The Litigator

THE LITIGATOR

Commentary on Law Affecting Business

The Litigator
AGM :: Affleck Greene McMurtry LLP

THE LITIGATOR

Affleck Greene McMurtry LLP
365 Bay Street, Suite 200  ·  Toronto, Canada
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Is the Competition Act a “Complete Code”?

Supreme-Court-of-Canada

The Supreme Court will ultimately need to resolve the debate in lower courts over parasitic causes of action.

Courts debate whether breaches of the Competition Act can support common law claims

Recently, Canadian courts have been debating whether the Competition Act is a “complete code” that forecloses the availability of so-called “parasitic” claims, that is, common law and equitable causes of action that are predicated upon breaches of the Competition Act.

The issue is important because the Competition Act’s private right of action for damages (s. 36) is limited to actual damages proven to have been suffered by the plaintiff, plus costs of the investigation and litigation. Aggravated and punitive damages are not available, nor is restitution or disgorgement of profits. The provision also contains a two year limitation period that begins to run from the date of the conduct (whether discoverability applies to this limitation period is another current debate).

By contrast, common law and equitable causes of action typically pleaded by plaintiffs do not suffer from these limitations (although they are not without their own particular countervailing limitations). Aggravated and punitive damages are in principle available, and the plaintiffs may be able to elect restitution or disgorgement of profits instead of damages, which would relieve the plaintiffs of the burden of proving how much they lost. Finally, the limitation periods for these causes of action does not begin to run until the plaintiffs know (or are taken to know) that they have a cause of action.

As a result, the answer to this question has important implications for plaintiffs and defendants in class actions alleging price fixing and other breaches of the Competition Act.

Two recent decisions come down on opposite sides of this issue. In Watson v. Bank of America, issued in August, 2015, the British Columbia Court of Appeal held that the Competition Act is not a complete code; parasitic claims are possible. Two months later, Justice Perell of the Ontario Superior Court came to the opposite conclusion in Shah v. LG Chem, Ltd., holding that the Competition Act is a complete code, and that parasitic causes of action are not available for breaches of its provisions.

From wheat to concrete

Two Supreme Court of Canada decisions form the starting point for the debate. In 1983, the court held that there is no tort of breach of statute, in Canada v. Saskatchewan Wheat Pool. Rather, breach of a statute may be evidence of negligence.

Later that same year, in Canada Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., the court identified two branches of the tort of conspiracy. The first is when the predominant purpose of the conspirators is to injure the plaintiff. They will be liable to the plaintiff even if the means employed are lawful. The second is when the conspirators use unlawful means to carry out their conspiracy. They will be liable to the plaintiff even if their main purpose was self-interest, and not injury to the plaintiff.

In Canada Cement LaFarge, the unlawful means was a market allocation agreement between Canada Cement LaFarge and a competitor. Canada Cement LaFarge was convicted of an offence under the predecessor to today’s Competition Act, the Combines Investigation Act. BC Lightweight Aggregate was an unintended victim of this conspiracy, which put it out of business. The court held that BC Lightweight Aggregate could succeed on the unlawful means branch of conspiracy.

The court did not address the question of whether allowing a breach of the Combines Investigation Act to stand as the unlawful means element in the tort of unlawful means conspiracy had the effect of creating a tort of breach of statute, contrary to the court’s ruling in Saskatchewan Wheat Pool. The court also did not address the private right of action in the Combines Investigation Act, as it had been enacted after the facts giving rise to the Canada Cement LaFarge case.

Well-orchestrated, complex scheme of economic regulation

In 1976, private right of action was introduced into the Combines Investigation Act giving victims of price fixing conspiracies and other criminal offences under the Act the right to sue for damages. This provision still exists, today, as section 36.

This provision was challenged on constitutional grounds. In 1989, the Supreme Court of Canada held that the private right of action was constitutionally valid, under the federal government’s “trade and commerce” power. In reaching this conclusion, the court described the Combines Investigation Act as embodying a “well-orchestrated” and “complex scheme of economic regulation”.

It fell to the Manitoba Court of Appeal to confront the inconsistency between Saskatchewan Wheat Pool and Canada Cement LaFarge. In 1989, the court held that a breach of the Combines Investigation Act could support the unlawful means conspiracy tort, and distinguished Saskatchewan Wheat Pool. The court also asked itself whether the enactment of a private right of action left room for the tort of unlawful means conspiracy founded upon a breach of the Act. In holding that the private right of action did not preclude common law claims, the court relied on a provision that “nothing in this Part shall be construed as depriving any person of any civil right of action”, even though this provision was not in the same Part as the provision creating the private right of action.

No parasitic claims for breach of consumer protection laws

After the enactment of class proceedings statutes in the early 1990s, plaintiff firms started filing class actions based on the cause of action in the Competition Act. They typically added a number of common law and equitable claims, including both branches of the tort of conspiracy (unlawful means and predominant purpose), unlawful interference with economic relations, unjust enrichment, and perhaps most controversially, waiver of tort.

The availability of these causes of action was not seriously questioned until two decisions in of the BC Court of Appeal. In the first, Koubi v. Mazda Canada, in 2012, the court held that waiver of tort was not available as a remedy for breaches of BC’s consumer protection legislation (see BC Court Slams Door on Waiver of Tort for Breach of Statute). Two years later, in Wakelam v. Wyeth Consumer Healthcare, the court expanded the Koubi principle to cover the Competition Act as well. The court said:

Section 36 clearly limits recovery for pecuniary loss to “the loss or damage proved to have been suffered” by the plaintiff, together with possible investigatory costs incurred by the plaintiff. I see nothing in the Competition Act to indicate that Parliament intended that the statutory right of action should be augmented by a general right in consumers to sue in tort or to seek restitutionary remedies on the basis of breaches of Part VI.

Watson

The plaintiffs in Watson allege that the contractual rules that govern the two major credit card networks, Visa and MasterCard, constitute conspiracies that breach the Competition Act’s criminal conspiracy provision (s. 45). The plaintiffs pleaded both the statutory cause of action and various common law and equitable causes of action, including unlawful means conspiracy and waiver of tort.

In 2014, BC Supreme Court Chief Justice Bauman held that Wakelam established that these parasitical causes of action were not available.

The BC Court of Appeal disagreed, for the most part, in a decision issued in August 2015.

The court held that Wakelam established that claims in restitution (such as waiver of tort) are not available for breaches of the Competition Act, but that it did not govern whether claims for unlawful means conspiracy or unlawful interference with economic relations (now simply called “unlawful means”) are available.

Whether common law claims based on breaches of the Competition Act are possible is a question of statutory interpretation, the court held: did Parliament intend that “the tools of common law and equity could form a basis for recovery for breach of statute”?

Even the test to be applied in answering this question was controversial, however. The defendants urged the standard derived from cases after Saskatchewan Wheat Pool. On this standard, where the statute provides effective enforcement of the rights it confers, there is no need for enforcement outside the statute, and therefore no civil cause of action. The plaintiffs countered, arguing that there was a pre-existing common law cause of action, which engages the presumption that Parliament does not intend to oust the common law.

The court essentially came down on the side of the plaintiffs on this issue: it phrased the test as “whether the Competition Act provides ‘a new and superior’ method of remedying a breach of the statute”.

The court then applied a slightly different test. The tort of unlawful means conspiracy is not identical to a claim under section 36, the court noted. The tort is narrower in scope than the statutory cause of action, but broader in its available remedies. Consequently, section 36 was not intended to replace the tort, the court held.

Shah

The plaintiffs in Shah allege a conspiracy to fix prices for lithium ion batteries. They brought claims under section 36 as well as for the tort of conspiracy, interference with economic relations, and unjust enrichment.

In October 2015, Perell J. certified the claim under section 36 as a class action, but not the parasitic common law and equitable claims. He concluded that the Competition Act is a complete code that precludes these claims.

Perell J. advanced three reasons for this conclusion.

First, through the “comprehensive scheme of civil and administrative law regulation” introduced into the Competition Act, Parliament indicated its intention that remedies under the Act, including the statutory cause of action, were to be comprehensive; it “intended to preclude a redundant and inefficient common law cause of action for conspiracy”.

Second, Parliament was not depriving a person of a civil cause of action in enacting this comprehensive scheme. Rather, “it was Parliament that provided the predicate wrongdoing for a price-fixing conspiracy tort in the first place”; thus “Parliament was introducing a statutory cause of action and not taking away very much from plaintiffs”.

Third, “there is no lacuna to be filled by the common law in the amalgam that is competition law; the statutory cause of action is adequate for Parliament’s regulation of competition law”.

Perell J. expressly disagreed with the BC Court of Appeal’s conclusion in Watson. That court’s statement in Wakelam that there is “nothing in the Competition Act to indicate that Parliament intended that the statutory right of action should be augmented by a general right in consumers to sue in tort or to seek restitutionary remedies” may be obiter dicta, but it is the “binding sort of obiter“, Perell J. observed.

Perell J. also held that the BC Court of Appeal asked itself the wrong question. It should not have asked whether the Competition Act provides “a new and superior” remedy, but rather, “Based on a reading of the whole statute what was Parliament’s intent in introducing the statutory cause of action?”.

Parliament is not “constrained to replacing the existing common law means of enforcing competition law with a new and superior method”, Perell J. noted; Parliament is not required to introduce only pro-plaintiff amendments to the Act.

The Competition Act is a complete code

In my view, Perell J. was correct in concluding that the Competition Act is a complete code that precludes the availability of common law causes of action that are based on breaches of the Act.

The key point is that conspiracies in restraint of trade, such as price fixing agreements, were neither unlawful nor actionable at common law. It was Parliament that made these conspiracies and other anti-competitive conduct unlawful by enacting the Competition Act and its various predecessors. Thus common law claims that depend upon price fixing being unlawful depend upon an unlawfulness that is the creation of Parliament.

Parliament can, and has, added to and subtracted from the prohibition on conspiracies on a number of occasions, most recently, in 2010, when the old prohibition on conspiracies to lessen competition “unduly” was replaced with a completely new per se prohibition on price fixing, market allocation, and output restriction agreements.

Since there are substantive differences between the pre- and post-2010 conspiracy provisions, some conduct that was unlawful under the old provision will not be unlawful under the new provision, and therefore will no longer support an action under section 36 (this, indeed was the conclusion of the BC Court of Appeal in Watson).

Apart from changes to the conspiracy provision, there have been many other additions to and subtractions from the criminal provisions in the Competition Act over the years. Some of the more recent ones include:

  • In 2010, Parliament made it an offence to send emails with false sender or subject information.
  • In 2009, Parliament repealed a number of criminal provisions in the Act (price discrimination and predatory pricing), and moved price maintenance from the criminal part to the civil part of the Act.
  • In 2002, a new offence of deceptive notice of winning a prize was introduced.
  • In 1999, the criminal misleading advertising provisions were reformed into a dual track system, with most offences decriminalized into civilly reviewable conduct. The criminal misleading advertising provisions were narrowed to cover only the most egregious conduct, including a new provision dealing with deceptive telemarketing.
  • Until 1986, anti-competitive mergers and monopolies were a criminal offence. In 1986, they were moved to the civil side of the Act.

Each of these changes to the criminal provisions of the Competition Act had the effect of reducing or enlarging the scope of conduct for which a private action is available under section 36. Every time Parliament has removed conduct from the criminal to the civil part of the Act, it has removed the conduct from the ambit of section 36. Thus private actions are no longer available for price discrimination, predatory pricing, price maintenance, mergers, monopolies, and a number of marketing practices.

Equally, whenever Parliament has added to the criminal provisions, it has enlarged the scope of section 36. Thus, since 2010, private actions have been available for emails with false sender or subject information; since 2002, they have been available for deceptive notice of winning a prize, and since 1999, for deceptive telemarketing.

In this context, to analyze the introduction of the private right of action under the lens of whether it takes away an existing cause of action makes no sense. There was no existing cause of action, independent of a breach of the Competition Act, for section 36 to take away.  Indeed, if there had been a cause of action based on conduct that is unlawful at common law, then it would still exist, regardless of the changes to the criminal provisions of the Act.

It is unfortunate that the Supreme Court did not ask itself in Canada Cement LaFarge whether, in light of Saskatchewan Wheat Pool, a breach of the then Combines Investigation Act could support an action for unlawful means conspiracy. The court may well have decided that it could not.

Regardless, the question that would have been asked in 1979 is the same as the question to be asked today: does the Act provide for effective enforcement of the rights it confers.

Whatever the answer may have been in 1979, the answer today must be that it does.

First, the Act contains a comprehensive set of enforcement tools for all of its provisions. These tools differ according to the nature of the provision. Thus the criminal provisions are enforced through investigations and criminal prosecutions, resulting in fines and prison sentences, as well as through private actions for damages under section 36. The civil provisions are enforced through applications in the Competition Tribunal (or, in the case of deceptive marketing practices, the courts) resulting in remedial orders and, in some cases, administrative monetary penalties. Some civil provisions allow for private applications to the Competition Tribunal, but none allow a private applicant to receive damages. Parliament has made decisions about what is unlawful and what is not, and about what remedies are available for different kinds of anti-competitive conduct.

Second, when the BC Court of Appeal asked whether the private right of action was “superior” to the common law cause of action, it substituted its judgment for that of Parliament. Laws passed by Parliament are presumed to be in the public interest. In that sense, they are presumed to be “superior” to what went before. Absent a constitutional challenge, the court is not entitled to usurp Parliament’s policy making function. As Perell J. pointed out, “Parliament was not constrained to only introduce pro-plaintiff amendments to the Competition Act“.

Here, Parliament has introduced a cause of action in section 36 that provides for a limited right of recovery by private parties. The recovery is limited to “an amount equal to the loss or damage proved to have been suffered by” the plaintiff, plus costs of the investigation and proceedings. Parliament clearly intended to exclude damages above actual damages, whether by way of an award of punitive damages or US-style treble damages. Parliament also clearly intended that the damages should be proven, thus excluding restitutionary awards. Yet recognizing a common law cause of action predicated upon a breach of the Act defeats this intention, since the common law cause of action will make punitive damages available, as well as restitutionary awards, through waiver of tort.

Third, even if the Act contained no private right of action, it is far from clear that an action for unlawful means conspiracy should be available for beaches of its provisions. Courts have unanimously held that breaches of civil provisions of the Competition Act cannot support common law causes of action. Yet no private remedies are available for many of these provisions, and no damages are available for any of them. Importantly, the substantive provisions of the Competition Act do not confer rights on private parties. Rather, they declare a set of rules in the public interest that apply to all economic actors, and that are principally enforced by the state, not private parties.

 

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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