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.

No more "unlimited" calling and Internet services: Comwave resolves misleading telecom service and price representations

William Wu and Vanessa Leung - 

On September 13, 2016, the Competition Bureau reached a consent agreement with Comwave Network Inc., which resolved the Bureau’s concerns over allegations of false or misleading advertising by Comwave in respect of representations made to public on its telecommunication services and prices.  The Bureau had three sets of concerns:

1. Comwave allegedly made representations to the public about the prices of the telecommunications services it provided, and then allegedly charged consumers additional fees that were only disclosed to consumers in fine print disclaimers and during its telephone sales intake process. The Bureau concluded that the disclaimers and the intake process were insufficient to alter the misleading general impression created by the prices advertised by Comwave, which were in fact not attainable due to the additional fees;

2. Comwave had allegedly been making representations regarding unlimited local calling and unlimited Internet usage through a number of advertising media since about 2011. Disclaimers allegedly contained terms and conditions that limited residential phone service to 3000 minutes per month and effectively limited Internet usage by significantly slowing download speeds when consumers reached a certain amount of data per month. The Bureau concluded that the disclaimers were insufficient to alter the general impressions created by the advertising that consumers could get unlimited local calling home phone service and unlimited Internet usage; and

3. Comwave allegedly made representations regarding special offers such as “free services for six months”, with additional terms and conditions that were not disclosed to consumers until the telephone sales intake process. The Bureau concluded that these subsequent disclosures were insufficient to alter the misleading general impression that consumers could receive free phone service for a specified period of time.

Under the consent agreement, Comwave agreed to bring its advertising practice into compliance with the misleading advertising provisions of the Competition Act, to publish a corrective notice, and to pay a $300,000 administrative monetary penalty and $60,000 towards the Bureau’s investigative costs over a three-year payment schedule. Comwave also agreed to implement a corporate compliance program to comply with the Competition Act in general and the misleading advertising provisions in particular.

This case demonstrates the Bureau’s continued focus on false or misleading representations and businesses’ need to ensure that material information is clearly and promptly disclosed so as to ensure that the representations do not convey to consumers any misleading impressions that are contradicted in the fine print. It should be noted that the Bureau has agreed to more favourable terms than usual in this consent agreement due to Comwave’s prompt and full cooperation in the investigation. 

Avis and Budget reach settlement in alleged misrepresentation of fees and discounts

Vanessa Leung and Ashley Piotrowski

On June 2, 2016, the Competition Bureau reached a consent agreement with Aviscar Inc. and Budgetcar Inc. / Budgetauto Inc., over allegations of false or misleading advertising for prices and discounts on car rentals and associated products.  A Bureau investigation concluded that certain prices and discounts initially advertised were not attainable because consumers were charged additional mandatory fees that were only disclosed later when making a reservation. Pursuant to the consent agreement, the parties will pay a $3 million administrative monetary penalty, as well as $250,000 towards the Bureau’s investigative costs.  The parties have also agreed to implement a compliance program.

Background

In March 2015, the Bureau filed an application against the Aviscar Inc. and Budgetcar Inc. / Budgetauto Inc., alleging that the parties had made false or misleading representations to the public to promote the use of their rental cars and associated products, and that the parties had supplied their rental cars and associated products at a higher price than was advertised to consumer. The representations were made across a broad range of media including print, website, mobile applications, television commercials and electronic messages.

The Bureau argued that the initial price offered in the advertisements created a false general impression about discounts that were allegedly available to consumers for rental cars, which did not take into account mandatory fees that increased the ultimate price of the rental.  Such mandatory fees were allegedly disclosed only once a consumer had chosen to make a reservation. As such, the Bureau’s view was that rental cars were not available at the prices initially advertised to consumers.   The Bureau concluded that these mandatory fees could increase the cost of a rental by 5% to 20% above the initial advertised price. Furthermore, the disclosure associated with these mandatory fees allegedly misled consumers to believe that they were taxes and surcharges levied by government and authorized agencies when in fact they were fees emanating from the parties themselves. To address the Bureau’s concerns, the parties voluntarily redesigned their Canadian websites in July 2015 to ensure consumers are made aware of any mandatory fees when they are first shown the advertised price.

The consent agreement serves as an important reminder to businesses that the general impression of an advertisement is just as important as the fine print, and that mandatory fees that are not clearly disclosed to consumers at the initial stage of advertising a price, including in electronic messages and online price building tools, could result in misleading advertising.  

CRTC partners with global agencies to enforce spam and telemarketing rules

David Elder - 

The Canadian Radio-television and Telecommunications Commission (CRTC) has announced that it has signed a memorandum of understanding with 10 domestic and global enforcement agencies to aid in the enforcement of spam and telemarketing laws.  However, while the announcement is certainly a step in the right direction, many of the countries that produce the most spam were not at the table.

The agreement is intended to promote cooperation between the various enforcement agencies, and includes commitments by each signatory to share information and intelligence regarding unsolicited communications, where permitted by the laws of its jurisdiction.  

For its part, in Canada, s. 60 of Canada’s Anti-Spam Legislation permits the government, the CRTC, the Office of the Privacy Commissioner of Canada (OPC) and the Commissioner of Competition to share information with foreign governments and agencies with respect to investigations and enforcement activities relating to foreign laws that address conduct that is substantially similar to conduct prohibited under Canadian laws regulating unsolicited telecommunications and commercial electronic messages.

In addition to the involvement of the CRTC and the OPC, the memorandum was signed by 9 international agencies, from the U.S., Australia, the Netherlands, the UK, Korea, New Zealand and South Africa.

Each of the signatories to the new MOU is a member of the “London Action Plan” (LAP), a global organization created to promote international spam enforcement cooperation and address spam related problems, such as online fraud and deception, phishing, and dissemination of viruses. 

Interestingly, while all signatories are members of the LAP, not all LAP members have signed on to this latest memorandum -- in fact, only about one third of LAP members have signed on.  More significantly, absent from the list of signatories are regulatory agencies from 8 of the Top 10 Worst Spam Countries, as compiled by the Spamhaus Project, an international organization that tracks spammers and spam-related activity.

The CRTC has previously entered into similar agreements with the Commissioner of Competition and the OPC, and most recently, announced the signing of an agreement with the U.S. Federal Trade Commission and Federal Communications Commission respecting mutual assistance in the enforcement of laws on commercial email and telemarketing.

Enforcement agencies, including the CRTC, face many challenges in investigating and enforcing unsolicited communications laws where the alleged perpetrators operate from outside of Canada, necessarily requiring the cooperation of local regulatory and enforcement authorities.  Some feel that as a result, CRTC enforcement activity disproportionately focuses on known and legitimate domestic companies, many of whom are trying to comply with the rules, rather than on rogue international operators, whose campaigns often have fraudulent objectives.

Hopefully, these new information and intelligence sharing arrangements will assist somewhat with the CRTC’s international enforcement challenge, although the effectiveness of the initiative will be frustrated by the absence of a majority of the biggest spam-producing countries.

Telus agrees to pay $7.34 million in customer rebates to resolve false and misleading advertising allegations

Jeff Brown and Margaret Kim - 

On December 30, 2015, the Competition Bureau announced that it had reached a consent agreement with Telus Communications Inc., one of Canada’s “Big Three” wireless carriers, over allegations of false or misleading advertisements for premium text messaging and rich content services, such as trivia, daily horoscopes, and ring tones. 

As part of the consent agreement, Telus will issue rebates in an aggregate amount up to $7.34 million to certain current and former wireless customers, who the Bureau alleged were unknowingly charged extra for the text message services. The Bureau noted that the amount for consumer rebates made available under the consent agreement is the most obtained by it under any consent agreement to date.  In March 2015,  Rogers Communications Inc. settled with the Bureau, agreeing to pay $5.42 million in refunds to customers for the same fees as part of the same investigation. Similar proceedings against Bell Canada and the Canadian Wireless Telecommunications Association are ongoing.

 Background

Section 74.01(1)(a) of the Competition Act (the Act) addresses materially false or misleading representations to the public.  Under this provision, engaging in such activity for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, is a civilly reviewable matter.  

In September 2012, following a five-month investigation, the Bureau commenced legal proceedings against Rogers, Telus, Bell and the CWTA in the Ontario Superior Court.  The Bureau alleged that that the carriers and the CWTA made, or permitted to be made, false or misleading representations to customers in advertisements for premium text messages appearing in pop-up ads, apps and social media. The Bureau also alleged that the carriers permitted charges to be made by two third-party companies, Jesta and MMS, for texting services, such as trivia questions and ringtones, that wireless customers did not intend to purchase and for which they had not agreed to pay.  

In her statement, then-Commissioner Melanie Aiken stated that the Bureau’s investigation had revealed that “consumers were under the false impression that certain texts and apps were free”, and that “unfortunately, in far too many cases, consumers only became aware of unexpected and unauthorized charges on their mobile phone bills.” 

In the Bureau’s investigation, a tool known as a “common short code” was at the heart of the issue.  Text messages and digital content are delivered through this common short code, which is a number assigned by the CWTA’s Short Code Council. The CWTA then leases out the assigned number to a third party for the sale and delivery of digital content.   While such text messages and digital content can be made available for free to a wireless customer or billed at standard text messaging rates, these codes can also be used to charge higher rates to customers.  According to the Bureau, its investigation revealed that premium-rate digital content could cost up to $10 per transaction, and up to $40 for a monthly subscription. The digital content at issue was offered through advertisements in popular free apps on wireless devices, and also online. According to the Bureau, consumers were led to believe that such products were free but then later incurred charges. The Bureau also alleged that “the disclosure to customers had been wholly inadequate,” and the carriers “profited from these charges, at their customers’ expense”.

The Bureau’s sought remedies including full customer refunds and administrative monetary penalties of $10 million from each of Rogers, Telus and Bell, and $1 million from the CWTA. 

Overview of the Settlement

The rebates will apply to Telus, Telus Mobility and Koodo customers who incurred charges for certain premium text messaging services between January 1, 2011 and August 16, 2013.  The current affected customers will automatically receive a rebate as credits, while former affected customers will be notified with details on how to obtain their rebates by email or a letter with 120 days to make a claim.

In addition to the rebates, the consent agreement stipulates that Telus will publish a notice to all affected customers and establish a consumer awareness campaign to educate consumers on how to avoid unwanted wireless charges.  Telus will also create a corporate compliance program with a specific focus on its “billing on behalf of” practices and the Competition Act generally. The consent agreement requires that the compliance program be framed in a manner consistent with the Bureau’s “Corporate Compliance Programs Bulletin,” which was updated in June 2015.

Telus will also donate a total of $250,000 to the Ryerson University Privacy and Big Data Institute;  Éducaloi, an NGO dedicated to helping the public understand their rights and responsibilities under the law; and the Centre de recherche en droit public de l'Université de Montréal. The donations are earmarked for research on issues such as:

  • Citizen’s rights and consumer education regarding how wireless service providers use personal information and data collected from customers;
     
  • How wireless carriers could make more transparent to Canadian consumers what personal information the carriers are collecting and how that personal information will be used; and
     
  • The role that the law currently plays and could play in ensuring that consumers receive accurate information

Going forward: Bureau consumer protection efforts  likely to continue to be an enforcement priority

Going forward, it can be expected that the Bureau will continue to make enforcement of the Act’s false and misleading representation provisions an  enforcement priority.  The Bureau recently updated its Deceptive Marketing Practices Digest Bulletin, which focuses on the importance of truthful and accurate marketing practices in the digital economy.  The Bulletin also reflects Canada’s recently enacted Anti-Spam Legislation, which applies to the sending of electronic messages, as well as recent growth of online marketing through adoption of digital technology, in particular, mobile devices such as smartphones.

To this end, Matthew Boswell, Senior Deputy Commissioner of Competition, stated, “consumers expect and deserve truth in advertising. Allowing a third party to take advantage of consumers through misleading advertising is a violation of the Competition Act,” and indicated that the Bureau would continue enforcing misleading advertising “to ensure that consumers benefit from accurate information in the digital economy.”

Would Steris/Synergy have been blocked in Canada? Prevention of Competition à la Canadienne

William Wu - 

On September 24, 2015, a U.S. District Court in Ohio denied a motion for a preliminary injunction sought by the Federal Trade Commission (FTC) to prevent Steris Corporation from acquiring its alleged potential competitor Synergy Health plc. The FTC sought the injunctive relief under the Clayton Act based on the so-called “actual potential entrant” doctrine, alleging that the acquisition would have prevented Synergy’s entry into the contract sterilization market in competition against Steris.

This case provides an interesting comparison to the Canadian “substantial prevention of competition” test clarified by the Supreme Court of Canada earlier this year in the Tervita decision. Although the tests are now substantially similar, in practice Canadian courts have exhibited a greater willingness to find entry to be “likely” despite business plans to the contrary.

 FTC v Steris Corp.

Steris and Synergy are the second- and third-largest providers of contract sterilization services in the world, providing services to manufacturers of products such as food packaging and medical devices that require sterilization. There are three primary methods of contract sterilization currently available in the United States: gamma radiation (which penetrates deeply and is therefore most effective for healthcare products), e-beam radiation (which does not penetrate as deeply as gamma sterilization and is therefore more effective for low-density products) and ethylene oxide gas (which uses gas diffusion rather than radiation to sterilize surfaces). Steris is one of only two U.S. providers of contract gamma radiation services (the other, Sterigenics, recently bought Nordion, the Canadian supplier of gamma radiation technology and supplies).[1] Synergy, a British company, is the largest provider of e-beam services in the U.S., but operates gamma radiation sterilization facilities only outside the U.S. There is a fourth sterilization technology, x-ray sterilization, which is not currently available in the United States. Synergy operates the only commercial x-ray sterilization facility in the world, located in Switzerland.

The FTC alleged that, prior to the announcement of its proposed acquisition by Steris, Synergy had been planning to enter the U.S. market with an emerging x-ray sterilization technology, which would have challenged the current frontrunners in the U.S. contract sterilization market (i.e., Steris and the largest contract sterilization firm, Sterigenics, which together represent approximately 85% of all U.S. contract sterilization services). The FTC claimed that, if implemented, the proposed acquisition would insulate Steris from Synergy’s x-ray competition against its gamma sterilization business.

Under the “actual potential entrant” doctrine, the acquisition of an actual potential competitor violates section 7 of the Clayton Act (the principal U.S. antitrust law governing mergers and acquisitions) if:

  1. the relevant market is highly concentrated,
  2. the competitor “probably” would have entered the market,
  3. its entry would have had pro-competitive effects, and
  4. there are few other firms that can enter effectively.

The court focused on the second element and found that the evidence did not support the FTC’s contention that, absent the proposed acquisition, Synergy probably would have entered the U.S. contract sterilization market by building one or more x-ray facilities in that country within a reasonable period of time.

The court found that Synergy’s development of x-ray sterilization in the U.S. faced significant obstacles and it was unlikely to enter the market in the near future. In fact, Synergy’s board had only approved pursuing x-ray facilities in concept and it had not approved any specific business plans or capital expenditures. Despite of substantial efforts to do so, Synergy had failed to secure the customer commitments needed to support the significant and increasing capital expenditures for x-ray sterilization facilities. The testimony of several customers acknowledged that evaluation of and conversion to x-ray technology would be a long-term process for the customers, requiring significant testing and additional regulatory approvals by the Food and Drug Administration (FDA). Synergy’s x-ray equipment manufacturer had also lost confidence that its existing equipment offering would be able to deliver Synergy’s required capacity. The x-ray sterilization business model failed every one of the financial metrics Synergy uses to assess capital investments. Moreover, the court found that the negotiation and announcement of the proposed acquisition had no effect on Synergy’s efforts to advance the x-ray project as its executives continued working towards obtaining customer support and board approval even after the proposed acquisition was announced. Synergy’s decision to terminate the project was ultimately made four months after the announcement of the acquisition.

The Canadian “Substantial Prevention of Competition” Test

The Tervita decision released in January 2015 (see our blog post for more detail) articulated the proper legal test to determine when a merger gives rise to a substantial prevention of competition under section 92(1) of the Canadian Competition Act. After identifying the potential competitor that the merger would prevent from independently entering the market, the Competition Tribunal must examine the “but for” market condition to see if, absent the merger, the potential competitor would have likely entered the market and, if so, whether the entry would likely have a substantial effect on the market in reducing the market power of the acquiring firm (or others). While not separately identified, the Canadian “substantial prevention of competition” test is substantially similar to the key elements of the US “actual potential entrant” doctrine.

The Supreme Court of Canada in the Tervita decision also held that the timeframe of likely entry must be discernible, in that there must be evidence of when the potential competitor is realistically expected to enter the market in the absence of the merger. While confirming that the “lead time” it would likely take a typical new competitor to enter the market is relevant, the Tervita decision also cautioned that the further into the future the Competition Tribunal looks, the more difficult it will be to meet the “likely entry” test on a balance of probabilities. This is especially so in contexts where product development or regulatory approval processes may extend for several years, such that the lead time may be so lengthy that the probability of market entry is largely speculative due to many unknown and unknowable contingencies. The Steris decision in the United States largely took the same approach when it found that Synergy’s entry into the U.S. market with x-ray sterilization was effectively conditioned on obtaining equipment with adequate capacity and securing sufficient customer support, which itself was conditioned on lengthy testing of the x-ray technology and regulatory approvals by the FDA.

Interestingly, while the facts of the Tervita and Steris cases are very different, both cases adopted a similar methodology in assessing potential “preventions” of competition, and both cases dealt with highly regulated industries and situations in which the entry of a new competitor could reasonably be viewed as quite speculative. However, the courts reached different results: the U.S. District Court in Steris found that Synergy’s entry did not meet the “actual potential entrant” test, while the Supreme Court of Canada in Tervita agreed with the Competition Tribunal that the transaction did satisfy the “substantial prevention of competition” test (though the merger was ultimately cleared on other grounds).  Notably, in the Tervita case, the Tribunal accepted the testimony of the target company’s executives to the effect that their business plans did not call for it to enter the same business as the acquirer.  The Tribunal found, however, despite the evidence as to the company’s own plans, that the originally intended business would have failed, and that further decisions would likely have been made to enter into competition with the acquirer.

In summary, the Tervita decision by the Supreme Court of Canada and the Steris decision by the U.S. District Court have shown that the “substantial prevention of competition” test and the “actual potential entrant” doctrine provide largely similar analytical frameworks in determining whether a merger or acquisition transaction is likely to substantially prevent competition, though some may argue that, in practice, the Canadian Competition Tribunal is more apt to find that a potential entrant is “likely” to enter the market, having been given permission, in essence, by the Supreme Court of Canada to extrapolate beyond the company’s own plans.



[1] Stikeman Elliott LLP represented Nordion in that transaction, which also required approval under the Investment Canada Act and a legislative amendment waiving Canadian majority control.

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.

Canada's Competition Bureau loses major bid-rigging case: 60 not guilty verdicts

Susan M. Hutton and Gina Demczuk - 

In a further blow to the track record of the Competition Bureau and the Public Prosecution Service of Canada in contested criminal trials, on April 27, 2015, a jury in the Ontario Superior Court of Justice found nine defendants not guilty on 60 charges of bid-rigging and conspiracy to rig bids. Another individual - David Watts, who waived his right to a preliminary inquiry, and sought an order directing a verdict of acquittal for himself only - was acquitted in February, 2015 of similar charges in a directed verdict.

The Competition Bureau had commenced a criminal inquiry in 2006 into bid-rigging allegations against 14 individuals and seven companies, regarding allegations that the accused had coordinated their bids for certain information technology (IT) services contracts with the Canadian federal government. The Attorney General filed the charges in February, 2009. One corporation had sought immunity from the Competition Bureau under its immunity program, in which the corporation and its employees are not prosecuted in exchange for assisting the Bureau with its inquiry and subsequent prosecution.  Two of the individuals pleaded guilty. Prior to the preliminary inquiry, the Crown had dropped charges against one individual.

Following a preliminary inquiry, Justice Adler of the Ontario Court of Justice dismissed the charges against three accused and ruled that the Bureau’s case against the remaining nine individuals  and five companies should proceed to trial for bid-rigging pursuant to section 47 of the Competition Act, and conspiracy to rig bids pursuant to section 465(1) of the Criminal Code. Regional Senior Justice Charles Hackland of the Superior Court of Justice dismissed the defendant’s application for certiorari of Justice Adler’s preliminary inquiry decision in 2012, and in 2013, the Ontario Court of Appeal further refused to quash the lower court’s committal of the defendants for trial.

Five defendants chose trial by judge alone, which is expected to be heard in August, 2015.  The remaining defendants proceeded to trial by jury.

Since the jury did not have to provide reasons, it is not clear what prompted their decision to acquit the six individuals and three companies.  That said, reviewing the submissions of the parties and the reasons of Justice Warkentin with respect to David Watts’ application for a directed verdict is instructive. On a motion for a directed verdict, the trial judge must commit the accused to trial if there is admissible evidence which could, if believed, result in a conviction.

In the case against Mr. Watts, the Crown (prosecution) argued that Watts committed the criminal offence of conspiracy and violated section 47 of the Competition Act because the companies failed to disclose their collaborations to the person calling the bids or tenders.  The Crown’s theory was that the defendants, including Watts, had participated in a “three-bid strategy” through which they unified their efforts to win certain IT services contracts with Transport Canada, Canada Border Services Agency, and Public Works and Government Services Canada. The Crown alleged the defendants participated in numerous meetings and communications; shared information about technical requirements and the pricing of bids; delegated specific roles among themselves in the preparation of bids; maintained a “tracking list” to identify the participants, resources and prices; acted collectively in responding to the calls for bids; and failed to disclose the alleged agreements or arrangements to the person calling for the bids or tenders.

As a result of changes to the request for proposal (RFP) process during the relevant time period, the RFP rules were amended to allow more than one vendor to submit the same “resource” (an IT consultant), and to allow a legal entity to submit more than one proposal. Indeed a Transport Canada witness for the Crown, Ms. Beverly Shawana, testified that, based upon the history for this type of RFP, it was known by Transport Canada that one company, working alone, would not be able to provide all the resources required for the RFP, and “she knew that companies would work together and form joint ventures in order to respond, as they had in the past.” Further, Shawana testified that “there was nothing wrong with a vendor company acting as a prime contractor on one proposal and also acting as a subcontractor to another company that submitted a [different] proposal.”

In finding that there was no evidence upon which a reasonable jury could return a verdict of guilty regarding either bid-rigging or participation in a criminal conspiracy, Justice Warkentin noted that the Crown had “incorrectly assumed Mr. Watt’s involvement in an alleged criminal conspiracy to bid-rig without taking into consideration the particular aspects of the Transport Canada RFP …” and that the “only conclusion supported by the Crown’s evidence is that prior to September 26, 2005, all nine companies were working together to submit one large joint venture, an activity that was entirely legal.”  She considered that:

The only inference or conclusion that can be drawn from an assessment of the direct and circumstantial evidence is that Mr. Watts knew about the Team Devon joint venture proposal and participated in that proposal to the limited extent that his role as president of The Devon Group required.  There is nothing illegal in these actions.  It is an entirely unreasonable inference to conclude that Mr. Watts was part of the larger alleged conspiracy.  The Crown has asked the court to interpret the evidence introduced against the other accused as though it also applied to Mr. Watts.

 
Following the release of the jury’s not guilty verdicts in the case against the six-individuals and three companies, the Competition Bureau issued a statement by John Pecman, the Commissioner of Competition, indicating that the Crown is considering whether to appeal the acquittals.

As noted, the trial of the remaining defendants is scheduled to proceed later this summer.  It will be interesting to see how the prosecution intends to approach those cases in view of what has to be considered a very disappointing result for the Competition Bureau and the Public Prosecution Service of Canada.

What's old is new - dusting off the OSP rules

Jennifer Rad -

It has been almost a decade since the Competition Bureau sunk its teeth into the enforcement of ordinary price claims, pursuant to the Competition Act’s deceptive marketing practices provisions. But what is old may be new again as recent signals from the Competition Bureau point towards increased enforcement focus on these types of claims in the future. As such, Canadian businesses should ensure that their corporate compliance programs and pricing practices are in-line with the OSP rules of the Act and the Bureau’s Ordinary Price Claims Guidelines which the Tribunal relied on heavily when analyzing past cases.In particular, Subsections 74.01(2) and (3) of the Act set out specific requirements for the calculation of the ordinary selling or reference price on which savings claims are based, known as the “volume test” and the “time test”:

Volume Test In order to meet the volume test, the reference price must be one at which a substantial volume of product has been sold at that price (or a higher price), within the relevant geographic market, within a reasonable period before or after the savings claim is made.

Time TestIn order to meet the time test, the product has to have been offered at the reference price (or a higher price) in good faith in the relevant geographic market for a substantial period of time recently before or immediately after making the savings claim. 

The fundamental principle behind the ordinary price claim rules is that an advertised savings must be bona fide, such that the savings described are real and do not exist in perpetuity.

Use of savings claims is a key component of virtually all advertising in the marketplace, and can be used as a powerful tool to attract consumers. It follows that businesses (and their legal teams in particular) need to be vigilant about the proper use of savings claims. By implementing compliance programs and providing regular compliance training to marketing teams, businesses will be able to avoid running afoul of the OSP rules. 

Online crime bill would expand investigative powers in the Competition Act

Michael Laskey -

For the second time, the federal government is attempting to significantly expand the investigative powers of the Commissioner of Competition. Although described as part of an effort to prosecute online bullying and the exchange of illicit photographs, Bill C-13 (titled the Protecting Canadians from Online Crime Act), which received first reading in Canadian Parliament on November 20, would also introduce broad new powers for the Commissioner when investigating companies and individuals suspected of having contravened or engaged in reviewable conduct under the Competition Act.

The modifications to the Competition Act in Bill C-13 are very similar to those included in last year’s Bill C-30 (titled the Protecting Children from Internet Predators Act), which we described in our post last year, though provisions relating to warrantless access to internet subscriber information have been removed. Bill C-13 was roundly criticized by privacy advocates for its onerous surveillance provisions, and the federal government abandoned the bill in February, 2013.

Like its predecessor, Bill C-13 has been criticized for its expansive approach to investigative powers. The Globe and Mail reported that the bill’s cyberbullying provisions “are receiving little attention. Instead, an old controversy around [Bill C-30] is being revived.” Michael Geist also criticized the so-called “lawful access” provisions of the bill, which “encourage[] telecom companies and Internet providers to reveal information about their customers to law enforcement without a court order by granting them immunity from criminal or civil liability for such disclosures.”

Whether under the guise of combatting cyberbullies or internet predators, the federal government’s lawful access legislation could have serious implications for Canadian businesses. In January, the Commissioner announced his intention to make increasing use of so-called “section 11 orders” (subpoenas requiring the production of large amounts of business documents and e-mails) in both criminal and civil investigations. Combined with newly-enhanced investigative and monitoring powers, the Commissioner would have considerable ability to compel the preservation and production of confidential information not only from businesses, but also from third parties (i.e., their Internet service providers).

John Pecman is appointed Commissioner of Competition

John Pecman, who has served as Canada’s Interim Commissioner of Competition since September 2012, has been appointed to serve a five-year term as Commissioner of Competition, as announced today by the Honourable Christian Paradis, the Minister responsible for the Competition Bureau.

Paul Collins, leader of the Competition Law and Foreign Investment practice group at Stikeman Elliott and formerly head of the Mergers Branch at the Bureau said of the appointment: “John Pecman is an excellent choice to take the helm of the Competition Bureau for the next five years. I have had the distinct pleasure of working across from and with John during my appointment with the Bureau and look forward to continuing to do so.”

Said Lawson Hunter, former Commissioner of Competition (then, Director of Investigation and Research) and founder of the Stikeman Elliott practice group: “John has demonstrated sound judgment throughout his career at the Bureau. His broad experience in all aspects of the Competition Act makes him almost uniquely qualified for this most important position.”

Mr. Pecman has been with the Competition Bureau since 1984 and has experience in every enforcement branch of the agency, including various senior investigative and managerial positions, notably Senior Deputy Commissioner of the Criminal Matters Branch. Mr. Pecman is an economist and represents the Bureau on the OECD Competition Committee and in the Steering Group of the International Competition Network.

Mr. Pecman has been involved as the senior officer on numerous cases investigated by the Bureau, some of which were resolved on consent or by guilty plea and others that were contested before the Competition Tribunal. For a more detailed description of Mr. Pecman’s background and enforcement record, see our previous blog announcing his appointment as Interim Commissioner of Competition. Mr. Pecman also recently spoke at a breakfast hosted by Stikeman Elliott in Toronto.

House arrest off the table for cartels and bid-rigging

Mark Walli and Graeme Deuchars-

On November 20, 2012, amendments to the Criminal Code of Canada under the Safe Streets and Communities Act (the SCCA) came into force, restricting the availability of conditional sentences for individuals convicted of certain offences, including conspiracy to fix prices and bid-rigging under the Competition Act. Conditional sentences are non-custodial punishments, such as house arrest, that may only be assessed where the judge determines the offender is not a danger to the community. While these amendments were not specifically directed at Competition Act offences, the result of the legislative changes is to eliminate the discretion to allow for serving custodial sentences for serious Competition Act offences in the community.

The SCCA, introduced in 2011, included a slate of amendments to the Criminal Code and other legislation which the Department of Justice stated were intended to “combat crime and terrorism”. Among other things, the SCCA provides that conditional sentences are unavailable for all offences for which the law prescribes a maximum term of imprisonment of 14 years or more – this includes cartel agreements among competitors, bid-rigging and willful or deceitful misleading advertising under the Competition Act.

The sentencing changes now in effect under the SCCA follow upon sweeping amendments to the Competition Act in March 2009, which, among other changes, created a per se cartel offence (in effect since March 2010, which prohibits agreements among competitors to fix prices, allocate markets or limit production, whether or not such an agreement had an impact on competition in a relevant market) and increased the maximum punishment for offences such as price-fixing, bid-rigging and willful or deceitful false advertising from five to 14 years.

The new sentencing regime should also be considered in light of the dissatisfaction recently expressed by the Federal Court with joint sentencing recommendations for fines as part of agreements to plead guilty with respect to criminal offences under the Competition Act. In R. v Maxzone Auto Parts (Canada) Corp., a case involving a charge of criminal conspiracy under section 46 of the Competition Act (implementation of a foreign directed cartel), Chief Justice Crampton of the Federal Court observed that “… achieving effective general and specific deterrence requires that individuals face a very real prospect of serving time in prison if they are convicted for having engaged in such conduct”. Finding that past practice gave rise to “understandable expectations” regarding sentencing, the Chief Justice “reluctantly” imposed the jointly recommended sentence of a substantial fine in that case.

A move toward custodial sentences for criminal convictions under the Competition Act may have far-reaching implications for the Competition Bureau's enforcement regime, including participation in its Leniency Program, whereby an accused agrees to cooperate with an investigation in exchange for a prosecutorial recommendation of more lenient treatment. The removal of conditional sentences (and judicial discontent over fines instead of prison terms) may well discourage participation in the program, as accused persons weigh the risks of what "leniency" may entail. Indeed, if jail time is seen as the likely result of criminal conviction for competition offences, there may well be less cooperation, fewer guilty pleas and more contested trials on the horizon in Canada.
 

Competition Bureau disputes public statement by RBS Group

Michael Laskey -

On November 14, the Competition Bureau published a news release disputing a statement made by the Royal Bank of Scotland Group (RBS) related to the Bureau’s ongoing investigation of alleged collusive conduct in the setting of the LIBOR benchmark rate. In its third-quarter Interim Management Statement, RBS stated that it was “co-operating fully” with investigations by the Bureau and other regulators. The Bureau’s news release argued that this statement was false, in light of the fact that RBS had not applied to its leniency or immunity programs and that RBS had challenged a court order obliging it to produce documents in connection with the Bureau’s investigation.

In its reply, RBS emphasized that it did want to cooperate with the Bureau, but that the production of documents requested by the Bureau would violate privacy laws in the United Kingdom. RBS stated that it had offered a number of alternative mechanisms, but that the Bureau had refused such offers.

This is not the first time the Bureau has intervened when it believed a public statement by a company was inaccurate. In September 2011, the Bureau required Beiersdorf Canada Inc. to correct an allegedly inaccurate public statement the company made in relation to a settlement it had reached with the Bureau. Businesses should take note that the Bureau is active in monitoring comments they make in the press and in public disclosure filings.

Global competitiveness report ranks Canada's competition regime 21st in world

Michael Laskey -

On September 5, the World Economic Forum released the 2012-2013 edition of its Global Competitiveness Report. The Report uses financial and statistical data as well as executive opinion surveys to rank countries on a wide variety of metrics related to social and economic competitiveness. Canada was ranked 14th overall, down two places from its result in 2011-2012.

Of interest to businesses and competition counsel, Canada ranked 21st overall in the “effectiveness of anti-monopoly policy” category. Respondents to the executive opinion survey were asked to what extent they felt that anti-monopoly policy promoted competition in their respective countries, on a scale of one to seven (with a score of seven meaning that anti-monopoly policy “effectively promote[d] competition”). The mean score was 4.0. Canada scored 4.9, beneath countries such as the U.S. (also 4.9; 17th overall) and the U.K. (5.2; 10th overall), and even Qatar (5.3; 8th overall) and South Africa (5.3; 6th overall). The honour of ‘most effective anti-monopoly policy’ went to Norway, with a score of 5.7.

Survey respondents were also asked about the extent of market dominance in their countries, again on a seven-point scale (with 1.0 indicating that corporate activity was “dominated by a few business groups” and 7.0 indicating that it was “spread among many firms”). Canada ranked 13th, with a score of 5.0. Higher scorers included the U.S. (5.2; 9th overall and the U.K. (5.5; 6th overall). The top scorer in this category was Switzerland, with a score of 5.8. (Incidentally, Switzerland was the highest-ranked country on the overall competitiveness index.)

Although the use of survey data presents obvious limitations in assessing the true impact of Canada’s competition laws, the results may indicate a relative unhappiness among businesses with the effectiveness of the Canadian competition regime in promoting competition. The Report lists “inefficient government bureaucracy” as the number one most problematic factor for doing business in Canada.

John Pecman Appointed as Canada's Interim Commissioner of Competition

Shawn C.D. Neylan

On September 26, 2012, John Pecman was appointed as the new Interim Commissioner of Competition, to lead the Competition Bureau until a new Commissioner of Competition is appointed. In announcing Mr. Pecman’s appointment the Minister of Industry, the Honourable Christian Paradis said “"With nearly 30 years of experience at the Bureau, Mr. Pecman has a keen understanding of competition law and marketplace conduct."

Mr. Pecman joined the Competition Bureau in 1984 and has worked extensively in the enforcement branches of the Competition Bureau, the agency that he now heads as Interim Commissioner. He has been involved in numerous leading cases as the senior officer, some of which were resolved on consent or by guilty plea, others of which were contested before the Competition Tribunal.

Mr. Pecman was involved in the 1986 Palm Dairies case at the Competition Tribunal, a case which was notable for a debate over the Tribunal’s role in approving remedies that had been agreed with the merging parties (ultimately the legislation was amended to remove Tribunal oversight of negotiated remedies). He was a Competition Law Officer in the Mergers Branch when it was created in 1987, following the 1986 amendments to the Competition Act that created the modern competition law regime, including the pre-merger filing and merger challenge provisions.

Mr. Pecman was next appointed Senior Competition Law Officer in the Civil Matters Branch where he was the lead officer on the Laidlaw contested abuse of dominance litigation, where the Director of Investigation and Research (as the Commissioner was then known) prevailed. He also worked on the Interac matter which resulted in a remedial order being issued on consent.

In 1995, Mr. Pecman moved back to the Mergers Branch, where he was involved as Senior Competition Law Officer in a number of transactions where consent remedial orders were made, including ADM Agri-Industries/Maple Leaf Mills, Canadian Waste Services/Capital Environmental Resources, Abitibi-Consolidated/Donohue and Lafarge/Blue Circle. He was also the lead officer on the hotly contested Superior Propane merger litigation, a key milestone in Canadian merger law.

In 2001, Mr. Pecman moved to the Civil Matters Branch where he was the Assistant Deputy Commission and directed the filing of the Canada Pipe abuse of dominance proceeding - another hotly contested Canadian competition law landmark - as well as the Enbridge Services abuse of dominance proceeding which was resolved on consent.

In 2008, Mr. Pecman became the Senior Deputy Commissioner of the Criminal Matters Branch, which enforces the cartel and bid-rigging law. He was in charge of that branch when the new cartel law came into force in March, 2010. While in charge of the Criminal Matters Branch Mr. Pecman oversaw the Bureau's role in the retail gasoline investigations in Ontario and Quebec, where multiple charges have been laid and guilty pleas entered, in some cases resulting in custodial orders, and has worked closely with foreign competition authorities in multi-jurisdictional cartel cases. Mr. Pecman is also currently a Co-Chair of the Cartel Working Sub-Group on Investigative Techniques for the International Competition Network (an international forum for competition law enforcement agencies).

Mr. Pecman is an economist, with an M.A. from McMaster University. His appointment follows Melanie Aitken’s resignation as Commissioner of Competition.

Mr. Pecman has a strong enforcement background, having resolved some cases on consent but also having litigated others. His enforcement history spans a wide range of industries. The Minister of Industry has chosen a highly experienced enforcer to lead the Competition Bureau.

Internet Predators bill would expand investigative powers in the Competition Act

Michael Laskey -

On February 14, 2012, the Minister of Public Safety tabled Bill C-30, the government’s most recent proposal for so-called “lawful access” legislation which would enhance its online surveillance powers. Titled the Protecting Children from Internet Predators Act, the bill has faced considerable criticism from privacy advocates and legal scholars, and the government announced on February 24 that it would delay consideration of the bill while it contemplated changes to address privacy concerns.

Notwithstanding the risks to personal privacy raised by Bill C-30, the bill would also expand the powers of the Commissioner of Competition when investigating companies and individuals suspected of having contravened or engaged in reviewable conduct under the Competition Act. Among other changes, the Protecting Children from Internet Predators Act would:

  • oblige telecommunications service providers to provide the Commissioner of Competition (or a designee) with identifying information about their users upon written request of the Commissioner in the performance of her duties;
  • authorize the Commissioner (or a designee) to make demands requiring persons to preserve data in their possession or control in certain circumstances when investigating potential offences under the Deceptive Marketing Practices and Civil Matters provisions of the Act and when investigating potential contraventions of sections 32 to 34 of the Act;
  • on an ex parte application by the Commissioner (or a designee), authorize a judge to order a financial institution to prepare and produce a document setting out account information about a person being investigated under the Deceptive Marketing Practices or Civil Matters provisions of the Act and when investigating potential contraventions of sections 32 to 34 (certain Special Remedies) of the Act; and
  • expand the definition of “record” in section 2(2) of the Act to include any medium on which information is registered or marked.

Wiretaps may only be used as investigative tools by the Commissioner and officials at the Competition Bureau after obtaining a court order authorizing what would otherwise violate constitutional rights. Interestingly, some of the proposed reforms, which the government says have the objective, among other things (no-doubt related to the title of the bill), of “ensur[ing] that telecommunications service providers have the capability to enable national security and law enforcement agencies to exercise their authority to intercept communications” require no such judicial authorization. In particular, orders to oblige telecommunications service providers to provide subscriber information and to require persons to preserve data can be made by the Commissioner (or a designee) directly, while other measures (e.g., orders to compel banks to provide account information) require judicial authorization on an ex parte application by the Commissioner.

The debate over lawful access measures – proposed in several bills over the past few years – extends well beyond the Competition Act.

Rogers Communications claims misleading advertising case, AMPs violate Canadian Constitution

Susan M. Hutton and Marisa Berswick -

Rogers Communications Inc. will appear before the Ontario Superior Court in June, claiming that two aspects of the Competition Act dealing with civilly reviewable misleading advertising are unconstitutional: AMPs (administrative monetary penalties) in the millions of dollars, and the “adequate and proper” testing requirements. If they are ruled unconstitutional, the case stands to gut the Competition Bureau’s ability to seek multi-million dollar penalties under the civil misleading advertising provisions of the Competition Act, and may have implications for its ability to do so in abuse of dominance provisions as well.

The Competition Bureau’s legal proceedings against Rogers began in September, 2010 when Wind Mobile filed a formal complaint with the Competition Bureau regarding Roger’s new discount cell phone service, Chatr Wireless. In November 2010, the Commissioner started legal proceedings against Rogers to stop the allegedly misleading advertising of Chatr, based on claims that it had fewer dropped calls than competitors.

Section 74.01(1)(b) of the Competition Act makes it civilly reviewable conduct, among other things, to make a representation to the public in the form of a statement regarding the performance a product or service that is not based on an “adequate and proper test thereof”, the proof of which lies on the person making the representation. Under section 74.1(1)(c) of the Act, the Competition Tribunal or the courts may make orders prohibiting the conduct in question, requiring the issuance of corrective notices, requiring the payment of restitution to affected customers, and/or requiring the payment of up to $10 million in an “administrative monetary penalty” or “AMP” (for a first such “offence”, and up to $15 million thereafter). The Commissioner sought orders against Rogers seeking all four remedies, including an order to pay the maximum AMP of $10 million.

Rogers argues that a $10 million AMP is unconstitutional because penalties of that magnitude are essentially criminal fines, but under section 74.1 of the Competition Act they are awarded after a civil trial. The various aspects of criminal procedure that protect defendants, such as requiring the Crown to prove its case beyond a reasonable doubt, are lacking under section 74.1 proceedings. 

In addition, Rogers is also asking the court to strike down section 74.01(1)(b) of the Competition Act which requires companies to make “adequate and proper” tests of a product’s performance before making advertising claims, arguing that the provision violates its right to freedom of expression under s. 2(b) of the Canadian Charter of Rights and Freedoms.

Interestingly, these same questions were previously addressed by the Competition Tribunal in its 2006 decision in the case of Commissioner of Competition v. Gestion Lebski Inc. et al (CT-2005/007). The Tribunal held that the “adequate and proper test” provision infringed the respondents’ rights to freedom of expression under section 2(b) of the Charterin that it penalized representations that could be true, on the ground that they were not based on a prior adequate and proper test. Turning to the question of whether the infringement was justified in a free and democratic society under section 1 of the Charter, the Tribunal held that no evidence had been led on the basis of which it could find that paragraph 74.01(l)(b) constituted minimal impairment of the right to freedom of expression. The provision therefore failed the Oakes test for justification of Charter infringements in that case and was found to be of no force or effect. 

The AMP (which at the time was limited to a maximum of $200,000), on the other hand, was found by the Tribunal to be of a magnitude that was not penal in nature, and which was consistent with the stated aims of civil penalties to encourage compliance and to deter prohibited conduct. The Tribunal also found that since the proceedings were civil in nature, and the AMP is not a “true penal consequence” (if unpaid, AMPs are collected by civil means as a debt due to the Crown; failure to pay the AMPs is not a criminal offence). The AMPs in question in that case were found to violate neither section 11 nor section 7 of the Charter.

The Tribunal’s constitutional rulings expressly applied to that case alone, however, since under Supreme Court of Canada precedent (Nova Scotia (Workers’ Compensation Board) v. Martin), only the courts can rule definitively on constitutional questions while administrative tribunal rulings on such issues have effect only in the case at hand.

Moreover, the maximum AMP in question in the Rogers case increased in 2009 from $200,000 to $10 million. In addition, the views of the courts on constitutional questions can have precedential value. The courts’ views of Rogers’ constitutional claims stands, accordingly, to have important ramifications for the ability of the Commissioner to seek multi-million dollar AMPs in respect of non-criminal conduct, as well as for the Competition Act requirement that advertisers conduct “adequate and proper” tests prior to making performance claims. Although not at issue in this case, depending on its outcome, the ability of the Commissioner to seek AMPs of up to $10 million for “abuse of dominance” (also a civilly reviewable practice under the Competition Act) may also come into question.

U.S. Steel agrees to settle Investment Canada enforcement action

Susan M. Hutton and Robert Mysicka -

On December 12, 2011, Canada’s Minister of Industry, Christian Paradis, announced that the federal government has reached an out-of-court settlement in its case against U.S. Steel Corp. for its alleged failure to abide by various undertakings that were conditional to the government’s approval of its acquisition of Stelco, a Hamilton-based steel manufacturer, under the Investment Canada Act.

In September, 2007, U.S. Steel sought to acquire Stelco, and submitted the required application for ministerial review and approval under the Act. The statute requires the Minister of Industry to review a foreign acquisition of control of a significant Canadian business and to approve the change in control only if persuaded that the transaction is likely to be of “net benefit” to Canada, based on prescribed - largely economic - criteria. On October 29, 2007 the Minister approved the transaction, subject to 31 binding undertakings which U.S. Steel agreed to abide by as part of its obligations under the Act. 

On May 5, 2009, however, in the wake of the global economic downturn and the shutter of two former Stelco plants in Canada (Hamilton and Lake Erie/Nanticoke), the Minister notified U.S. Steel that it had not complied with two of the undertakings, namely the obligation to ensure steady employment levels and continued production at the two plants.  Consequently, the Minister demanded under section 39 of the Act that U.S. Steel comply with its undertakings and remedy its default.  In response, U.S. Steel sent a letter to the Minister explaining that its non-compliance was due to the unexpected slowdown in economic activity following the 2008 financial crisis.

Eventually, the Minister commenced proceedings against the company pursuant to section 40 of the Act, seeking an order directing compliance and a penalty for non-compliance of C$10,000 for each day of the breach. In response, U.S. Steel filed a Notice of Motion challenging the constitutional validity of sections 39 and 40 of the Act on the grounds that they violated the presumption of innocence and the right to a fair hearing, contrary to subsection 2(e) of the Canadian Bill of Rights and subsection 11(d) of the Charter of Rights and Freedoms.

The Federal Court dismissed the motion by U.S. Steel, a decision that was affirmed on appeal at the Federal Court of Appeal.  Details of the Federal Court of Appeal’s decision can be found in our previous post on the constitutional validity of section 40 of the Investment Canada ActOn November 24, 2011 the Supreme Court denied U.S. Steel’s motion for leave to appeal.  Around the same time, U.S. Steel approached Minister Paradis with a proposal for new undertakings, which formed the basis for negotiations between the Minister and the company.

The final settlement requires U.S. Steel to continue producing steel in Canada for at least another four years, and to make substantial capital investments in its Hamilton and Lake Erie plants, totaling C$50 million. These undertakings are over and above U.S. Steel’s original commitment to invest C$200 million in the Canadian plants by October 31, 2012.

In addition, U.S. Steel has committed to making financial contributions of C$3 million to local communities.  In the Minister’s view, these additional investments mean that “U.S. Steel will continue operations in Canada that provide economic benefit to the communities of Hamilton and Nanticoke”.  Minister Paradis praised the settlement as achieving “benefits that in all likelihood would not have been obtained through the court process”.  A spokesperson for the steelmaker says that “the resolution reflects our ongoing and long term interest in doing business in Canada”.

Should you have any questions about foreign investment or doing business in Canada please do not hesitate to contact the authors or your usual counsel at Stikeman Elliott.