INDU Committee Report
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Private rights of access to the Competition Tribunal in our view would work very well in conduct which is essentially a private matter between buyers and sellers and which therefore does not warrant public intervention. The provisions that come to mind are section 75, refusal to deal, and section 77, tied selling, market restrictions, and exclusive dealing. [Konrad von Finckenstein, 43:9:15]
In previous discussions about the merits of private access stakeholders have expressed concerns about the needs for safeguards and against strategic litigation. Private access should be introduced with safeguards such as leave from the Tribunal to make sure for cost awards and certainly it should not provide for damages. [Konrad von Finckenstein, 43:9:15]
My modest proposal would be to put a double damages provision in there and Im quite sure that that would stimulate a variety of private actions [William Stanbury, 47:15:50]
Under current Canadian law, the Commissioner of Competition is the only party with standing to make an application for civil review before the Competition Tribunal. The issue of whether to extend standing to private citizens in civilly reviewable matters has been the subject of considerable debate. Witnesses appearing before the Committee were generally supportive of amendments leading in this direction. The main argument against private access is the potential for abuse in the form of "strategic litigation" (i.e. legal action commenced not for the purpose of seeking a remedy to anticompetitive behaviour, but rather to gain an advantage over a competitor). Experience in the United States is cited where awards of treble damages may accrue to the successful plaintiff in certain circumstances. The prospect of damages far in excess of actual quantified losses, it is thought, could create significant incentive to litigate, particularly since the successful plaintiff is entitled to legal costs (the successful defendant, by contrast, is not so entitled, but rather is subject to the traditional American rule requiring the parties to bear their own costs).
Over the past 25 years, private actions have constituted in excess of 90% of all antitrust cases filed in the United States and outnumber public sector actions by a ratio of 9:1. While the odds of success do not favour plaintiffs ¾ almost 90% of cases are either settled or dismissed before trial, and over 70% of litigated cases result in judgment for some or all of the defendants ¾ there is nothing to suggest that the pace of litigation is slowing. The American experience does not, however, appear to be reflected in other jurisdictions where rights of private action have been extended. This is likely because no other jurisdiction has adopted the U.S. approach of treble damages and costs.
A limited right of private action exists in respect of criminal matters but, for reasons set out below, such action has been rarely initiated. Under section 36 of the Competition Act, a person may bring an action for damages (and costs) if the person has suffered loss or damage as a result of either: (a) conduct contrary to Part VI ("Offences in Relation to Competition"); or (b) the failure of a person to comply with an order of the Tribunal or of another court under the Act. Accordingly, a right of private action for damages may arise in three circumstances: (1) the Department of Justice successfully prosecutes a violation of a criminal provision under Part VI (conspiracy, bid-rigging, price discrimination, price predation, false advertising, deceptive telemarketing, double-ticketing, pyramid-selling, or price maintenance); (2) after the Commissioner and a party have entered into a consent order and the order has been issued by a court, the party fails to comply with it; or (3) if an aggrieved party succeeds in a private prosecution.
Closer examination reveals that, in fact, there are significant obstacles to the recovery of damages by an aggrieved party. First, the Commissioner of Competition must decide whether or not to seek prosecution of the matter. The Commissioner is not required to commence an action; however, under section 21 if, in his or her opinion, the public interest so requires, the Commissioner may apply to the Attorney General of Canada to appoint and instruct counsel to assist in an inquiry under section 10. The Commissioner may also discontinue the inquiry at any time. Moreover, even where there is evidence of criminal activity, the Commissioner will not necessarily refer the matter for prosecution but may settle it through negotiation. The terms of such settlement are kept confidential and no consent order is usually sought from the court. In this case, even if a party does not comply with the terms of the settlement, the aggrieved plaintiff will be unable to recover damages, since this right requires that an order first be issued by the Tribunal or a court.
The Attorney General, upon receiving an application from the Commissioner, may also appoint and instruct counsel to cause an inquiry as the Commissioner considers necessary to determine the facts. Under section 23(2), the Attorney General has the discretion to institute and conduct any prosecution or other criminal proceedings under the Act. Again, the Attorney General is not required to do so. Finally, the Attorney General has the discretion to not proceed with charges, to stay the proceeding or drop the charges altogether.
Accordingly, a persons ability to recover damages depends in large measure on whether the Commissioner attempts to secure a conviction through referring the matter to the Attorney General. If the Commissioner decides not to do so ¾ or if the Attorney General decides not to proceed with the charge ¾ the only option remaining to an aggrieved person is private prosecution.
Private prosecutions are relatively rare in Canada today. In order to secure a conviction on an indictable offence (the more serious offences under the Act), the private informant must, as a first step, get the written consent of the judge. This is no mere formality; the judge, in exercising his or her discretion, is required to consider the nature of the offence, whether it is of a "public" or "private" nature, whether a preliminary inquiry has been held, and also the position of the Crown in the matter. In the only reported case of a private prosecution under the Competition Act, Lynk v. Ratchford [1995] N.S.J. No. 238, the Nova Scotia Court of Appeal confirmed that a right of private prosecution does exist under the Act. The Attorney General may take over a private prosecution in order to continue the prosecution, stay the proceeding or drop the charges.
Witnesses appearing before the Committee were unanimous in agreeing that the Act is currently under-enforced by the Commissioner of Competition and that the Canadian competitive environment would benefit from having more cases brought to the Competition Tribunal. As Professor Trebilcock noted:
From 1976 to 1986, a decade, there were only two cases brought before the predecessor to the Competition Tribunal two cases in ten years. From 1986 to 2000 there have been nine contested cases brought by the Bureau before the Tribunal, nine cases in 15 years. This is not a record of extensive public enforcement. [Michael Trebilcock, University of Toronto, 48:9:45]
The Commissioner of Competition agrees on the advantages of private action:
In our view, private action would be a good complement to public enforcement. It would increase the deterrent effect of the law, and it would help build up a much-needed body of jurisprudence. Private rights of access to the Competition Tribunal in our view would work very well in conduct which is essentially a private matter between buyers and sellers and which therefore does not warrant public intervention. [Konrad von Finckenstein, 43:9:10]
The main reason for the lack of prosecution appears to be lack of resources. An average application to the Tribunal costs the Government of Canada about $1 million. Both the Commissioner and witnesses agreed that the Bureaus current budget does not permit optimal enforcement of the Act. In the absence of this, there is real concern that the Bureau will come to be perceived as a "toothless tiger." This does not imply that the Bureau is inactive. The lack of cases referred to the Tribunal does not reflect the many cases that are settled through private negotiations between the Commissioner and the parties. Indeed, there is every indication that the Bureau is more active than it has ever been. This is attributable to a number of factors, including increased merger activity:
The people who do the same functions in the United States are equally being overwhelmed with work. Its taking place in Europe. It seems to be a worldwide phenomenon, and to give you a sense of the scale in terms of notifiable transactions, we have in the fiscal year that just ended, broadly speaking, twice as many as there were about five years ago, so its a very major wave thats taking place. [Gaston Jorré, Competition Bureau, 43:10:05]
This may in part be attributable to the fact that the monetary thresholds for notifiable transactions have not been adjusted to inflation.
I think undoubtedly one of the reasons why the Bureaus resources are stretched is that they spend a lot of time reviewing mergers. The merger activity of the Bureau is a reflection of the high level of activity in the business and the fact that since 1988, when the merger pre-notification rules mandating the review of certain size mergers came in, there has been no adjustment in the thresholds which determine which cases have to be reviewed. In that intervening time, the Canadian dollar has diminished by approximately a third, which means there has been a substantially increased number of cases which are now culled into the process. That would not have been the case in 1988 in real dollar terms. [Tim Kennish, 44:9:20]
Furthermore, as a result of NAFTA, much bigger players are emerging, presenting increasingly complex mergers involving several jurisdictions. As a result, the Bureau is allocating an increasing portion of its resources towards merger review and consequently away from other areas of enforcement.
Another factor affecting resource allocation is the move towards deregulation and liberalization:
As part of the deregulation and liberalization of part of our economy such as transport, such as telecom and now energy, etc., the responsibility of the Bureau has actually increased. Because to the extent that in areas deregulated and not subject to a specific regulator anymore, then it becomes our responsibility and we look at it. [Konrad von Finckenstein, 43:9:35]
The high costs to the government of bringing an application to the Tribunal are even higher for the private sector.
The average of their cases ¾ there havent been that many ¾ has been over $1 million to go to the Tribunal But Im sure that on the defendants side, the costs are even higher. So going to this Tribunal is not a cheap proposal Its not going to be the little fellow thats going there, its going to be big fellows. But the real question is when you go to the Bureau with a complaint that has a really public interest to it, are the Bureau not going to tell you to go and fight it that they wont bother, and you have access. Yes, I have access, just like I have access to swim over Niagara Falls. But there is a certain outside risk. [Warren Grover, 46:11:05]
Matters before the Tribunal take an average of 20 months to be resolved, and in that time, the fees of lawyers and expert witnesses may become prohibitive. The mere cost of bringing a case to the Tribunal would likely prove an additional disincentive to spurious litigation.
As a final comment on the issue of resources, it is worth noting that, with 1999 operating budget of $25.3 million:
The Competition Bureau is now a profit centre and they brought in $100 million in fines in the last twelve months; thats pretty good. They werent contested cases but somebody thought that they could win a case enough to pony up $100 million to settle the case. Theres money there, its making money. [James Musgrove, 46:10:45]
At the same time, the Commissioner underscores the need for increased enforcement budgets:
Are we straining? Yes. Could we use more resources? Absolutely. All my colleagues in other anti-trust agencies have the same problem. Nobodys ever seen quite the merger wave that we have, the number of cases and the complexity of the cases. [Konrad von Finckenstein, 43:9:20]
With such an enviable record of cost recovery, it is reasonable to suggest that to increase the Bureaus budget would be sound fiscal planning. This is not to suggest that cases should be pursued as a revenue-generating exercise; rather, an increase in funding would permit the Bureau to enforce the Act vigorously with a view to ensuring that industry and consumers would continue to reap the benefits of healthy competition.
The current Tribunal review process is perceived as slow to respond and overly procedural: "we need some power to move quickly in predatory pricing cases so that you can preserve competition before the victims dead" [Tom Ross, 46:9:40].
In todays innovative economy, speed counts and anticompetitive conduct may drive a complainant from the market before a case can be heard and a remedy ordered. Several procedural changes were suggested that would improve the dispute resolution system. A system whereby references could be made to allow early resolution of key issues on which a case hinged; the discretion to award costs would give the Competition Tribunal a lever to discipline delay tactics and strategic litigation; summary dispositions would allow the Tribunal to bring a case to a quick close if the evidence on either side appeared to have no merit. On this subject, the Committee is aware that in February 1999 the Tribunal invited public discussion on its "Proposals for Revised Procedures before the Competition Tribunal." Among other things, the proposed changes aim at "streamlining the proceedings of the Tribunal" and accommodating "comments and suggestions made in the past by competition law practitioners and the Commissioner of Competition in the objective to make the Tribunal a more flexible and efficient forum of adjudication." The proposals aim at active case management, alternative methods for witnesses and experts to present evidence, and eliminating unnecessary steps in the process, such as oral and documentary discovery.
In addition, the Commissioner has argued in favour of amendments to the law granting the Commissioner new powers to issue cease and desist orders of his (or her) own right in instances of suspected price predation. This proposal met with considerable resistance from lawyers and economists appearing before the Committee. The issue is explored in greater detail in Chapter 7.
With some exceptions, witnesses appearing before the Committee expressed support for a right of private access to the Tribunal, particularly on the following grounds:
The very purpose of competition law in the Competition Act is of course to redress the evils of private monopoly. It strikes me as totally incongruous in that context to assign a public monopoly to a government agency in performing this function. [Michael Trebilcock, 48:9:45]
And
Giving private parties the right of direct access and direct initiation of proceedings before the Competition Tribunal is a way of holding public agencies, in this case the Bureau, accountable for the exercise of its enforcement discretion. [Michael Trebilcock, 48:9:45]
However, there are more reasons to favour private access to the Tribunal; these are summarized in Exhibit 6.1.
Exhibit 6.1 Reasons for a Right of Private Access to the Competition Tribunal Studies suggest that the private sector is more able than the government in detecting anticompetitive conduct that has an immediate impact on participants in a specific market. Private actions would free up Bureau resources, and allow it to focus upon higher-level anticompetitive conduct that is not readily detectable, owing to its covert nature. The Competition Tribunal is currently underutilized. The possibility of private action might deter firms from undertaking anticompetitive activity. The private sector could be an effective partner in achieving compliance with competition law if interim injunctive relief or cease and desist orders were made available to it on a relatively inexpensive, expedited basis. Private actions would result in judicial decisions providing guidance to the business community on its responsibilities under competition law. An increase in cases would provide new opportunities for more lawyers to specialize in competition law practice, contributing to the development of a more diverse bar reflecting broader socio-economic interests. Similarly, increased opportunities for economists and other experts to provide evidence in proceedings would promote the development of theoretical constructs unique to the Canadian experience, and reduce the degree of reliance on the experience of foreign jurisdictions. |
While most witnesses were of the view that creating a private right of action would not lead to a flood of new cases, several means were suggested to discourage strategic litigation. They are documented in Exhibit 6.2.
Exhibit 6.2 Rules to Discourage Strategic Litigation Carefully prescribing rules of standing to limit the right of action to parties that had been directly aggrieved by alleged anticompetitive behaviour. Assigning the Tribunal a "gatekeeper" role, with the right to determine issues of standing. Prescribing a summary judgment procedure that would require the adjudicator take a "hard look" at the merits of the case in the early stages with a view to determining if the matter aimed at bona fide anticompetitive conduct. Clearly frivolous or vexatious cases could be struck out at an early stage. Prescribing significant costs sanctions against unsuccessful plaintiffs. Granting the Commissioner a right to intervene and present views on the merits of the case to the Tribunal as an amicus curiae. There should be appropriate cost rules so that unmeritorious cases that failed would entail some costs to plaintiffs. |
While there was broad agreement on the principle of granting private access, there was less consensus on the relief that should be available. Many witnesses did not support a right to claim for damages, but rather proposed to limit the plaintiff to injunctive relief. Injunctive relief would have the effect of enjoining the anticompetitive activity in the future. The primary reason for denying claims for damages would be to discourage strategic litigation.
In previous discussions about the merits of private access ¾ and weve had many ¾ stakeholders have expressed concerns about the need for safeguards and against strategic litigation. Private access should be introduced with safeguards such as leave from the Tribunal to bring an action and cost awards. Certainly, it should not provide for damages. [Konrad von Finckenstein, 43:9:15]
However, a contrary view would allow the injured plaintiff to sue for damages:
I know there is resistance in the business and some elements of the legal community to this proposal, but I for the life of me dont understand why the plaintiffs whose complaints have been found meritorious by the Tribunal and who have suffered losses should have to bear those past losses and settle only for future relief. Its better to say theres a loss there, somebody has to bear it, either the defendant or the plaintiff. Why should the plaintiff, in cases where his or her complaint has been vindicated, have to bear those losses [Michael Trebilcock, 48:9:50]
Proponents of this view express the opinion that it is the U.S. rules on treble damages and costs which, taken together, have promoted the extensive litigation witnessed in that country. Limiting recovery to those damages that the plaintiff could quantify, and following the general Canadian cost rule of costs following substantial success in the cause would, it is suggested, provide adequate disincentive to excessive litigation.
There have been very few such cases for very good reasons. First, you can only get single damages. In the United States you can get treble. Second, we have the anglo-Canadian cost rules as opposed to the American style cost rules which means that if you lose, you have to pay the other sides costs. Third, in general were more restrictive in creating class actions. [William Stanbury, 47:15:50]
Even where relief is limited to injunctive measures, there remains the question of to whom the relief is available and in respect to what matters. On this issue there was no firm consensus. For the most part, witnesses suggested a rather narrow definition that would allow only persons directly harmed by anticompetitive activity to apply. However, the Committee is aware that this is not the only approach available; other jurisdictions formulate rules of standing more broadly, even to the extent, for example, of allowing members of the general public to challenge activities such as mergers that could have broader consequences to the public.
The possibility of allowing class action was also canvassed. In 1999 two class actions were certified by Ontario courts under the criminal provisions of the Act. Providing for certification of civilly reviewable actions would not appear to require significant amendments to existing rules.
Based on the evidence heard to date, the Committee finds that amendments to the Competition Act may be advisable in order to create rights of private action before the Competition Tribunal and therefore finds that:
14. The Government of Canada give further consideration, in consultation with stakeholders, to enacting legislative changes necessary to permit private individuals who have been prejudiced in the conduct of their business by anticompetitive conduct to make application to the Competition Tribunal for relief in matters involving civil review. The issue of the relief available to private litigants, whether in the form of injunctive relief or damages, or both, may also be the subject of further consultation.