Reliance loses bid to end abuse of dominance case
March 13th, 2013
A recent Competition Tribunal decision was cold comfort for hot water heater supplier Reliance Comfort Limited Partnership. The Tribunal dismissed Reliance’s attack on the Commissioner of Competition’s pleadings. The Tribunal held that the Commissioner need only set out the material facts on which he is relying; not factual or economic evidence. Also, a respondent will not be permitted to seek the Commissioner’s evidence under the guise of requesting particulars.
Abuse of dominance alleged by the Commissioner
In late 2012, the Commissioner of Competition commenced an application against Reliance accusing it of engaging in anti-competitive practices that will harm competition in markets for residential hot water heaters.
To succeed in this abuse of dominance proceeding, the Commissioner has to prove three things: first, that Reliance “substantially or completely controls, throughout Canada or any area thereof, a class or species of business”, in other words, that Reliance has market power; second, that Reliance has engaged in, or is engaging in, a practice of anti-competitive acts; and third, the practice has had, is having, or is likely to have the effect of preventing or lessening competition substantially in the market.
Pleadings motion by Reliance
Reliance was of the view that the Commissioner’s Notice of Application was too vague in setting out the Commissioner’s case on each of the three elements of the abuse of dominance test. It demanded particulars, but was not satisfied with the response. So Reliance brought a motion before Justice Rennie of the Competition Tribunal seeking to strike the Commissioner’s Notice of Application for failing to disclose a reasonable cause of action, or in the alternative, an order compelling the Commissioner to provide further particulars of his claim.
Rennie J.’s decision in The Commissioner of Competition v. Reliance Comfort Limited Partnership, CT-2012-002, dismissed Reliance’s motion to strike the Notice of Application and most of its motion for particulars, but granted Reliance’s motion for further particulars on two points.
A motion to strike a pleading will only be granted where, assuming all the facts pleaded are true, it is “plain and obvious” that the claim discloses no reasonable cause of action. In other words, the motion will only be granted where the Applicant’s case, taken at its highest, has no reasonable prospect of success. On a motion to strike a pleading, there is a very heavy burden on the moving party to show that the pleading discloses no reasonable cause of action.
Rennie J. found that the Commissioner’s Notice of Application pled sufficient material facts to survive a motion to strike. He agreed with the Commissioner that many of the supposed shortcomings of the pleading raised by Reliance were not missing material facts, but rather the evidence that would establish the material facts that had been pled. Rennie J. held that pursuant to the Tribunal rules, evidence is adduced following discovery. He rejected Reliance’s argument that a Notice of Application in a proceeding before the Competition Tribunal should be more fulsome in its level of detail than pleadings in other civil matters simply because of the complexity of the economic facts in such proceedings.
As part of its motion to strike pleadings, Reliance also challenged the sufficiency of the Concise Statement of Economic Theory (“CSET”) contained in the Notice of Application. The Tribunal’s rules require parties to include a CSET with their pleadings. Rennie J. held that:
The purpose of the CSET is to ensure that the parties set out in clear terms the economic theory of their case. It should not include the economic evidence upon which their case is to be established. The CSET should frame the case so as to prevent parties from adopting an entirely new approach later in the proceedings.
Rennie J. found that the Commissioner’s CSET met the above test and gave no effect to this branch Reliance’s challenge to the Notice of Application.
Rennie J. also dismissed most of Reliance’s motion for particulars because they were questions seeking the Commissioner’s evidence, and not questions that were seeking particulars or clarification about the pleading. Rennie J. did order the Commissioner to provide additional particulars on two points only.
The decision in more detail
The following is an overview of Rennie J.’s findings with respect to the specific elements of the abuse of dominance test as pled by the Commissioner, and includes notes as to the areas where the Commissioner was ordered to provide further particulars:
1. Control of a Market:
a) Definition of the Product Market: the product market was defined in the Notice of Application as the aggregated markets for the supply of natural gas and electric water heaters and related services to residential customers. Rennie J. ruled that the Commissioner was not obligated in the pleadings to lay out the economic evidence that would be used to prove the product market, or the evidence to support the Commissioner’s position that there were no reasonable substitutes for the products in the market. However, the Commissioner was ordered to provide particulars of what the Commissioner meant by “aggregated,” and why the product markets have been aggregated in the Application.
b) Definition of the Geographic Market: the geographic market was defined in the Notice of Application, and in the Commissioner’s initial response to request for particulars, as being the local markets of Ontario where Union Gas distributes natural gas, and local rural markets in Ontario that are not supplied with natural gas. Rennie J. ruled that the Commissioner’s geographic market was sufficiently discernible to survive a motion to strike pleadings.
c) Control: the Notice of Application states that Reliance controls at least 76% of the relevant market based on annual revenues, and its policies create artificial barriers to entry into the market. Rennie J. held that this pleading was sufficient to survive a motion to strike. However, the Commissioner was ordered to provide particulars as to whether the 76% figure was based on revenue from rental customers in the aggregate, or based on annual sales of water heaters.
2. Anti-Competitive Acts:
Rennie J. found that the Commissioner had set out in detail in the Notice of Application Reliance’s water heater return policies which it considers to be anti-competitive, and had pled that Reliance’s practices have caused at least two competitors to exit the relevant market. Rennie J. held that this pleading was sufficient to survive a motion to strike.
3. Substantial Lessening or Prevention of Competition:
The Commissioner pled, among other things, that but for Reliance’s policies, competitors would likely enter or expand in the relevant markets and consumers would likely benefit from substantially greater competition. Again, Rennie J. found that the Commissioner’s pleading in this regard was sufficient to withstand a motion to strike pleadings.
Rennie J.’s decision establishes that in bringing an application to the Competition Tribunal, the Commissioner need only set out the material facts on which he is relying; not factual or economic evidence. Also, a respondent will not be permitted to use a Request for Particulars to seek the Commissioner’s evidence.