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 Tribunal renders a decision in the Toronto Real Estate Board case

Ashley Piotrowski

After five years of back and forth at various levels of court, the Competition Tribunal has rendered a decision in the Toronto Real Estate Board case, partially granting the application brought by the Commissioner of Competition pursuant the abuse of dominance provision (section 79) of the Competition Act.    

As mentioned in our earlier blog posts, the Commissioner’s application involves a challenge by the Commissioner against TREB for allegedly abusing its dominance under section 79 of the Competition Act in relation to membership rules governing the use by members of certain of the board’s multiple listing service® (MLS®) listing data. In particular, the Commissioner alleged that TREB’s rules restricted the manner in which real estate brokers and salespersons may display and use certain MLS® data.

 While the decision has yet to be made public, the Tribunal has released a short summary of its decision that offers some insight into how the Tribunal concluded that TREB’s conduct, on a balance of probabilities, satisfied all three elements of the abuse of dominance provision:

  • The Tribunal determined that TREB substantially or completely controls the supply of MLS®-based residential real estate brokerage services in the GTA.
  • The Tribunal found that TREB has engaged in, and continues to engage in, a practice of anti-competitive acts through the enactment and maintenance of certain restrictive aspects of the rules and policy that TREB has adopted regarding the virtual office websites (VOW) of its real estate brokers and salespersons.
  • The Tribunal concluded that these VOW restrictions have had, are having and are likely to have the effect of preventing competition substantially in a market. 

The Tribunal reached this conclusion after finding that the VOW restrictions have substantially reduced the degree of non-price competition in the supply of MLS®-based residential real estate brokerage services in the GTA, including a considerable adverse impact on innovation, quality and the range of residential real estate brokerage services that likely would be offered in the GTA absent the VOW restrictions. 

The next step will be for the parties to provide written submissions and have an opportunity to make oral submissions to the Tribunal on the issue of remedies, after which the Tribunal will make its final order.    

Parkland announces closing of Pioneer transaction as Competition Act merger proceedings continue

Michael Laskey and Katarina Zoricic -

On June 25, Parkland Fuel Corporation announced the closing of its acquisition of the assets of Pioneer Energy LP. The closing follows an order of the Competition Tribunal, issued on May 29, 2015, which partially granted the Commissioner of Competition’s request for an injunction against Parkland’s acquisition of 14 of the 393 gas stations and exclusive long-term supply contracts. The Commissioner of Competition filed an application under section 92 of the Competition Act on April 30, 2015, seeking to block the acquisition of the 14 stations, alleging that the transaction (announced on September 17, 2014) would likely lead to a substantial lessening of competition in 14 already concentrated markets across Ontario and Manitoba.

Issued under section 104 of the Competition Act (see below), the interim injunction requires Parkland to preserve and independently operate the assets to be acquired from Pioneer in six of the 14 communities until the Tribunal issues its final decision.

Background

Each of the parties carries on business as an independent marketer of fuel and petroleum products. Parkland operates or supplies approximately 700 retail gas stations in Canada under the Fas Gas Plus, Race Trac Gas and Esso brands. Pioneer operates or supplies nearly 400 gas stations in Ontario and Manitoba under the Pioneer, Esso and Top Valu brands.

The test under section 104

Sections 100 and 104 of the Act empower the Commissioner to apply to the Tribunal for interim orders to prevent the completion or implementation of a proposed merger. Unlike applications under section 100 of the Act (which are subject to an easier legal test, but can only be obtained before the Commissioner has launched a formal merger challenge and are limited in duration), orders under section 104 can only be obtained after a challenge has been launched, and give the Tribunal the power to issue any interim order that it considers appropriate. In this case, the Tribunal directed the parties to preserve and hold separate the assets proposed to be acquired pending the determination of the Commissioner’s challenge. The Tribunal confirmed that the elements of the test under section 104, which track the test for injunctive relief in R.J.R. Macdonald Inc. v. Canada (AG) and which the Commissioner has the burden of satisfying, are as follows:

  1. there must be a serious issue to be tried;
     
  2. there must be “clear and non-speculative evidence” from which it can be reasonably and logically inferred that irreparable harm will result if the interim injunction is not granted; and
     
  3. the balance of convenience must favour granting the interim injunction.

Serious issue

With respect to the first element of the test, the Tribunal concluded that the Commissioner had raised serious issues to be tried in respect of whether the transaction would likely result in a substantial lessening of competition in the 14 local markets in issue. Parkland had unilaterally committed to divestitures in 11 of the 14 contested markets, and had also unilaterally committed to ensure that the fees charged to independent dealer stations would be consistent with current supply agreements and that Parkland would maintain Pioneer’s pricing strategy at Pioneer corporate stations. However, the Tribunal found that Parkland’s proposed remedies did not dispense with the serious issue to be tried because Parkland either did not offer a remedy or, where it did, its proposed remedy would not satisfy the Commissioner’s concerns because the remedies were not sufficiently detailed.

Irreparable harm

When it came to the second element of the test, the Commissioner met with only partial success. In his application, the Commissioner alleged that the apprehended harm to consumers and the broader economy would result from the ability of the merged entity to increase prices and otherwise limit competition, a position heavily dependent on the definition of the geographic markets. While Parkland’s expert had effectively acknowledged that market shares and concentration would likely increase in six of the markets (leading to an inference of irreparable harm), the Tribunal was of the view that the Commissioner had failed to advance sufficient evidence of the alleged harm with respect to the other eight, and the Tribunal concluded that the Commissioner’s expert did not provide sufficient evidence or information as to how the geographic markets were defined in eight of the 14 contested markets.

Balance of convenience

Proceeding to the final element of the test, the Tribunal found that, in the six local markets where it found that irreparable harm would occur in the absence of an interim injunction, the balance of convenience favoured granting the injunction. Specifically, it found that the costs that Parkland claimed it would incur as a consequence of the requested hold separate order were either speculative or minimal, while the harm to the public interest in the absence of an interim injunction would likely be significant.

Conclusion

This case marks the first time that the Tribunal has considered a contested application for an interim injunction in respect of a merger under section 104 of the Act. In a departure from the Commissioner’s practice over the last several years whereby the Commissioner  has been unwilling to allow any part of the merger to close until a final conclusion has been reached (whether by way of an agreed settlement or Competition Tribunal decision) vis-à-vis any contested issues. The Parkland decision is therefore important for two key reasons. The first is because the Commissioner only sought an interim injunction with respect to 14 of the 393 gas stations and supply agreements to be acquired (and was prepared to allow the balance of the transaction to be completed). Second, the Tribunal’s decision suggests that it will hold the Commissioner to a high evidentiary standard before issuing even an interim order. While it is always difficult to gauge the impact of one case, the Parkland decision may change the bargaining dynamic between merging parties and the Bureau when negotiating remedies for potentially problematic mergers.

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.

Competition Tribunal confirms possibility of dissolution as remedy in CCS case

Susan Hutton & Lindsay Gwyer -

On November 3, 2011, the Competition Tribunal issued a decision refusing to grant summary disposition to the vendor respondents in Commissioner of Competition v. CCS Corporation, thus confirming dissolution as a possible remedy in the case. The proceedings centre on the Commissioner’s application challenging CCS Corporation’s completed acquisition of Complete Environmental Inc., which owns the Babkirk Secure Landfill located in northeastern British Columbia, on the basis that the transaction is likely to substantially prevent competition for the disposal of hazardous waste in northeastern British Columbia (for more on the case, see our earlier post).

Because the proceedings deal with a completed transaction, the vendor respondents maintain that they are only implicated to the extent that the Tribunal would order dissolution as a remedy.  Consequently, the vendor respondents moved to have the Commissioner’s application dismissed against them on the ground that there was no genuine basis for the Tribunal to order dissolution. They argued that dissolution was an overly broad and punitive measure, and that divesture would be an effective and more appropriate remedy (assuming that the Commissioner is able to prove that the acquisition would substantially prevent competition). On the other hand, the Commissioner maintained that dissolution might be a necessary remedy, and argued that the application should be allowed to proceed to a hearing in order to determine several factual issues that would impact on the viability of either divesture or dissolution as an appropriate remedy.

Justice Simpson stated that in order for the Tribunal to grant the respondents’ motion, the respondents would have to have demonstrated that there was no genuine basis for the Commissioner to seek dissolution as a remedy. This required them to show that divesture was an effective and realistic remedy. While divesture is theoretically an effective remedy, Justice Simpson found that the lack of any identified buyer in this case made it potentially unrealistic. Moreover, she accepted the Commissioner’s argument that evidence might be adduced at the hearing which would speak to the relative effectiveness and intrusiveness of dissolution and divesture.

Justice Simpson was also unconvinced by the Respondent’s contention that the Commissioner had failed to explicitly allege dissolution as the only effective remedy. It was sufficient that the Commissioner had claimed dissolution as an alternative remedy, to be used if it was the only remedy available to adequately address the substantial prevention of competition. Consequently, Justice Simpson kept the door open to the possibility of dissolution, concluding that if the Commissioner was successful on the merits it would be for the Tribunal to weigh the evidence for and against the two remedies.