This country-specific Q&A provides an overview to cartels laws and regulations that may occur in Canada.
This Q&A is part of the global guide to Cartels. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/cartels/
What is the relevant legislative framework?
There are two main cartel offences under Canada’s Competition Act, RSC, 1985, c C-34 (the “Act”): conspiracy (section 45), which involves price fixing, market or customer allocation and output restrictions, and bid rigging (section 47).
Section 45 prohibits any agreement between competitors to (i) fix, maintain, increase or control the price of a product or service, (ii) allocate sales, territories, customers or markets, and (iii) fix, maintain, control, prevent, reduce or eliminate production or supply of a product. Section 45 only prohibits agreements between competitors related to supply or production; it does not prohibit agreements to purchase a product or service. Moreover, “competitors” include all current competitors, but also potential competitors who, but for the agreement, would have been competitors. Finally, it is the agreement itself which constitutes the offence, whether or not it was implemented or followed.
There are three main defences available:
(i) Ancillary restraint defence (subsection 45(4)), which permits an agreement that would otherwise be contrary to section 45, but which is directly related and reasonably necessary for giving effect to a broader lawful agreement (e.g. an agreement between two partners in a production JV to determine the price of the JV output). The precise scope of this defence has not yet been interpreted by the courts.
(ii) Regulated conduct defence (subsection 45(7)), which allows a party to avoid conviction under section 45 on the basis that the conduct was required or authorized under federal or provincial regulation.
(iii) Export defence (subsection 45(5)), which applies, under certain conditions, when the agreement or arrangement relates only to the export of products from Canada.
With respect to bid rigging, section 47 prohibits any agreement between one or more persons on a decision not to bid, to withdraw a bid or to establish the price or other terms of the bid. The only exception is if the agreement was disclosed to the person calling for tenders at or prior to the time of the bid.
There are also exemptions, including for agreements between affiliates, as defined in the Act, (subsections 45(6)(a) and 47(3)).
To establish an infringement, does there need to have been an effect on the market?
The Act was amended in 2009 to remove the need to prove an effect on the market; these are therefore now per se offences. The previous version of section 45 required the prosecution to establish that the conduct “unduly” lessened or prevented competition. Conduct that occurred prior to March 2010 is examined under the previous version of section 45.
Does the law apply to conduct that occurs outside the jurisdiction?
The cartel prohibitions apply only where a Canadian court has subject matter and personal jurisdiction over the accused. As for subject matter jurisdiction, the Supreme Court has confirmed that a “real and substantial link” must exist between the offence and Canada, in order for the accused to be convicted of the offence in Canada (see Libman v The Queen,  2 SCR 178). This test has yet to be applied to an international conspiracy offence. With respect to personal jurisdiction, in Canadian criminal law, the accused needs to be located within the territory of the court or to attorn to the court’s jurisdiction.
Section 46 provides another avenue for applying the Act to extra-territorial conduct, making it a criminal offence for a corporation carrying on business in Canada to implement a foreign directive for the purpose of giving effect to a conspiracy entered into outside of Canada, which would have been in contravention to section 45 if entered into in Canada.
Which authorities can investigate cartels?
In Canada, the Competition Bureau (the “Bureau”), led by the Commissioner of Competition (the “Commissioner”), is the enforcer of the Act and the authority that investigates cartels. Following its investigation, the Bureau may refer the matter to the Public Prosecution Service of Canada (the “PPSC”), which reports to the Director of Public Prosecutions (the “DPP”). The DPP has the jurisdiction to prosecute cartel offences under the Act and can institute criminal proceedings in any superior court of a province or territory, as well as in the Federal Court.
What are the key steps in a cartel investigation?
An investigation may be initiated by the Bureau based on information obtained from an immunity applicant or through other means like information from Canadian or foreign enforcement agencies, whistleblowers and anonymous tips. It also may begin an investigation based on information obtained from public sources such as the media. In addition, the Bureau is collaborating with enforcement and procurement partners to develop bid-screening algorithms that analyze bidding data for signs of collusion.
Other than in the context of the immunity and leniency programs, which are discussed below, there are no key deadlines, nor any specific limitations on the timeframe of a Bureau investigation.
Typically, once the Bureau initiates an investigation, it will seek to obtain information from the targeted entity, as well as the targeted entity’s competitors and clients. In order to collect information, the Bureau has extensive investigative powers, as described below in section 6.
Once the Bureau concludes its investigation, if it deems its information sufficient for prosecution, it refers the file to the PPSC. The PPSC reviews the file to determine whether to prosecute the targeted entity. This decision turns on whether there is a reasonable prospect of a conviction. If it chooses to prosecute, the PPSC will file criminal charges against the accused. The matter will then proceed in front of the courts as would any other criminal matter.
There is no limitation period for the investigation of a criminal offence or laying of criminal charges under the Act. The Bureau’s investigation and subsequent prosecution by the PPSC often take years. However, once criminal charges are filed, the PPSC has 30 months from the date the charges are filed to get to the end of trial (see R v Jordan, 2016 SCC 27). Failure to do so triggers a presumption that the delay was unreasonable, which will lead to a stay of proceedings, unless exceptional circumstances justify it. To date, bid-rigging charges in one domestic case have reportedly been abandoned because the presumptive ceiling was exceeded.
What are the key investigative powers that are available to the relevant authorities?
In accordance with section 15 of the Act, the Bureau can obtain search warrants and conduct raids. An application for an order under section 15 is heard ex parte. To obtain a search warrant, the Commissioner must establish that there are reasonable grounds to believe that a criminal offence has been or is about to be committed under the Act and that there is related information on the premises that will afford evidence with respect to the criminal offence.
The warrant allows Bureau officers to enter and search the premises, as well as to seize or copy the records and information that are the object of the warrant. Records are broadly defined and include all hardcopy and electronic records, including emails. While the Act specifies that a warrant may be executed anywhere in Canada, it is debatable whether the Bureau may also search the electronic data from foreign databases accessible from computers located in Canada.
Pursuant to section 11 of the Act, the Bureau can also obtain, on an ex parte basis, production orders, as well as orders for examinations under oath and for the delivery of a sworn written return of information. The judge must be satisfied that an inquiry is being made and that a person has or is likely to have information that is relevant to the inquiry. If so, the judge may issue the order.
Finally, in accordance with section 183 of the Criminal Code, the Bureau can obtain wiretap warrants, and intercept communications, when investigating cartel conduct.
On what grounds can legal privilege be invoked to withhold the production of certain documents in the context of a request by the relevant authorities?
A person is entitled to invoke solicitor-client privilege over documents seized in the context of the execution of a search warrant or required by an information request. Section 19 of the Act provides the procedure to be followed when there is a solicitor-client privilege claim. Legal advice produced by in-house counsel and by lawyers qualified outside the jurisdiction is generally protected by solicitor-client privilege, but the determination will be fact dependent. Moreover, in the context of criminal charges, the court has found that the factual information discovered as part of internal investigations and communicated to the Bureau in the context of an immunity or leniency application is not protected by either solicitor-client or settlement privilege, when the parties claiming such privilege cannot identify any harm that would be caused by the disclosure (see R v Nestlé, 2015 ONSC 810).
Other applicable privileges include litigation privilege (where the records in question were prepared primarily for the purpose of actual or anticipated litigation) and settlement privilege.
What are the conditions for a granting of full immunity? What evidence does the applicant need to provide? Is a formal admission required?
Under the Bureau’s Immunity Program, immunity from criminal prosecution is available to the first party to self-report an offence in circumstances where the Bureau is either unaware of an offence or where the Bureau is aware of an offence and the applicant is the first to provide adequate evidence for referral of the matter to the DPP. The main conditions for a grant of immunity include:
- Admitting participation to a criminal offence under the Act;
- Taking steps to end participation in the offence, without compromising the ongoing investigation;
- Not having forced other parties to participate in the offence;
- Keeping the immunity application confidential;
- Disclosing all conduct which could be in violation of the Act;
- Fully cooperating with the Bureau’s investigation and subsequent prosecution at its own expense, including a complete, exhaustive and sincere disclosure of any non-privileged document or evidence; and
- Taking all legal means to obtain co-operation and testimonies from the current and previous directors, officers and employees suspected of being involved in the conduct, throughout the investigation and subsequent criminal prosecution.
In exchange, immunity applicants are eligible to be completely immunized from prosecution. Immunity also offers the indirect benefit of avoiding the consequences of a criminal conviction, such as debarment from public contracts.
To obtain immunity, the applicant must first ask for an immunity marker. The applicant’s counsel contacts the Bureau, usually on a confidential basis, and discloses the nature of the illegal conduct, as well as the category of products or services and the geographic region at issue.
Once the marker is granted, the immunity applicant makes a proffer, i.e. the applicant’s counsel presents on a hypothetical basis and without prejudice a detailed version of the cartel, of the applicant’s role and of the evidence the applicant would be able to provide. The proffer must be completed within 30 days of the confirmation of the immunity marker.
Following the proffer, if the PPSC agrees with the Bureau’s recommendation, the applicant will receive a Grant of Interim Immunity, subject to the applicant’s obligations of continuing co-operation and compliance with the other requirements of the Program.
Complete disclosure, including an exhaustive disclosure of non-privileged documents and interviews with current and former directors, officers and employees, must be completed within 6 months of the Grant of Interim Immunity. The revised Immunity Program published in September 2018 provides for a new mandatory protocol for identifying, reviewing and adjudicating privilege claims by immunity applicants.
Finally, the PPSC will enter into a final immunity agreement only after prosecution has been completed, or when the Bureau and PPSC consider that no further assistance from the applicant is required.
What level of leniency, if any, is available to subsequent applicants and what are the eligibility conditions?
The Leniency Program is available to subsequent applicants that self-report an offence under the Act. The Commissioner will recommend the granting of leniency in sentencing only where the applicant has terminated its participation in the cartel, has agreed to cooperate fully and in a timely manner, demonstrates that it was a party to the offence, and agrees to plead guilty.
The process is similar to immunity: marker, followed by proffer. The Bureau then makes a recommendation to the PPSC as to the terms of a plea agreement and the amount of the fine to be imposed. The PPSC enters into a plea agreement with the leniency applicant and full disclosure then needs to be completed within 6 months. Once full disclosure is completed, the leniency applicant will plead guilty and the PPSC will present, jointly with the applicant, a recommended sentence. While courts have the exclusive authority to decide the appropriate sentence, trial judges should only depart from a joint submission in very limited circumstances (see R. v Anthony‑Cook, 2016 SCC 43).
The current program allows all leniency applicants to benefit from a fine reduction of up to 50%, based on the timing of the application and the value of the party’s co-operation. The fine calculation is discussed in section 18 below.
In line with Bureau’s Corporate Compliance Programs Bulletin, an effective compliance program will be treated as a mitigating factor.
Are markers available and, if so, in what circumstances?
See sections 8 and 9 above.
What is required of immunity/leniency applicants in terms of ongoing cooperation with the relevant authorities?
See sections 8 and 9 above.
Does the grant of immunity/leniency extend to immunity from criminal prosecution (if any) for current/former employees and directors?
When immunity is granted to an entity, immunity is also granted to its current employees, directors and officers involved in the alleged conduct who admit their participation in the offence and offer complete co-operation to the investigation and prosecution of the offence. The Bureau has the discretion whether to grant immunity to former directors, employees and officers who cooperate.
The same applies to the first leniency applicant. However, no immunity is available for previous and current employees, directors and officers of the subsequent leniency applicants.
Is there an ‘amnesty plus’ programme?
“Immunity Plus” status is available where a leniency party is not the first to disclose a cartel, and therefore does not qualify for immunity for this cartel, but is the first to disclose information relating to a separate cartel unknown to the Bureau (e.g. involving a different product/service). In such circumstances, leniency parties will be granted immunity for the second cartel identified, and be granted the additional “Immunity Plus” discount as part of the reduced recommended fine for the first cartel, typically an additional five to ten percent discount.
Does the investigating authority have the ability to enter into a settlement agreement or plea bargain and, if so, what is the process for doing so?
The settlement system in Canada is similar to the U.S.-type of plea bargaining. Because prosecutions are overseen by the PPSC and not by the Bureau, the Bureau cannot directly agree to a settlement. Rather, the PPSC (on the advice and consultation of the Bureau) and the accused will come to an agreement on the appropriate sentence, the accused will plead guilty, and the PPSC and the accused will make a joint submission on the appropriate sentence. As indicated above at section 9, the judge hearing the case is free to accept or reject the joint submission, although departing from a joint submission is limited to instances where the sentence proposed would bring the administration of justice into disrepute, or is otherwise not in the public interest.
In Canada v Maxzone Auto Parts (Canada) Corp., 2012 FC 1117, the court expressed a general concern that sentences being proposed under the Leniency Program were being established in too mechanical a manner, with fine calculations following a perfunctory formula too closely, without consideration of general sentencing principles.
What are the key pros and cons for a party that is considering entering into settlement?
The key benefit to a plea bargain is that it will typically result in a lower fine or penalty, and saves the accused the costs and time associated with mounting a full defence. On the other hand, settlement can result in reputational harm, civil liability (discussed below), and barring orders preventing companies from being able to bid on federal government contracts under the Ineligibility and Suspension Policy. In addition, a guilty plea triggers a presumption under section 36 of the Act which affects the risks associated with private actions.
What is the nature and extent of any cooperation with other investigating authorities, including from other jurisdictions?
The Bureau cooperates with other authorities in many ways. The International Affairs Directorate is the department in charge of the negotiation of co-operation agreements with other countries, which facilitate co-operation and collaboration in cases of cross-border enforcement matters. The Bureau currently has co-operation instruments with 14 foreign jurisdictions (Australia, Brazil, Chile, the European Union, India, Japan, New Zealand, Hong Kong, the People’s Republic of China, Republic of Korea, Mexico, Taiwan, the United Kingdom, and the United States).
In addition to these agreements, the Bureau also benefits from Mutual Legal Assistance Treaties and can seek help from and provide assistance to over 30 countries in accordance with Part III of the Act.
In the context of a cartel being investigated internationally, the Bureau will generally seek to coordinate steps, such as the timing of searches, with the other agencies. The Bureau will not afford any special consideration to an immunity or leniency applicant solely because it has been granted immunity or another form of favourable treatment in another jurisdiction. On the other hand, as part of the applicant’s ongoing co-operation, the Bureau will generally expect the applicant to consent to the communication of information, both procedural and substantial, with jurisdictions to which the applicant has made similar applications for immunity or leniency.
In addition, as the timing of an approach to the Bureau can be critical to the options available to a potential immunity applicant, a party considering an application for immunity should consider the fact that, when the matter involves other countries, the Bureau may be aware of the matter as a result of a foreign investigation, before being approached for immunity. The Bureau indicates that in matters involving multiple jurisdictions, where the applicant has business activities with a substantial connection to Canada, it should contact the Bureau before, or immediately after, approaching foreign competition law authorities.
What are the potential civil and criminal sanctions if cartel activity is established?
Cartel offences are indictable offences punishable by up to 14 years of imprisonment, for individuals, and by fines against corporations and individuals of an amount of up to CDN$25 million in the case of conspiracy agreements (section 45), and at the discretion of the court in the case of bid rigging (section 47). As indicated below at section 18, the Bureau’s recommended fine is a function of the affected volume of commerce.
Additionally, the Bureau may recommend to the PPSC to seek from the courts the issuance of a prohibition order (paragraph 34(1) of the Act). A prohibition order generally includes terms prohibiting the party from continuing or repeating the conduct, but may also include specific enforcement mechanisms. Contravention of a prohibition order is an offence in and of itself, and may lead to the imposition of a fine in the discretion of the court or imprisonment of up to five years.
Other indirect sanctions involve the consequences of a criminal conviction. Not only does a criminal conviction initiate the presumption set out in the private action provision (section 36), as further discussed below, it also may prevent the convicted entity from being awarded a government contract. Indeed, the Government of Canada’s current Ineligibility and Suspension Policy automatically bans a party convicted under section 45 or 47 from being awarded federal contracts or real property agreements with the government for a period of five to 10 years.
What factors are taken into account when the fine is set? In practice, what is the maximum level of fines that has been imposed in the case of recent domestic and international cartels?
The court will impose a fine after hearing from the DPP, which will have consulted with the Bureau on an appropriate fine. The Bureau will usually take as a starting point to the establishment of the base fine the volume of commerce of the cartel participant. It generally considers that a fine equivalent to 20% of the affected volume of commerce will be appropriate: unless there is evidence to the contrary, 10% of the party’s volume of commerce will adequately represent the overcharge resulting from the cartel, and an additional 10% is appropriate for deterrence purposes, as it does not represent the mere cost of doing business.
Mitigating and aggravating factors will then be taken into account, and will be weighed based on the circumstances of each case. Once the 20% base fine has been reduced or increased based on these factors, the Bureau will apply the “leniency discount”, if the party was a leniency applicant, as described above in section 9.
The CDN$30 million fine obtained in 2013 following a guilty plea in the international auto parts investigation is the largest fine imposed in Canada for a bid-rigging offence. With respect to domestic cartels, three carbonless paper sheet manufacturers settled a section 45 cartel inquiry for CDN$12.5 million each following guilty pleas.
Are parent companies presumed to be jointly and severally liable with an infringing subsidiary?
There is no provision in the Act which provides for the liability of the parent company for the actions of its Canadian subsidiary, absent evidence of the parent company’s knowledge of and complicity in the cartel.
Are private actions and/or class actions available for infringement of the cartel rules?
Under section 36 of the Act, claimants can recover compensatory damages equal to the actual loss suffered (i.e., the “overcharge”, or the extra amount they paid for the good, as compared to the price they would have paid in the absence of the anti-competitive conduct), plus the costs of investigating the misconduct and bringing the proceeding. The Act does not allow for recovery of punitive damages or treble damages.
Because of the limit on damages that can be recovered under the Act, claimants typically also bring equitable (including restitutionary) and common law (tort) claims, which are often predicated upon breaches of the Act. Such claims – including, for example, common law conspiracy, unlawful interference with economic interests, unjust enrichment, or waiver of tort – can allow for aggravated and punitive damages, restitution, and disgorgement of profits.
However, there is an ongoing debate as to whether the Act is a complete code for remedies available for a breach of the Act, and the viability of equitable and common law claims for breaches of the Act will be decided by the Supreme Court of Canada this year (this question has been resolved in the plaintiffs’ favour in the civil law Province of Quebec).
All Canadian jurisdictions (provincial, territorial, and federal) allow for class actions. The Federal Court and each province have enacted legislation governing the rules and procedure for class proceedings, while class proceedings in Prince Edward Island and Canada’s territories are permitted by the common law. The Federal Court and most post provinces follow an opt-out model, though British Columbia, New Brunswick, and Newfoundland and Labrador’s opt-out provisions apply only to residents of those provinces; non-residents must opt in to the class.
What type of damages can be recovered by claimants and how are they quantified?
Under section 36 of the Act, claimants can recover compensatory damages equal to the actual loss suffered.
A trilogy of class action certifications decided by the Supreme Court of Canada in 2013 confirmed that indirect purchasers can bring class actions for damages based on violations of Canada’s competition laws.
One question that we expect will be decided by the Supreme Court of Canada this year is whether “umbrella damage claims” are available pursuant to section 36. These claims are brought by individuals who bought products from non-conspirators, but who allege they were still overcharged as an indirect result of price fixing in the broader marketplace for the goods or services. The theory of harm is that if the defendants had enough control of the market to artificially raise prices, that allowed their non-conspiring competitors to raise prices as well.
On what grounds can a decision of the relevant authority be appealed?
Both the PPSC and the offender can appeal the decision of the provincial superior court to the provincial court of appeal, or of the Federal Court to the Federal Court of Appeal. The offender can appeal as of right questions of law and of mixed fact and law, but needs leave to appeal questions of facts and sentencing.
The decision of the provincial or federal court of appeal can be appealed to the Supreme Court of Canada. The appeal is of right when there is a dissenting opinion on appeal; otherwise, leave is required. In order to be granted leave to appeal to the Supreme Court of Canada, the question at issue must be of such public importance or of such a nature or significance as to justify to be heard and decided by that court.
The standard of review of questions of facts and questions of mixed facts and law, on appeal, is deferential. To reverse, the court of appeal needs to find a “palpable and overriding error.” The standard of review applicable to a question of law is generally correctness, which allows a court of appeal to replace the incorrect opinion of a lower court.
What is the process for filing an appeal?
The appeal routes are as set out above in section 22. To initiate an appeal, the appellant must file an appeal following the applicable procedure in the jurisdiction of the appeal court. Hence, deadlines and procedures will vary by province, territory and if the case was heard by the Federal Court. To appeal to the Supreme Court of Canada, an application for leave to appeal must be filed within 60 days of the decision below.
What are some recent notable cartel cases (limited to one or two key examples, with a very short summary of the facts, decision and sanctions/level of fine)?
The well-known international investigation into auto-parts concluded in Canada in October 2018, with the Bureau having obtained 13 guilty pleas and more than CDN$86 million in fines. The auto-parts class actions continue.
The PPSC recently had two important prosecution setbacks in domestic matters, namely the jury acquittal in the Durward bid-rigging case in relation to IT services to federal agencies, and the stay of proceedings in the chocolate price-fixing case. The PPSC however secured a number of guilty pleas in domestic cartel and bid-rigging cases in relation to the retail gas, sewer and water services, and ventilation industries.
What are the key recent trends (e.g. in terms of fines, sectors under investigation, applications for leniency, approach to settlement, number of appeals, etc.)?
In order to allow corporations avoiding debarment from public contracts, the PPSC and the Bureau have recently shown an openness to settling matters using a previously underused settlement procedure under section 34 of the Act.
The Bureau has acknowledged on several occasions that, similar to the trend taking hold internationally, it has seen a decrease in leniency applications.
What are the key expected developments over the next 12 months (e.g. imminent statutory changes, procedural changes, upcoming decisions, etc.)?
The Bureau is increasingly using orders for examinations under oath under section 11 of the Act as part of its investigations.
Following a public consultation in 2018, revisions to the federal government Ineligibility and Suspension Policy are expected this year. Changes to the debarment rules could have an impact on ongoing domestic investigations in the engineering and construction industries.
In the coming year, we expect to gain clarity from the Supreme Court of Canada as to whether the Act is a ‘complete code’ or whether private actions can be supplemented by equitable and common law claims, and whether ‘umbrella damages’ are available under the Act.