Volkswagen and Audi settled environmental marketing claim with $15 million penalty

Vanessa Leung

On December 19, 2016, Volkswagen Group Canada Inc. (VW) and Audi Canada Inc. (Audi) entered into a consent agreement with the Commissioner of Competition to resolve the Commissioner’s concerns that VW and Audi had made false or misleading environmental marketing claims about certain of its 2.0 litre diesel vehicles. The consent agreement is one component of a broader Canadian settlement relating to VW’s and Audi’s allegedly misleading environmental claims.

The Bureau alleged that software installed in the affected VW and Audi vehicles could detect a test being conducted and alter the operation of the vehicle during the test to reduce nitrogen oxide emissions. The Bureau also alleged, however, that during normal use, the nitrogen oxide emissions would exceed the amounts at which the vehicle had been certified. The Bureau concluded that the statements, warranties and/or guaranties made about the performance or efficacy of these vehicles were false and misleading in a material respect, and were not based on adequate and proper testing, contrary to the Competition Act

In addition to its independent consent agreement, the Bureau participated in a proposed class action settlement that Volkswagen reached with consumers of certain affected vehicles. If approved by the courts, the settlement will provide total buyback and restitution payments totalling up to C$2.1 billion. The Bureau’s consent agreement provides for an additional, C$7.5 million administrative monetary penalty for each of VW and Audi, and provides that the parties will compensate the Bureau for C$200,000 toward its investigative costs. In the consent agreement, the Bureau also acknowledged an “Owner Credit Package” program, established voluntarily by VW and Audi, that provides certain benefits for affected owners and lessees.

As part of the consent agreement, VW and Audi agreed not to create a false or misleading general impression that: (a) their vehicles’ emissions are “clean”; (b) their vehicles produce lower emissions than other vehicles; (c) their vehicles are less polluting than other vehicles; (d) their vehicles are “green”, or less harmful to the environment than other vehicles; and/or (e) their vehicles are environmentally friendly. VW and Audi further agreed that, unless adequate and proper testing was performed, they would not make any representations that: (a) their vehicles’ emissions are cleaner than gasoline; (b) their vehicles produce less sooty emissions than older diesel engines; and/or (c) their vehicles produce fewer emissions than other vehicles.

VW and Audi also agreed to use their best efforts to stop selling or leasing affected vehicles, unless the emissions system of the vehicles was first modified to reduce nitrogen oxide emissions. VW and Audi will also enhance and maintain a corporate compliance program to ensure compliance with the Competition Act.

The Bureau noted that it had agreed to more favourable terms in the consent agreement due to VW and Audi’s cooperation with its inquiry. The Bureau also noted that the consent agreement does not resolve its ongoing inquiry with respect to certain vehicles equipped with 3.0 litre diesel engines. The consent agreement is part of a broader, global investigation into VW’s and Audi’s environmental marketing claims, and demonstrates the Bureau’s active role in such broader, industry investigations, both as a participant in the private class action process and as an independent law enforcement agency to enforce the provisions of the Competition Act.

Competition Bureau puts deferred payment plans under the microscope in misleading advertising charges against Canadian Furniture Retailers

Ashley Weber and Erica Lindberg -

On July 9, 2013, the Competition Bureau announced that it would be pursuing civil charges of deceptive marketing under the Competition Act against Canadian furniture retailers Leon’s Furniture Ltd. and The Brick Ltd. (acquired by Leon’s earlier in 2013).

In a civil action filed with the Ontario Superior Court of Justice, the Bureau alleges that the retailers’ “buy now, pay later” programs, in which consumers are encouraged to purchase products under a deferred payment program, gives the false general impression that consumers can take advantage of the programs at no extra charge, and fails to adequately disclose the surcharges that will be applied to the balance of the purchase price (section 74.01(1)(a)).  By way of example, a customer wanting to defer payment on a $1500 sofa could be required to pay up to $350 at the time of purchase, despite advertisements stating customers would pay “absolutely nothing” for up to 21 months.

The Bureau also alleges that the administration and processing fees applicable to the deferred payment programs are “hidden”, and can result in substantial additional costs (including both up-front costs as well as costs added to the balance to be paid), which result in the final price of the product being higher than the advertised price (section 74.05(1)).

The Bureau acknowledged that, in many instances, the representations were accompanied by disclaimers that referenced the need to pay certain fees at the time of purchase.  It noted, however, that lengthy disclaimers buried in the fine print and not in close proximity to the associated representations, particularly if the disclaimers contradicted the representations’ literal meaning and/or general impression, are ineffective in addressing the reviewable conduct.  In a statement, Commissioner of Competition John Pecman said that “Canadian consumers must receive clear and accurate information about what must be paid at the time of purchase, and what the actual cost of a particular item is if they use a deferred payment option." He went on to say that “[r]etailers cannot hide details of additional fees in lengthy disclaimers.”

The Bureau has increasingly shown indications that it considers it a priority to pursue deceptive marketing and disclaimer practices, which, it is argued, take advantage of a struggling economy to exploit vulnerable consumers.  In September 2012, the Bureau took action against cell phone providers Bell, Rogers and Telus for fine-print disclaimers and allegedly “hidden” cell phone fees.

It has been estimated that “buy now, pay later” transactions could comprise up to 50% of the furniture retailers’ transactions across Canada. Leon’s and The Brick have indicated that they will defend their positions in court.

Competition Tribunal maintains interim supply order despite third party objections in Used Car Dealers case

Michael Laskey -

On March 16, the Competition Tribunal rejected a motion by the Insurance Bureau of Canada for the rescission of an interim supply agreement in its ongoing dispute with the Used Car Dealers Association of Ontario despite objections from one of IBC’s members, holding that the industry association had also bound its members when it agreed to the interim supply agreement. The decision, which has the effect of maintaining a mandatory supply order despite the objections of an IBC member which had directed IBC not to supply its confidential information, has important implications for industry associations and their members.

UCDA is a not-for-profit trade association representing motor vehicle dealers in Ontario. Among other services, it provides a service called “Auto Check”, which allows dealers to verify accident history information about vehicles they intend to sell. IBC, which collects and provides the data for the Auto Check service, is a not-for-profit corporation made up of 139 member insurance companies. On June 17, 2011, IBC terminated UCDA’s access to its insurance data, and UCDA was forced to suspend its Auto Check service. The reasons for the termination, and UCDA’s allegations that the termination constituted a “refusal to deal” contrary to section 75 of the Competition Act, are described in our earlier article. Meanwhile, the parties agreed to an interim supply agreement pursuant to which IBC would continue to supply UCDA with claims data while the case was before the Tribunal, and the agreement was formalized by an order of the Tribunal.

Two weeks after the interim supply order was issued, State Farm (a member of IBC) directed IBC not to supply its data to UCDA. State Farm claimed in a letter that, as a matter of business policy, it had chosen not to make claims information available to third-party commercial operations. IBC thereafter sought to rescind the interim supply order on the grounds that, because of technological limitations, the only way it could implement State Farm’s direction would be to remove UCDA’s access entirely (and thereby breach the interim supply order) or remove State Farm’s data from its service, diminishing the service’s effectiveness for all users.

The Tribunal first considered whether there were “changed circumstances” which justified reconsidering the supply order. The Tribunal noted that State Farm had been made aware of UCDA’s application for an interim supply order, and found that State Farm knew or ought to have known about the proceedings; nonetheless, State Farm took no steps to object and did not intervene or participate in the present motion. It further found that IBC had known about the technical limitations of its system and nevertheless agreed to the interim supply order; IBC was therefore the “maker of its own mischief”. Moreover, the Tribunal noted that State Farm had provided no evidence of its corporate policy, and in fact continued to supply data to another third party commercial enterprise, Carproof (a competitor of UCDA’s Auto Check service), purportedly in violation of such a policy. In denying IBC’s motion for rescission of the order, the Tribunal found that State Farm’s “new-found” objection was “unduly convenient in frustrating the Interim Supply Order” and that, in the circumstances, “a change of mind is not a change of circumstances.”

The Tribunal further found that even if State Farm’s instructions to IBC had been enough to constitute a “change of circumstances”, the circumstances did not meet the tripartite test for injunctive relief established in RJR-MacDonald v. A.G. Canada. The Tribunal found that UCDA would suffer irreparable harm if its Auto Check service had to be discontinued, while IBC would lose only some goodwill in its relationship with State Farm.

The Tribunal’s decision has important implications for industry associations (such as IBC) and their members. The Tribunal explicitly made clear that “where an industry association purports to act on behalf of and to bind itself and, as a consequence, its members,” the Tribunal’s orders are as binding on the association’s members as they are on the association itself. In this case, because State Farm had at least constructive knowledge of the dispute among IBC and UCDA and because it failed to object at the time the interim supply order was made, it is effectively compelled to continue to provide its insurance data to IBC and UCDA even though it is not a party to the proceedings among them and even though it apparently maintains a corporate policy of not supplying such data to third party commercial operations. Trade associations should take heed of the risks inherent in purporting to act on behalf of their members. Members should take heed as well, lest they be subject to court orders demanding more than they bargained for.

Federal Court of Appeal addresses limitation period under the Competition Act

Sultana L. Bennett -

The Federal Court of Appeal, in a recent decision under the Competition Act, (the Act), has confirmed that the effects of a conspiracy do not have the effect of extending the limitation period under the Act, but also declined to close the door against the extension of the limitation period by the application of the discoverability principle in future cases.

In August 2008, Garford Pty Ltd. (Garford) sued Dwyidag Systems International, Canada, Ltd. (DSI) and others for patent infringement and alleged breaches of the Act. Garford claimed that DSI, having entered into three purchase agreements to acquire the assets of certain entities in the cablebolt market, breached subsection 45(1) of the Act, which prior to its amendment in 2010 prohibited conspiracies, agreements and arrangements that unduly lessened competition.

DSI defended the suit on the ground that pursuant to the two year limitation period under subsection 36(4) of the Act, which provides that an action must be brought within two years of the date of the conduct complained of, had expired several months before Garford had commenced its claim. The Federal Court agreed and in 2010 granted summary judgment to DSI, rejecting Garford’s argument that the limitation for private actions under the Act was subject to the discoverability rule, effectively delaying the running of a limitation period under until a plaintiff discovers the cause of action. That court also rejected Garford’s “continuous offence” argument, holding that ongoing effects of an alleged conspiracy do not extend the limitation period.

The Federal Court of Appeal on February 13, 2012, affirmed the Federal Court’s holding that the effects of a price fixing conspiracy do not form part of the conspiracy offence under section 45, because at the relevant time, “the offence was complete upon the finalization of an agreement that, if carried into effect, would unduly limit competition.” However, the Court did not go so far as to hold that the discoverability principle is not applicable to the section 36 limitation period, but rather decided that the issue of discoverability simply did not arise on the facts of the case. The Court’s ruling, stating that the Federal Court judge’s findings of fact preclude any argument based on discoverability, “assuming without deciding, it is legally available” suggests that future plaintiffs are not necessarily precluded from claiming that the principle could apply.

Novel costs award in trial of first buyer-side conspiracy claim for damages in Canada

Michael Kilby and Kim Lawton -

The Court of Queen’s Bench in Alberta has recently ruled in 321665 Alberta Ltd. v. ExxonMobil Canada Ltd,  on several issues relating to costs under section 36 of the Competition Act. The ruling follows an award of damages in a civil case involving a rare buyer-side conspiracy, brought under the pre-2009 section 45 of the Act.

By way of background, section 36 of the Competition Act provides a statutory cause of action to any person who has suffered loss or damage arising from the breach of any of the criminal provisions in Part VI of the Act. These criminal provisions include conspiracy, bid-rigging, misleading advertising, and deceptive telemarketing.

In its decision on the merits, released in May, 2011 (321665 Alberta Ltd. v. ExxonMobil Canada Ltd.,), the Court had ruled that Husky and Mobil violated section 45 of the Competition Act (the conspiracy provision) when they had decided in 1996 to single-source their acquisition of fluid hauling services for their properties in the remote Rainbow Lake region of Alberta, thereby depriving the plaintiff of the ability to compete for their business and – given their dominant position in the marketplace – unduly lessening competition among the two fleet fluid haulers in the region by putting one of them out of business.  The court awarded general damages of $5 million and punitive damages against each defendant of $500,000, but reserved the question of costs for a later date.

Private actions for damages under section 36 are not new, but the recent ruling touches on an important issue closely related to the bringing of such an action – costs. In particular, the ruling addresses five separate issues: entitlement to compound interest, the relevant interest period, investigation costs, the appropriate costs scale, and costs incurred because of a litigation loan.

Compound Interest: The plaintiff argued that the wording of section 36 justified an award of compound interest, but the judge found there was insufficient evidence to support this claim. He reasoned that there is limited jurisdiction to award compound interest in both common law and equity, and the plaintiff failed to meet both relevant tests. As well, the request was barred because the plaintiff failed to seek compound interest relief in its pleadings.

Interest Period: The judge also held that while the obligation to pay pre-judgment interest arises when the loss actually occurs, that period can be reduced if the plaintiff delays in prosecuting its claim. After a detailed review of the significant steps in the litigation, the judge deducted two years of pre-judgment interest from the plaintiff’s award of damages at large.

Investigation Costs: Typically, a successful plaintiff may not claim pre-action investigation costs, however according to the Competition Act a party advancing a claim pursuant to section 36 may claim “the full cost to him of any investigation in connection with the matter.” The court awarded investigation costs at $75,000, which was a fraction of the near million dollar sum claimed because the plaintiff’s costs were insufficiently supported by evidence.

Costs Scale: The plaintiff’s claim that the use of the term “full cost” in the statute should be interpreted to mean that the plaintiff can recover on a solicitor-client basis rather than the usual party and party basis was flatly rejected. The court stated that solicitor-client costs are reserved for exceptional circumstances and if Parliament wanted section 36 to be one of those cases, then it could have said so.

Litigation Loans: A claim for the cost of money borrowed to finance the litigation was denied.  The court relied on earlier Court of Queen’s Bench of Alberta jurisprudence that held litigation loans were not recoverable.

Supreme Court of Canada grants leave to appeal regarding indirect purchaser issues

Sultana L. Bennett -

On December 1, 2011, the Supreme Court of Canada granted leave to appeal in the British Columbia Court of Appeal decisions Pro-Sys Consultants Ltd. v. Microsoft Corporation (Microsoft) (2011 BCCA 186) and Sun-Rype Products Ltd. v. Archer Daniels Midland Company (Sun-Rype) (2011 BCCA 187). Microsoft and Sun-Rype were two to one majority decisions concluding for the first time in Canada that indirect purchasers of allegedly price-fixed products have no cause of action recognized in law. (see our ealrier post titled: Court of Appeal for British Columbia bars indirect purchaser suits.)

Earlier this month the Québec Court of Appeal in Option Consommateurs v. Infineon Technologies AG (2011 QCCA 2116), unanimously overturning a Superior Court decision that had denied a motion to authorize class action proceedings, allowed indirect plaintiffs to proceed with their price-fixing suit, expressly disagreeing with the British Columbia Court of Appeal’s rulings in Microsoft and Sun-Rype that such plaintiffs have no claim in law. (see our earlier post titled: Québec Court of Appeal authorizes price-fixing class action involving indirect purchasers.)

These appeals will mark the first time the highest court in Canada will consider this issue in the context of competition class actions.