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Discoverability does not apply to competition claims

The Federal Court has recently ruled that the discoverability rule does not apply to extend the applicable to private actions launched to recover damages caused by breaches of the .[1]

The case

Garford Pty Ltd. sued Dwyidag Systems International, Ltd. for allegedly engaging in and during negotiations and discussions leading up to three purchase agreements in November 2003, February 2005 and March 2006. 

Dwyidag moved for summary judgment dismissing Garford’s claim on the grounds that it had sued after the expiry of the two year limitation period established by the Competition Act. Dwyidag argued that limitation period had expired, at the latest, in March 2008, two years after the final purchase agreement of March 2006, and five months before Garford issued its claim.

Subsection 36(4) of the Competition Act provides that a plaintiff must bring an action alleging criminal conduct within two years from “a day on which the conduct was engaged in”.  Federal Court of Canada Justice Russell noted that the conduct alleged by Garford was the negotiations and discussions leading up to the purchase agreements.  Thus the limitation period for each of the three transactions started running on the day the purchase agreement was entered into and expired two years later.[2]

Garford advanced three theories to support its contention that the limitation period had not expired. First, it argued that the principle of discoverability applies to private actions under the Competition Act. Second, it argued that the conspiracy constituted a continuing action by Dwyidag. Third, it argued that it suffered continuing damage as a result of the conspiracy.

Discoverability

Garford’s primary argument was that the limitation period for private actions under the Competition Act[3] is subject the discoverability rule. The discoverability rule is a judge-made rule delays the beginning of the limitation period until the plaintiff knows it has a cause of action. Thus under this rule, the limitation period would not start to run until Garford had knew that it had a cause of action against Dwyidag, that is, until it knew about the conspiracy and knew it had suffered damage as a result of it. Garford said that until it had received copies of the purchase agreements it could not have possibly known that it had a claim nor could it fully appreciate the extent of the damages it might suffer.

However, the discoverability rule is a rule of statutory construction. It does not automatically apply to all limitation periods, Russell J. held.[4] The rule applies where the event that starts the limitation period is the accrual of a cause of action or an event that occurs only when the plaintiff has knowledge of an injury. But where the event occurs without regard to the injured party’s knowledge, discoverability does not apply.[5]

Russell J. held that the limitation period established by the Competition Act ran from a specific date that was independent of knowledge. This, he held, the discoverability rule does not extend the limitation period.

Even if it did apply, Russell J. held, the limitation period would still have expired, since the plaintiff knew about its potential claim – and even threatened to sue – more than two years before it commenced the action.

Russell J.’s conclusion that the discoverability rule would not assist the plaintiff appears sound. In Ryan v. Moore, however, the Supreme Court said that a thorough balancing of competing interests is required. Unfortunately, Russell J. did not undertake such an analysis of subsection 36(4).

The purpose of section 36 of the Competition Act is to create a statutory cause of action entitling a victim to recover damages caused by conduct that is a criminal offence under the Act. The offence of conspiracy (section 45) is one of the most frequently pleaded predicate criminal offences in section 36 cases. Yet the trouble with conspiracies is that they tend to be hatched in secret, and are difficult to detect from their effects. Most frequently, they are brought to light through the Competition Bureau’s immunity program, which encourages participants to self-report.

However, a victim of a conspiracy could easily fail to detect the conspiracy within the two year limitation period, and thus lose its cause of action.

Subsection 36(4) offers partial relief from this problem: the limitation period starts to run again on the day on which criminal proceedings relating to the alleged conduct are finally disposed of. Interestingly, it does not matter whether the accused is convicted or acquitted, or even if the charges are ultimately dropped. It would even be theoretically possible for a victim of a conspiracy to commence a private prosecution in order to revive the statutory cause of action.

In any event, the problem of victims losing their right of recovery before even learning of it does not generally arise in practice, because price fixing conspiracies typically end only once they are discovered.

Continuing Action

Garford’s second argument alleged that Dwyidag engaged in a continuous offence.  Russell J. cited a number of cases for the proposition that a continuing offence “requires a succession or repetition of separate offences of the same character or kind”.

Garford argued that the acquisition agreements caused the offending conduct to continue and carry forward into the future and thus extending the limitation period.

Russell J. rejected this argument. The alleged offence was one offence, which occurred when the agreements were concluded, but whose effects continued. The offence of conspiracy, however, consists of the agreement, not its effects. Thus, he held, ongoing effects do not extend the limitation period.[6]

Once again, while Russell J.’s conclusion on the particular agreements alleged appears to be sound, his reasoning is problematic.

In particular, Russell J.’s statement that “A continuing offence under Part VI of the Competition Act would require ongoing acts that, in themselves, are an offence under Part VI” misapprehends the nature of a price fixing conspiracy. It is in the nature of a price fixing conspiracy to remain in force for long periods of time, with periodic meetings between the conspirators.

Suppose that two competitors agree on January 1 to fix the price of widgets at $100 for the next twelve months. The very making of that agreement is an offence under section 45. Under Russell J.’s reasoning, the competitors would have committed an offence on January 1, but on January 2, would not still be committing the offence, even though the agreement remained in force. This, however, is not the law in Canada.  Conspiracy under Competition Act has been recognized as a continuing offence.[7]   Since the making of the agreement is the offence, the parties commit a continuing offence during the period that the agreement is in force, that is, in the example, 12 months.

The relevant distinction therefore, is not between agreements that are repeated and those that are not, but between agreements that remain in force in the sense that their continued performance is contemplated, and agreements that have terminated because they have been completely performed. A price fixing conspiracy that remains in effect would belong to the first category. A non-competition agreement whose term has expired would belong to the second category.[8]  The agreement in issue in Garford appears to belong to the second category.  Thus Russell J. was correct in holding that the limitation period had expired.

Continuing damage

Garford’s final argument was that the limitation period should continue so long as Garford continues to suffer damage as a result of the alleged conspiracy.

Russell J. rejected this argument as “contrary to the principles and authorities discussed above”.[9] The key principle supporting this conclusion is that the “conduct” that triggers the running of the limitation period is the offence under the Competition Act, in this case, the offence of conspiracy. The offence is complete upon the making of the agreement; the effects of the agreement do not themselves constitute an offence. Subsection 34(4) is unique in tying the start of the limitation period to only one of the elements of the cause of action, that is, the predicate offence rather than the injury.

In the result, Russell J. rejected all three of Garford’s arguments and held that since the limitation period had expired in March 2008, Garford’s claims were statute barred. The action was therefore dismissed.

[1] Garford Pty Ltd. v. International, Canada Ltd. [2010] F.C.J. No. 1259

 

 

[2] Garford, at ¶ 19.

 

 

[3] s.36(4)

 

 

[4] Garford, at ¶ 28.

 

 

[5] Russell J. drew this proposition from Fehr v. Jacob (1993), 14 C.C.L.T, (2d) 200 (Man. C.A.) at 206. It was adopted by the Supreme Court in two cases: Peixeiro v. Haberman [1997] 3 S.C.R. 549 at ¶ 37 and Ryan v. Moore [2005] 2 S.C.R. 53 at ¶ 23.

 

 

[6] Garford, at ¶ 43-45.

 

 

[7] R v. Howard Smith Paper Mills [1957] S.C.R. 403.

 

 

[8] It should be noted that a non-competition agreement entered into as part of the sale of a business (for example) will not generally offend section 45 because of the ancillary restraints defence in subsection 45(4).

 

 

[9] Garford, supra note 1 at para. 46.

 

 

W. Michael G. Osborne
Affleck Greene McMurtry LLP

W. Michael G. Osborne

Michael Osborne is a former Partner of Affleck Greene McMurtry LLP

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Fiona Campbell
Affleck Greene McMurtry LLP

Fiona Campbell

Fiona Campbell is a highly valued member of Affleck Greene McMurtry’s litigation team. She is an experienced advocate offering strong skills and knowledge in the areas of commercial litigation, competition, securities and insurance law.

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