Canadian COMPETITION LAW

September 26, 2023

On September 25, 2023, the Federal Court (Court), in Sunderland v. Toronto Regional Real Estate Board, 2023 FC 1293, per Crampton C.J., issued an important decision in a Canadian price-fixing conspiracy related class action against The Canadian Real Estate Association (CREA), the Toronto Regional Real Estate Board (TRREB) and a number of Canadian real estate brokerages and franchisors.

In its decision, the Court denied to grant, in part, the defendants’ motion to strike the plaintiff’s statement of claim in an ongoing class action proceeding in which the plaintiff alleges that the defendants’ various agreements and rules governing commissions offered and paid to cooperating real estate brokerages in the Greater Toronto Area (GTA) violates section 45(1)(a) of the Competition Act (price-fixing conspiracies).

The Plaintiff’s Allegations

In this case, the plaintiff alleged that the real estate brokerage defendants (Brokerage Defendants) conspired, agreed or arranged, contrary to section 45 of the Competition Act (criminal conspiracy agreements) to fix, maintain, increase or control the price for the supply of buyer brokerage services provided to purchasers of residential real estate in the GTA.

The plaintiff also alleged that CREA and TRREB (Association Defendants) aided, abetted and counselled this purported breach of section 45, contrary to sections 21(2) and 22(1) of the Criminal Code.

At the factual core of the plaintiff’s conspiracy allegations is what the Court found to appear to be the general industry practice in Ontario where sellers of real estate pay their listing brokerages a commission that covers not only the services provided by their broker (i.e., the listing broker), but also those provided by the cooperating broker (i.e., the real estate firm acting for the buyer).

This practice, according to the plaintiff, has been established and enforced through a series of agreements and rules among the defendants that together constitutes an illegal conspiracy agreement under section 45(1)(a) of the Competition Act.

These agreements and rules, according to the plaintiff, include the so-called “Three Way Agreement” (under which TRREB’s members are required to become members of both CREA and the Ontario Real Estate Association (OREA) and agree to be bound by CREA, OREA and TRREB’s rules) and TRREB and CREA rules that include rules requiring sellers of real estate listed on the Toronto MLS system (operated by TRREB) to make an offer of commission to any cooperating brokerage acting for a prospective buyer. These rules, according to the plaintiff, make a seller of real estate responsible to pay for the cooperating brokerage services used by a buyer (and, as such, and based on the various bilateral and multilateral agreements among real estate brokerages, real estate boards, real estate associations and cooperation through the MLS system in Ontario, constitute an illegal price-fixing agreement under section 45 of the Competition Act).

Section 45 of the Competition Act

Under section 45 of the Competition Act, three types of agreements between competitors are “per se” illegal (i.e., with no adverse impacts on a market required): (i) price-fixing agreements: agreements to fix, maintain, increase or control the price for the supply of a product; (ii) market allocation/division agreements: agreements to allocate sales, territories, customers or markets for the production or supply of a product; and (iii) output/supply restriction agreements: agreements to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product. For more information about section 45, see: Conspiracy (Cartels).

“Competitor” is broadly defined under section 45 to include potential competitors (i.e., “a person who it is reasonable to believe would be likely to compete with respect to a product in the absence of a conspiracy, agreement or arrangement”).

The potential penalties for violating the criminal conspiracy offences under section 45 of the Competition Act are a fine in the discretion of the court (i.e., a fine with no upper limit) and imprisonment for up to 14 years, or both.

Private parties may also commence damages actions and class actions under section 36 of the Competition Act for violation of any of the criminal offences under the Act, including section 45. For more information about Competition Act enforcement, see: Enforcement.

The Court’s Decision

The Court held that the plaintiff’s statement of claim did disclose a reasonable cause of action against the Brokerage Defendants with respect to the alleged conspiracy agreement to “control” prices for the supply of cooperating brokerage services in the GTA (“control” being one of four types of prohibited agreements under section 45(1)(a), together with “fixing, maintaining or increasing” prices).

The Court also held that the plaintiff’s statement of claim disclosed a reasonable cause of action against the Association Defendants (i.e., CREA and TRREB) for allegedly aiding, abetting and counselling the purported conspiracy agreement (though struck the related claims against the real estate franchisor defendants in the case).

In arriving at its conclusion, the Court made a number of important holdings, including the following:

Liability under section 45 of the Competition Act for aiding or abetting a conspiracy agreement. The Court held that a defendant in a civil action under section 45 may be said to have “engaged” in conduct contrary to section 45 even if that defendant is not a “competitor” based on the aiding and abetting provisions set out in sections 21(2) and 22(1) of the Criminal Code. While it had been held under the former section 45 that persons that were not parties to a conspiracy agreement could be liable for aiding or abetting an agreement, the amended language of section 45 requiring an agreement to be between two or more competitors raised the issue of whether non-competitor third parties could also be potentially liable for aiding and abetting a conspiracy agreement. In this regard, the Court held that it was not plain and obvious that Parliament intended in the amended section 45 to exclude non-competitors from party liability pursuant to the aiding and abetting provisions of the Criminal Code. For more information about the 2009 amendments to the Competition Act, see: Amendments.

Elements of aiding, abetting and counselling under the Criminal Code. The Court set out a detailed and useful summary of the elements required to establish criminal conspiracy liability under the aiding, abetting and counselling provisions of the Criminal Code.

Meaning of “control” under section 45(1)(a) of the Competition Act. The Court also set out a relatively extensive analysis of the meaning of “control” under section 45(1)(a) of the Competition Act, under which an illegal price-fixing conspiracy agreement can be established where two or more competitors agree to “fix, maintain, increase or control” the price for the supply of a product. In this case, on the facts, the Court held that it was not plain and obvious that the relevant cooperating commission related agreements and rules did not “control” the price of cooperating brokerage services such that they could be considered “control” for the purposes of section 45(1)(a). More specifically, the Court held that, on their face, these agreements and rules arguably do exercise various forms of control in relation to the price for the supply of cooperating brokerage services, including who may pay these commissions and when a change to such cooperating commission may be made. The Court further held that it was at least arguable that these agreements and rules were unambiguously harmful to competition and purchasers of cooperating brokerage services in the GTA.

Necessary elements to establish an offence under section 45 of the Competition Act. The Court followed several other Canadian court decisions, including its own recent decision in Difederico v. Amazon, 2023 FC 1156 (Amazon), as well as Watson v. Bank of America Corporation, 2015 BCCA 362 (C.A.), with respect to the necessary elements to establish an offence under the amended section 45(1) of the Competition Act. Notably, the Court held that, like the former section 45, the amended section 45 still requires both subjective and objective intent (in the latter case, an objective intention to do one or more of the things described in sections 45(1)(a)-(c) of the Competition Act). In this regard, the Court also rejected the defendants’ arguments that the amended section 45 required that a double subjective intent requirement be proven.

“Hard core agreements”. Interestingly, in both this case and the recent Federal Court case Amazon, the Court considered the likely objective purposes of the challenged agreements. Under U.S. antitrust law, this has been referred to as a matter of “characterization” of the purpose of an impugned conspiracy/cartel agreement (e.g., whether an agreement is “hard core” such that it should be per se illegal or another type of agreement subject to a market effects analysis. In this regard, in Amazon, Crampton C.J. granted the defendants’ motion, in part, based on his inability to find that the challenged agreements were likely of the hard core type proscribed by section 45; in contrast, in Sunderland, the Court accepted that the “Buyer Brokerage Rule” (on the facts, not a single “rule”, but rather a number of interconnected agreements and real estate board/association rules relating to the obligation for a seller of real estate to compensate the buyer brokerage acting for a successful buyer of a property) may in fact fall within the hard core prohibition on price-fixing under section 45(1)(a) of the Competition Act. For plaintiff’s counsel, these recent holdings are an indication that they need to establish why an alleged price-fixing or other agreement is one of the three types of “hard core” anti-competitive agreements under section 45 and not one with predominantly legitimate pro-competitive justifications, or for example, merely indirect or secondary impacts on price, such that it should be reviewed under the civil agreements provision of the Act (section 90.1).

Potential hub-and-spoke conspiracy agreement. Perhaps one of the most interesting aspects of this decision was that the Court accepted, at least at the motion stage, that a series of agreements between competitors and a non-competitor (on the facts in this case, between competing real estate brokerages and CREA and TRREB) could constitute an agreement between competitors for the purposes of section 45 of the Competition Act. In this regard, while a plaintiff (or Bureau in a criminal prosecution) must prove the existence of a price-fixing or other conspiracy agreement between two or more competitors for the purposes of section 45, such agreements do not need to be express or require evidence of direct communication between the competing parties. In this regard, conspiracy agreements, in theory, can be formed in a variety of ways through third parties such as common suppliers, customers or trade and professional associations. Moreover, there is potential criminal or civil liability for such third parties that aid or abet the formation of such agreements. In this regard, while not law, the Bureau has taken the position, in its Competitor Collaboration Guidelines, which set out the Bureau’s enforcement position regarding section 45, that “[r]ules, policies, by-laws or other incentives enacted and enforced by an association with the approval of members who are competitors, are considered by the Bureau to be agreements between competitors for the purposes of section 45.” Also in the Bureau’s most recent version of its Competitor Collaboration Guidelines, it has included a hypothetical example of a hub and spoke type conspiracy agreement formed by communications through a common distributor. While there is little existing jurisprudence in Canada on hub and spoke conspiracies, this may indicate an appetite on the Bureau’s behalf to take enforcement where conspiracy (cartel) agreements are formed indirectly through common third parties, such as common suppliers, customers or others (e.g., trade or professional associations).

Limitation period under section 36 of the Competition Act. The Court also held that the plaintiff’s claim was not time-barred as of two years under section 36 of the Competition Act (the provision under which Competition Act civil actions and class actions are commenced), confirming the decision of the court in Pioneer Corp v. Godfrey, 2019 SCC 42 that the discoverability principle applied to section 45 (i.e., that the limitation period set out in section 36(4) of the Act does not begin to run until the material facts on which a plaintiff’s claim are based are discovered by or ought to have been discovered by the plaintiff by the exercise of reasonable diligence). In this case, the Court held that it was not plain and obvious that the representative plaintiff, or the other members of the proposed class, knew about the agreements and rules restricting how cooperating commissions are paid prior to filing their civil claim.

Potential Implications

This recent Federal Court decision is significant in both establishing new law under the amended section 45 of the Competition Act, which has received relatively little judicial interpretation since it was passed in 2010, as well as confirming some key prior section 45 jurisprudence.

Also, though it is early in these proceedings, this decision may expose not only the brokerage and association defendants in this case to civil liability under section 45 in surviving this motion to strike, but also other Canadian real estate boards and brokerages across Canada that may be parties to or enforce similar cooperating commission related agreements and rules.

In addition, ongoing civil proceedings aside, the current defendants, as well as other Canadian real estate boards and brokerages, may also need to assess the potential criminal liability associated with being parties to and enforcing the agreements and rules being challenged civilly in this case given that enforcement under section 45 may be commenced either on a criminal or civil basis.

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