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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OVERVIEW OF CANADA’S CRIMINAL BID-RIGGING
OFFENCES UNDER THE COMPETITION ACT

“Bid-rigging occurs when two or more persons agree that, in response to a call for bids or tenders, one or more of them will: not submit a bid; withdraw a bid; or submit a bid arrived at by agreement.

Bid-rigging is a serious crime that eliminates competition among your suppliers, increases your costs, and harms your ability to compete. Whether this occurs on government projects or in the private sector, these increased costs are ultimately passed on to the public.

Bid-rigging typically involves competitors agreeing to artificially increase the prices of goods and/or services offered in bids to potential customers.”

(Competition Bureau)

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Canada has standalone bid-rigging offences under section 47 of the Competition Act unlike some other major jurisdictions where bid-rigging is treated as one type of general cartel offence.

In this regard, section 47 of Canada’s federal Competition Act makes it a criminal offence for competing bidders or tenderers to enter into any of the following three types of agreements:

1. To not submit a bid or tender.

2. To withdraw a bid or tender that has already been submitted.

3. To coordinate the terms of bids or tenders submitted.

In Canada, bid-rigging is per se illegal in that no anti-competitive effects in a relevant market needs to be established to prove a bid-rigging offence.

Like other Canadian criminal law competition offences, however, like conspiracies (under section 45 of the Competition Act) and criminal misleading advertising (under section 52), all of the elements of bid-rigging need to be established on a criminal burden of proof (i.e., beyond a reasonable doubt).

COMMON TYPES OF BID-RIGGING

Some common types of bid-rigging that can violate the criminal bid-rigging provisions of the Competition Act include:

“Cover”, “courtesy” or “complementary” bidding: Some firms submit bids that are too high to be accepted, or with terms that are unacceptable to the party calling for bids, to protect an agreed upon low bidder.

Bid suppression: One or more bidders that would otherwise bid agree not to bid or to withdraw a bid that has already been made.

Bid rotation: All parties submit bids but take turns being the low bidder according to a systematic or rotating basis.

Market division: Suppliers agree not to compete in designated geographic areas or for specified customers.

Subcontracting: Parties that agree not to submit a bid or to submit a losing bid are awarded subcontracts or supply agreements from the successful (and agreed upon) low bidder.

ELEMENTS TO ESTABLISH BID-RIGGING

To establish a bid-rigging offence under section 47 of the Competition Act, all of the following elements must be proven on the criminal standard of proof (i.e., beyond a reasonable doubt): (i) an agreement or arrangement between two or more persons (or bidders or tenderers as the case may be); (ii) to not submit a bid or tender, withdraw a bid or tender already made, or submit bids or tenders arrived at by agreement; and (iv) a call or request for bids or tenders.

The Competition Act also provides that there is no offence where an agreement has been disclosed to the party calling for bids or tenders at or before the submission or withdrawal of a bid. This exception is intended to allow legitimate bidding consortia to submit bids without violating section 47.

Agreement or Arrangement

The first necessary element to establish bid-rigging under section 47 of the Competition Act is the existence of an agreement or arrangement to not submit a bid, withdraw a bid already made or submit a bid arrived at by agreement.

Like the conspiracy offences under section 45 of the Competition Act (including price-fixing, market division and output restriction agreements between competitors), an agreement is an essential element to establish a bid-rigging offence under section 47. Also like the criminal conspiracy provisions, Canadian courts have held that this element requires a “consensus of minds” or “mutual understanding” between the parties to an agreement.

Mere consultations between parties bidding in relation to pricing, where there has been no agreement or arrangement between the parties and their respective bids are not communicated to the other before tenders are submitted, may not violate section 47.

However, discussions or interaction with co-tenderers, where such interaction is not part of a bid consortium or other legitimate joint bidding arrangement, may well raise significant issues and risk for the parties – for example, lead to the formation of an agreement that does violate section 47 or allow the Competition Bureau, a court or private plaintiff to infer the existence of an agreement.

Like criminal conspiracies in general in Canada, a bid-rigging agreement may also be inferred from mere circumstantial evidence (for example, the submission of identical bids following a meeting of bidders or identical (or highly similar) terms in bid documentation).

Call or Request for Bids or Tenders

It must also be proven that a bid or tender has been made “in response to a call or request for bids or tenders”.

It has been held that this element will not be met where mere price quotations are submitted where there is “no specific direction or call” for bids or tenders (e.g., where price quotations by subcontractors are submitted to a general contractor, where the call for tenders or bids has been made to general contractors not subcontractors).

This requirement to establish bid-rigging has also been the subject of litigation in Canada, with courts determining, factually, whether there has been a call or request for bids.

As such, it is important that potential challengers of bid-rigging arrangements consider whether this element can be established. Conversely, potential defendants need to evaluate whether this specific and technical requirement to establish bid-rigging in Canada under the Competition Act can be made out.

Agreement Not Made Known to
Person Calling for Bids or Tenders

Finally, to establish a bid-rigging offence under section 47 of the Competition Act, it must be proven that an agreement or arrangement has not been made known to the person calling for bids or tenders at or before the submission or withdrawal of a bid or tender by any party to the agreement.

The Competition Act in essence provides a defense for parties that are engaged in joint bidding arrangements, such as bidding consortia or other types of joint ventures that may involve the legitimate submission of joint bids and with the knowledge of the tendering authority.

However, the time when a bid or tender is made is critical to ensuring that this requirement is met, which has been held to be when the contents of a tender are communicated to the party calling for tenders (i.e., when a tender is opened).

It is also critical that the communication of any joint tendering be expressly made. It has been held that merely inferring the submission of joint bids (for example, by the fact that bids are identical) is insufficient to meet this exception.

EXCEPTIONS

The Competition Act contains a bid-rigging exception for agreements between “affiliates” as defined in the Competition Act (i.e., where an agreement or arrangement is entered into only between affiliates, as defined under the Act).

As discussed above, a bid-rigging offence will also not be established where parties (or bidders) expressly communicate an agreement to the tendering authority at or before the time when a bid is submitted or withdrawn.

In addition, as a result of amendments to the Competition Act on June 20 2024 under Bill C-59, a new mechanism was introduced allowing Canada’s Commissioner of Competition (Commissioner) to issue environmental agreement certificates.

An environmental clearance certificate, where issued, confirms that the Commissioner is satisfied that a proposed agreement is both: (i) for the purpose of protecting the environment; and (ii) not likely to prevent or lessen competition substantially in a market (Competition Act, section 124.3(1)).

Where an environmental agreement certificate is valid and registered with Canada’s federal Competition Tribunal, the following sections of the Competition Act will not apply: sections 45 (criminal conspiracy agreements), 47 (criminal bid-rigging) and 90.1 (the civil agreements provision) (Competition Act, section 124.5).

An environmental agreement certificate can, therefore, provide an exception to the bid-rigging provisions of the Competition Act where it is validly issued and registered with the Competition Tribunal, providing comfort to parties to environment-related agreements that they do not face potential criminal competition law liability.

For more information, see: Environmental Agreement Certificates.

PENALTIES

Fines and Imprisonment

The penalties for contravention of the bid-rigging provisions can be severe and include unlimited fines (i.e., a fine in the discretion of the court with no prescribed upper limit), imprisonment for up to 14 years, or both.

Reprisal Actions

As a result of amendments to the Competition Act on June 20 2024 under Bill C-59, new provisions to prohibit “reprisal actions” were enacted (sections 107.1-107.6 of the Competition Act).

Under these new provisions, actions taken by companies and other types of organizations to penalize, punish, discipline, harass or disadvantage any person because of their communications or cooperation with the Competition Bureau are subject to potential court orders and monetary penalties.

Under these new reprisal action provisions, an application can be brought by either the Commissioner (who heads Canada’ federal Competition Bureau) or a person directly and substantially affected by an alleged reprisal action.

The potential penalties for violating these reprisal action provisions include prohibition orders to stop a person from continuing the conduct (section 107.2 of the Competition Act) and administrative monetary penalties of, for an individual, up to $750,000 ($1 million for subsequent orders) and, for corporations, up to $10 million ($15 million for subsequent orders) (section 107.3 of the Competition Act).

For more information, see: Reprisal Actions.

DETECTING BID-RIGGING

For governments and tendering authorities it is important to detect bid-rigging and implement processes to reduce the likelihood that competing bidders and tenderers are colluding in the submission of bids and tenders.

Like cartel agreements among competitors generally (e.g., price-fixing or market division agreements under section 45 of the Competition Act), bid-rigging arrangements, whether in the construction, IT or other sectors, can be challenging to detect. Conspiracy (cartel) agreements are by their nature covert with parties taking steps to keep them secret.

However, some key “warning signs” for tendering authorities to watch for that bidders/tenderers may be submitting coordinated (and potentially criminally illegal) bids include:

1. Identical or similar bids or language in bid documents or other communications from competing bidders.

2. Competing bids received together.

3. A bidder that would normally or has often bid does not bid or submits an unusually high bid or withdraws a bid that they have already made.

4. One contractor or sub-contractor is often the successful bidder.

5. A winning contractor or sub-contractor does not accept the contract.

6. A winning bidder sub-contracts work to unsuccessful bidders.

7. Patterns suggesting rotation of successful bids among several suppliers.

8. Large differences in the price of a winning bid and other bids.

9. A range of quoted prices has suddenly moved upward (suggesting a coordinated increase).

10. Only one bidder contacts wholesalers for pricing information.

11. Language or suggestions from bidders that bids have been coordinated, not made, withdrawn by agreement, that bidders have “preferred” customers or that bidders would not “poach” a competitor’s customers.

12. Meetings where competing bidders discuss competing bids (e.g., trade associations can be particularly high risk, where association members discuss the terms of potential bids, whether or not to submit bids, etc.).

BID-RIGGING RESOURCES

For more information about bid-rigging under the Competition Act, see: Competition Bureau, Bid-rigging, price-fixing and other agreements between competitors – Common types of illegal agreements that hinder competition.

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SERVICES AND CONTACT

We are a Toronto based competition and advertising law firm offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law. We also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.

Our experience includes advising clients in Toronto, Canada and the United States on the application of Canadian competition and regulatory laws and we have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal and pricing and distribution matters. For more information about our competition and advertising law services see: competition law services.

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For more information about our firm, visit our website: Competitionlawyer.ca