Canadian COMPETITION LAW

SWEEPING CANADIAN COMPETITION ACT
AMENDMENTS (BILL C-59) PASSED JUNE 20, 2024

On June 20, 2024, Bill C-59 was passed (the Fall Economic Statement Implementation Act, 2023), which introduced the third of three significant rounds of amendments to Canada’s federal Competition Act in two years (together with Bill C-19 and Bill C-56). This new round of amendments to the Competition Act completes a sweeping overhaul of the Competition Act across virtually all key provisions of Canada’s competition legislation. These amendments are also the most significant changes to Canadian competition law since the modern Competition Act came into effect in 1986 replacing the former Combines Investigation Act.

The Bill C-59 amendments, among other things, strengthen the Competition Bureau’s powers to enforce key deceptive marketing provisions of the Competition Act (e.g., relating to drip pricing, performance claims and ordinary selling price (OSP) claims), strengthen private party rights to seek Competition Tribunal remedies (e.g., for civil deceptive marketing and violations of the civil agreements provisions of the Act), introduce new penalties (e.g., administrative monetary penalties for violating the civil agreements provisions of the Act and for reprisal actions penalizing individuals for complying with the Act) and introduce a new clearance regime for environmental protection related agreements. Canada’s Competition Act merger review regime was also substantially overhauled, eliminating the efficiency defence, introducing market share presumptions and a more restrictive remedial test for restoring competition.

These amendments, together with those enacted in June 2022 and December 2023 (Bill C-19 and Bill C-56), increase the potential competition law risk for companies, trade and professional associations and other entities, particularly those without credible and effective competition law compliance programs and that have not reviewed their business practices to reflect Canada’s new competition laws. For the Competition Bureau’s summary of the June 20, 2024 Bill C-59 amendments to the Competition Act, see: Guide to the June 2024 amendments to the Competition Act (June 25, 2024).

Our blogs will be updated to reflect these amendments.

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“In a number of cases, Canadian courts developed a principle of interpretation, the RCD, which immunized a regulatory body, exercising its authority under a validly enacted law, from the criminal conspiracy provisions of the prevailing competition law by, effectively, reading down the conspiracy provision. Notwithstanding ‘federal paramountcy’ caselaw, a number of these courts, including the Supreme Court in Jabour, applied the RCD to conduct that was simply authorized — not compelled — by a provincial law; they did not require ‘impossibility of dual compliance’ nor did they consider whether the provincial law frustrated the purpose of the Act in applying the RCD. Instead, the courts focused on the criminal nature of the competition law provision at issue, indicating that conduct engaged in pursuant to valid provincial legislation cannot be contrary to the ‘public interest’ or ‘undue’ (‘public interest rationale’) nor can it involve the criminal intent or volenti required by the criminal law (‘mens rea rationale’). In its most recent pronouncement on the RCD, in Garland, the Supreme Court held that the RCD can only immunize conduct from the Criminal Code where the Criminal Code clearly allows for the application of the RCD, for example, by ‘leeway language’ such as ‘against the interests of the public’ or ‘unduly [limiting competition]’ found in the competition law provisions at issue in previous RCD caselaw.”

(Competition Bureau,
Bulletin, “Regulated” Conduct)

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“The [regulated conduct defence] simply means that a person obeying a valid provincial statute may in certain circumstances, be exempted from the provision of a valid federal statute.  But there can be no exemption unless there is a direction or at least authorization to perform the prohibited act.”

(R. v. Independent Order of Foresters)

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“… I accept counsel for the plaintiffs’ argument that it is a regulated industry defence, not an exemption which is pertinent. Indeed as I read the cases it is a regulated conduct defence. It is not accurate merely to identify an industry as one which is regulated by federal or provincial legislation and then conclude that all activities carried on by individuals in that industry are exempt from the Competition Act. It is not the various industries as a whole, which are exempt … but merely activities which are required or authorized by the federal or provincial legislation as the case may be. If individuals involved in the regulation of a market situation use their statutory authority as a spring board (or disguise) to engage in anti-competitive practices beyond what is authorized by the relevant regulatory statute then such individuals will be in breach of the Competition Act.”

(Industrial Milk Producers Association v. British Columbia (Milk Board))

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OVERVIEW OF THE CANADIAN
REGULATED CONDUCT DOCTRINE

The regulated conduct doctrine (RCD), which has been partially codified in subsection 45(7) of the Competition Act after 2009 amendments to the Act, is the Canadian equivalent of the U.S. state action immunity doctrine.

When met, the RCD offers a form of immunity from enforcement under the Competition Act for legislatively authorized or mandated conduct that might otherwise be subject to enforcement and penalties.

The Competition Bureau’s “Regulated” Conduct Bulletin (RCD Bulletin) sets out the Bureau’s general approach to the RCD.

For the RCD to apply, all of the following requirements must be met: (a) valid legislation, (b) conduct is legislatively mandated or authorized, (c) the authority to regulate has been exercised and (d) the regulatory scheme has not been hindered or frustrated by the conduct (or used as a “shield” to engage in unauthorized anti-competitive conduct).

Before the 2009 amendments to the Competition Act, it was not clear whether the RCD would apply as a defence in relation to provisions of the Act that did not contain so-called “leeway” language indicating that other legislation may apply (e.g., the phrase “unduly” preventing or lessening competition under the former section 45).

This uncertainty arose following the Supreme Court of Canada’s decision in Garland v. Consumers’ Gas Co. which held that in the absence of such “leeway” language in the relevant federal legislation the RCD would not apply. This issue may now have been removed, at least with respect of the application of the RCD under section 45 of the Competition Act (criminal conspiracy agreements), given that subsection 45(7) now expressly refers to the former common law RCD as a defence.

The addition of the RCD to section 45 of the Competition Act, however, raises new questions including whether and to what extent the RCD continues to apply as a defence to other provisions of the Act. With respect to other criminal offences under the Competition Act, the Bureau’s position in its RCD Bulletin is that it will apply Garland to determine whether Parliament intended that the particular provision apply to the conduct and, if so, it “may still refrain from pursuing the case in reliance on the RCD.”

With respect to civil reviewable matters, the Bureau takes a more cautious approach in its guidance stating that until RCD case law is further developed, it will consider the RCD in relation to reviewable matters but “will not consider RCD case law to be dispositive.”

The fact that this former common law defence has been partially codified under section 45 of the Competition Act also does not resolve some of the existing uncertainties about its scope and application.

Some of the outstanding uncertainties regarding the RCD include whether it: (i) operates as a defence or an exception under other provisions of the Competition Act, (ii) applies equally to regulated persons (so-called “regulatees”) as it does to regulators, (iii) applies to civil reviewable matters as it does to criminal offences, (iv) applies in the federal sphere (i.e., where federal legislation provides the authorization for challenged conduct) and (v) the level of legislative authorization needed to invoke the RCD (e.g., whether conduct must be expressly mandated or merely authorized by the relevant legislation).

REQUIREMENTS TO RELY ON THE
REGULATED CONDUCT DOCTRINE
UNDER THE COMPETITION ACT

Validly Enacted Legislation

The first condition for the application of the RCD is that there be validly enacted provincial or federal legislation mandating or authorizing challenged conduct. This is based on the principle that competition law liability should not be incurred for activities that are directed or authorized by other validly enacted legislation.

The mere fact that a particular industry or profession is generally regulated, however, will not provide a shield from the application of Canadian competition law.  For example, in Industrial Milk, the court held: “[i]t is not the various [regulated] industries as a whole, which are exempt from the application of the Competition Act but merely activities which are required or authorized by the federal or provincial legislation as the case may be.”

Conduct is Mandated or Authorized

The second condition for invoking the RCD is that the challenged conduct must be required or authorized by validly enacted provincial or federal legislation.

With respect to the degree of authorization, Canadian courts have held that the RCD may apply not only where conduct is mandated but also where there is specific or general authorization for the challenged activities. The Competition Bureau has also acknowledged that the RCD may apply where conduct is merely authorized as opposed to being mandated or compelled.

Despite the fact, however, that some Canadian courts have held that mere general authorization is enough to invoke the RCD, the level of authorization required remains unsettled. For example, in the Law Society case, the Ontario General Division held that the “regulated conduct defence will apply to individuals and companies which are subject to regulation, and to regulatory agencies themselves, provided the impugned conduct is mandated, required or authorized by validly enacted legislation. Similarly, in Industrial Milk, the court held that activities that are required or merely authorized by federal or provincial legislation may be exempt from the application of the Competition Act.

Despite these cases, Canadian courts have been inconsistent in articulating the degree of authorization needed to invoke the RCD. For example, in Jabour, the Supreme Court of Canada held that a “broadly styled” mandate to determine what constituted “conduct unbecoming” lawyers was sufficient authority for the Law Society of British Columbia to invoke the RCD as a defence to regulating members’ advertising, despite the fact that its statutory authority did not specifically address advertising.

Based on the Supreme Court of Canada’s broad application of the RCD, Jabour is considered to be the “high water mark” for a permissive approach to the level of authorization needed to invoke the RCD. In contrast, some later cases have taken a more restrictive approach.

For example, in Mortimer, a by-law enacted by an association of land surveyors establishing mandatory minimum fee tariffs was challenged. The British Columbia Supreme Court held that the RCD did not apply because, while the association’s enabling legislation granted some tariff-making powers, it was not clear that the legislation included the power to set minimum tariffs or fees. The enabling legislation was construed strictly by the Court, which held that if the legislature had intended to give the association the power to set mandatory minimum tariffs it would have clearly done so.

Given that conduct must be mandated or authorized for the RCD to apply, courts in several cases have similarly refused to apply the RCD where there was no legislative authority for the challenged conduct whatsoever. For example, the RCD was held not to apply to a county law association that had not been delegated the authority to enforce a minimum fee schedule.  In another case, a Quebec notaries association pleaded guilty to conspiring to fix the prices of real estate services where the Quebec government no longer regulated notarial fees.

Regulatory Authority Has Been Exercised

The third requirement to invoke the RCD is that the regulatory power conferred by legislation must be exercised.  The RCD will not apply where a regulator has forborne from regulating.

For example, in B.C. Fruit Growers Association, members of a fruit growers association entered into an agreement with fruit packing houses to refuse to supply services to non-member growers. The fruit growers association argued that the former Combines Investigation Act did not apply on the basis that there was authorization for the actions of the accused, given that the relevant legislation provided for a marketing board to be appointed to regulate the operation of packing houses. The Court rejected this argument, finding that although a marketing board had been legislatively established, it had not exercised any authority it might have had to restrict the supply of fruit packing services.

Regulatory Scheme Has Not Been Frustrated

Finally, the RCD will only apply where the exercise of regulatory authority has not been frustrated by the conduct being regulated. For example, in R. v. Canadian Breweries Ltd., it was held that if the regulation of an industry is hindered by the behavior of those subject to the regulation, the RCD will not apply to protect them.

The RCD also cannot be used by a regulatory body as a shield for anti-competitive conduct outside the scope of the statutory regime.  For example, in Industrial Milk, the court held that if “individuals involved in the regulation of a market situation use their statutory authority as a spring board (or disguise) to engage in anti-competitive practices beyond what is authorized by the relevant regulatory statute then such individuals will be in breach of the Competition Act”.

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SERVICES AND CONTACT

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