatory damages) proven as a result of the criminal violation (or breach of a Tribunal or court order).
In contrast to the United States however, only single not treble damages, are available to successful plaintiffs in Canada. This is intended as one of several procedural safeguards against strategic litigation. Moreover, there is some authority in Canada that punitive or exemplary damages are not available. As a practical matter, however, the majority of private actions in Canada have resulted in settlements.
In addition, in Canada the general rule is that the successful party in an action, whether the defendant or plaintiff, is entitled to recover the costs of a proceeding, including its legal fees and disbursements.
As a result of the potential remedy limitations under the Act, it is common for private plaintiffs to argue common law causes of actions together with claims under the Act (e.g., common law conspiracy, unjust enrichment, unlawful interference with economic interests, etc.).
Implications of Recent Competition Private Action Activity
This is a very interesting time for competition law private actions, class actions and private access cases in Canada based on the recent sweeping amendments to the Act and recent plaintiff favourable class action cases in British Columbia and Ontario.
Some of the potential key impacts of the recent developments include: (i) an increase in the number of competition law private actions commenced following the March, 2010 implementation of the new criminal conspiracy rules, (ii) an increase in the number of competition law class actions commenced following the recent British Columbia and Ontario class action certification cases, (iii) increased compliance costs for firms to review their policies and comply with the new rules and (iv) possible increased strategic litigation.
PRIVATE ACCESS
Overview
In addition to private damages actions, private parties also have a limited right of “private access” under the Act to the federal Competition Tribunal. “Private access” rights are distinct from the private action regime, only available in relation to certain sections of the Act (discussed below) and, unlike private actions, no monetary damages are available.
Private access rights were introduced in 2002 to allow small and medium sized firms to challenge allegedly harmful conduct to their businesses under provisions which have not historically been enforcement priorities for the Competition Bureau (e.g., the refusal to deal provisions of the Act).
Since the private access provisions were introduced in 2002, approximately eleven leave applications have been commenced. The majority of the private access applications to date have been under the refusal to deal provision of the Act (i.e., by distributors seeking a Tribunal order for resupply of products from suppliers).
Competent Court
Private access proceedings, unlike private civil actions under the Act (which may be brought in the Federal Court or provincial courts), are brought in front of the Tribunal.
Sections
Private access to the Tribunal is available to private parties, with leave, under the refusal to deal, exclusive dealing, tied selling and market restriction provisions and, as a result of recent amendments earlier this year, under the price maintenance provisions of the Act as well. To date, however, the majority of the private access applications have been commenced under the the refusal to deal provisions of the Act in relation to terminations of supply (i.e., distributors seeking re-supply for terminated supply, which can be an alternative remedy in addition to contractual remedies).
Leave Requirement
Private parties are required to obtain leave in order to make private access applications to the Tribunal. In addition, in order to prevent strategic litigation, damages are not available and costs may only be awarded in the discretion of the Tribunal.
To grant leave in a private access application, the Tribunal must have “reason to believe that the applicant is directly and substantially affected by any practice [under sections 75, 76 or 77] that could be subject to a [Tribunal order]”. With respect to evidence, the Tribunal has held that a leave application must be “supported by sufficient credible evidence to give rise to a bona fide belief that the applicant may have been directly and substantially affected in the applicant’s business by a reviewable practice, and that the practice in question could be subject to a [Tribunal] order”.
Where leave is granted, the Commissioner of Competition may also intervene in the proceedings.
Burden
The burden of proof on a private access leave application is a lower burden than the civil balance of probabilities (i.e., an private access applicant need only establish sufficient credible evidence of of the alleged conduct to lead to a bona fide belief by the Tribunal). An affidavit filed in support of a private access leave application must contain facts that are relevant to each of the statutory elements of the alleged reviewable practice (i.e., refusal to deal, exclusive dealing, price maintenance, etc.), though the Tribunal may address each element summarily.
Limitation Period
Applications for leave under the private access provisions of the Act must be brought within one year following the end of the conduct.
Remedies
Under the private access provisions of the Act, the available remedy is a Tribunal remedial order (e.g., for a supplier to commence supply on “usual trade terms” in the case of a refusal to deal). Private parties are not entitled to seek damages and costs may only be awarded in the discretion of the Tribunal. In addition, private parties that have been granted leave from the Tribunal to commence private access applications may also file consent agreements with the Tribunal. Once filed with the Tribunal, consent agreements have the force of a Tribunal order.
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