INDU Committee Report

In recent appearances before House of Commons committees, including the Industry Committee, the Commissioner of Competition has argued for amendments to the law granting the Commissioner new powers to issue cease and desist orders of his (or her) own right, without allowing the affected party a right to be heard prior to the making of the order, and without any authorization from the Competition Tribunal. The Commissioner believes that these extraordinary powers are necessary owing to the inadequacy of the procedures and/or the remedies currently available to the Bureau to use against the threat of price predation.

The Competition Tribunal was created in 1986 when Parliament enacted major reforms of Canada’s competition law and replaced the Combines Investigation Act with the Competition Act. The Tribunal is a specialized court that combines expertise in economics and business with legal expertise and hears and decides all applications made under Parts VII.1 and VIII of the Competition Act as informally and as quickly as allowed by the circumstances and considerations of fairness. The Tribunal is strictly an adjudicative body that operates independently of any government department. It does not have investigative powers nor does it provide advice to government. It has no function other than that associated with the hearing of applications and issuance of orders.

The Tribunal is composed of not more than four judicial members, who are appointed from among the judges of the Federal Court, Trial Division, and not more than eight lay members. Lay members are appointed by the Governor in Council on the recommendation of the Minister of Industry.

In the context of competition, and more particularly in civilly reviewable actions under Part VIII, executive authority is exercised by the Commissioner in the role of investigator and prosecutor. The Tribunal, exercising judicial power, serves as a check upon the unconstrained exercise of executive authority, with a view to preventing that power from being misused, either consciously or inadvertently. Accordingly, the Commissioner may be seen as the investigator/prosecutor, and the Tribunal as the judge. In seeking the cessation of a particular behaviour, the Commissioner makes an application to the Tribunal for relief, setting out the case, on a balance of probabilities, that the circumstances warrant such relief.

Among the many forms of relief available, the permanent or interim injunction (also known as a "cease and desist order") is common. Interim orders may issue in three instances:

Under section 33, the Attorney General may apply to a court for an order pending the commencement or completion of proceedings under Part VI (Offences in relation to Competition), or proceedings relating to the violation of an order made under Part VII.1 (Deceptive Marketing) or Part VIII (Matters Reviewable by the Tribunal). In this case, the Commissioner must convince the Tribunal, on a balance of probabilities, that non-issuance of the order will result in injury to competition that cannot adequately be remedied otherwise by the Act and that a person is likely to suffer non-compensable damage and that the balance of convenience favours the applicant.

Under section 104, in respect of Part VIII matters, after an application has been made to the Tribunal, the order will be issued in accordance with the principles ordinarily considered by superior courts when granting such relief. In issuing a temporary order, the court must first find that irreparable harm will occur if the injunction is not issued. The only question at this first stage is whether a refusal to grant relief could cause harm that could not be remedied if the eventual decision on the merits did not accord with the result of the application. "Irreparable harm" is harm that either cannot be quantified in monetary terms or cannot be cured, usually because one party cannot collect damages from the other. If the first test is met, the second question to be addressed is which party will suffer the greater harm from the granting or refusal to grant the injunction, pending a resolution of the dispute on the merits.

Under section 100 ¾ in the case of mergers only ¾ where the Commissioner has not referred the merger to the Tribunal, but an interim order can be made under section 10(1)(b) with regard to a possible offence under Parts VI or VII and which requires more time to be completed. In this case, the absence of an interim order would have to compromise the ability of the Tribunal to remedy the competitive effects of the proposed merger. The Tribunal’s interim order issues on such terms as the Tribunal considers necessary in the circumstances, and lasts for a maximum of 30 days.

An important recurring question was how long it takes to get a temporary cease and desist order from the Tribunal. While it was widely agreed that final disposition of cases by the Tribunal can take a long time, there was no firm consensus on how quickly an interim order might issue. Estimates provided by counsel with considerable experience in competition practice ranged from an hour to two weeks.

As the name suggests, the order enjoins, or prohibits, the person against whom it is made from engaging in a specific type of conduct. An interim order "may issue ... having regard to the principles ordinarily considered by superior courts when granting interlocutory relief." In the case of predatory pricing, irreparable harm can be said to have occurred if the victim of the predation has been so "undercut," that he or she is forced out of the industry.

Subject to provisions of the Act that specifically limit the duration of the order, the Tribunal’s interim order has such effect and is of such duration as the Tribunal considers necessary in the circumstances. Once an interim order is issued, the Commissioner is required to proceed as expeditiously as possible to complete the proceedings.

Bill C-472 proposes amendments to the Competition Act that would invest the Commissioner with the authority to issue temporary (up to 80 days) cease and desist orders without the necessity of applying to the Tribunal: "if in the opinion of the Commissioner, the order is necessary to prevent injury to competition or harm to another person." The following conditions would also have to be met: (1) the Commissioner would have to have commenced an inquiry in regard to whether the person has engaged in conduct that is reviewable under section 79; (2) the Commissioner would have to consider that, in the absence of a temporary order, injury to competition that could not adequately be remedied by the Tribunal would be likely to occur, or a person would be likely to be eliminated as a competitor, suffer a significant loss of market share, suffer a significant loss of revenue, or suffer other harm that could not be adequately remedied by the Tribunal; and (3) the Commissioner would not be obliged to give notice to or receive representations from any person before making a temporary order. A person against whom the Commissioner had made a temporary order might apply to the Tribunal to have the order varied or set aside.

Witnesses expressed broad support for the principle that remedies aimed at price predation must be swift; however, the idea of granting new cease and desist powers to the Commissioner met with much opposition. These criticisms are summarized as follows.

A party against whom an order was sought would not be entitled to receive notice of the application. As such, the application would be heard without the party having had an opportunity to make arguments or present evidence. This approach would likely cause difficulties for Canadian courts:

Where no notice was given the company would be presented, as a fait accompli, with an order that had the same force as a court order and a breach of which would be punishable by fine or imprisonment. Once the order was made, the party could bring an application to set the order aside.

This "reverses the onus" of proof; that is, instead of the Commissioner being required to make out a case for why the order should issue, the person affected by the order would have to make a case for why the order should be lifted. This is arguably in violation of principles of due process, making the legislation vulnerable to judicial review under section 7 of the Charter of Rights and Freedoms.

A second potential ground for judicial review arises out of the fact that the Commissioner could be acting, in effect, as both the prosecutor and the judge. Similar principles were in issue in an early Charter case, Hunter v. Southam.

In that case, the Director of Investigation and Research (the predecessor to the Commissioner) was authorized by statute to conduct searches of premises where the search was authorized by a warrant. The warrant, however, did not issue from the judiciary, but rather from the Restrictive Trade Practices Commission. In effect, the investigation was carried out by one branch of the Commission, and the warrant was issued by another branch. Chief Justice Dickson, writing for a unanimous Supreme Court, found that this violated the "unreasonable search and seizure" provisions set out in section 8 of the Charter. A proper warrant, it was found, must issue from an independent judicial authority (i.e. one not involved in the investigation) and based on evidence submitted by the applicant. In effect, the Director as investigator/prosecutor is required to "make out a case," to an independent judicial body, for the necessity of the search warrant.

A similar principle would appear to apply in the case of the interim order: the Commissioner could issue an order if, in his view, the Tribunal did not provide an adequate remedy. In effect, then, the Commissioner would make not one, but two, judicial determinations: (1) that the Tribunal did not provide adequate remedies; and (2) that there was sufficient evidence of an offence for an injunction to issue. This raised certain questions among witnesses: On what grounds would the Commissioner decide whether the Tribunal was adequate? What "check" would there be on potential misuse of the power? It would lie only with the party affected by the order who, after receiving the order as a fait accompli, could make application to the Tribunal, and then make out a case, post-facto, why the order should be lifted. The applicant would be denied recourse to any other civil court, apart from the Tribunal, for review of the Commissioner’s use of the power. Accordingly, any delays by the Tribunal in hearing the application would act to the prejudice of the applicant.

A third argument involves the possible perverse effects of the power. If a mere allegation of price predation would be sufficient to permit the Commissioner to invoke the interim powers, the Commissioner could, in good faith, be induced by an industry player into issuing an order with a doubly perverse effect: (1) maintaining higher prices for consumers; and (2) protecting an uncompetitive player from healthy competition. Of course, the Commissioner would undertake a full investigation into the matter, when time permitted. However, it is precisely because time is of the essence and permits only a partial investigation that the Commissioner claims that the new powers are required. If there were time for the Commissioner to carry out a full investigation, the Commissioner could simply bring the results of this investigation to the Tribunal, as is currently required. Accordingly, a situation could conceivably arise where the Commissioner, not having completed the investigation owing to time constraints, issued an order based upon an unsubstantiated allegation of price predation. Of course, should price predation in fact be occurring in an industry, the effect of the order would be to right a manifest wrong. According to some economists, however, economic evidence in both Canada and the United States indicates that true predation is rarely attempted and even less frequently successful. In the absence of predation, the effect of the order would be to protect an uncompetitive market player and to maintain higher prices for consumers, at least in the short run.

Accordingly, it should be asked how often does price predation actually take place, versus how often it is alleged to take place? The Committee heard evidence on this from several economists. While there was no firm consensus on the frequency of predation, it was agreed that it is alleged far more often than it is proved. That is, price predation does exist, but the difficulty of meeting the criminal burden of proof ("beyond a reasonable doubt") may deter the Commissioner from referring it to the Tribunal. Furthermore, strained enforcement budgets necessitate that the Commissioner choose cases that have the greatest chance of success. As such, it may well be that many cases of predation are not prosecuted (the dynamics of price predation are explored in greater detail in Chapter 3).

Several members of the Committee pointed to instances of possible predatory behaviour and emphasized the devastating effect of the practice on small and medium-sized enterprises (SMEs). Economists appearing before the Committee made the point that the loss of a single competitor does not necessarily harm competition, although certainly it may have that effect:

Assessing the competition in a given market requires more than merely counting the number of firms competing in it. Indeed, the example of Coke and Pepsi illustrates that vigorous competition can ensue where there are only two participants in market. Calculating the impact of the loss of a competitor requires detailed analysis of the particular circumstances of the industry, including market power, the existence and closeness of substitutes, price elasticities of demand and barriers to entry. SMEs are more likely to fail in a market increasingly dominated by large firms which, enjoying greater economies, are able to offer consumers prices that SMEs cannot match. The result is, at least in the short run, lower prices for consumers. In the long run, however, there is a risk that, having driven smaller competitors out of the market, the large firms will raise prices in order to recoup their losses during the predation phase. If barriers to entry are low, of course, raising prices will attract new entrants and competition will bid prices down again. Accordingly, while the loss of a competitor may have a detrimental effect on competition, it does not necessarily do so. Expert witnesses underscored that the Competition Act protects competition, not individual competitors. This is not to say, however, that the Act will never serve to protect an individual competitor if competition would be harmed by the failure of that firm. Ultimately, however, the test is the impact of the failure on competition, not on the individual enterprise.

Perhaps the most compelling argument against providing the Commissioner with new powers is the fact that the same result ¾ swift action against price predators ¾ could be more readily accomplished with a relatively simple two-step amendment, a process that would safeguard the rights of all parties. The first step would involve expediting the Tribunal process for granting temporary orders; the second step would amend section 100 of the Act to expand the circumstances in which the Commissioner could apply for an interim injunction.

Private litigants ¾ if private access to the Tribunal was granted (see Chapter 6) ¾ could also benefit from the streamlined injunction procedure. Victims of predation would no longer be reliant on the Bureau’s decision to pursue or not to pursue a remedy. As was discussed in Chapter 6, the decision to take a case to the Tribunal may not be made based on merits of the claim, but rather on the availability of enforcement dollars. A private litigant, being intimately familiar with the circumstances, would be better equipped to mount a timely and convincing case. This would give the firm itself the means to take swift action to defend itself from the predator. Of course, the firm would do so at its own expense and risk but this would be no disincentive to legitimate claims.

Several witnesses suggested that, with a few amendments to the current Act, the rules relating to interim orders could be expanded to address the Committee’s concerns about the timeliness of the Tribunal process.

Under section 100, the Commissioner may apply for an interim injunction in respect of a merger when the Commissioner: (1) has started an inquiry under section 10; (2) needs more time to complete his inquiry; and (3) the Tribunal finds that in the absence of the order its ability to remedy the effect of the proposed merger would be substantially impaired. It was suggested that by "generalizing" this section to permit the Commissioner to make an application in respect of any matter ¾ not just mergers ¾ in respect of which he has commenced an inquiry, the same objective could be achieved (i.e. swift action against price predators), while ensuring that due process is respected.

The burden of proof to be met by the applicant for an order is an issue that would have to be addressed. By granting an injunction, the Tribunal is, in effect, presupposing that an offence has been committed, which, in the absence of the injunction, will continue. If the subsequent hearing reveals that, in fact, there was no offence, the enjoined party will have been wrongly prevented from pursuing legitimate business activity and is likely to have suffered significant losses as a result. For this reason, with such a result on a normal civil action, the party seeking the injunction must undertake to pay the damages suffered by the enjoined party. For the same reason, the Tribunal would have to require that the applicant make out, at the very least, a prima facie case that an offence was ongoing at the time of the application. Discharging the burden of proof in a price predation case would be difficult: price predation is currently a criminal offence, requiring proof beyond a reasonable doubt. Making out a prima facie case of a criminal offence requires considerably more than making out a prima facie case in a civilly reviewable offence, where the burden of proof is the balance of probabilities. However, by amending the Act to make predation a civilly reviewable offence (see Chapter 3), the less onerous civil standard would apply.

It is also important to note that showing a prima facie case is by no means as onerous as actually proving the alleged offence on the balance of probabilities:

Having heard and considered the submissions of all witnesses, the Committee finds that: