Overview of Recent Changes to the Penalty Provisions of the Competition Act
In 2009 and 2010, Canada enacted significant changes to the Competition Act which brought Canada’s competition laws much closer to the United States’ cartel and merger review regimes and substantially raised the stakes for parties accused of engaging in anticompetitive conduct. In addition, earlier this year, the Canadian government's omnibus crime bill received Royal Assent and changed important aspects of Canada's criminal justice system, including restricting the availability of conditional sentences (i.e., prison sentences served in the community or "house arrest") for individuals engaged in criminal conduct under the Competition Act. With these changes, Competition Act conspiracy, bid-rigging and misleading advertising joined the ranks of the most serious criminal offences in Canada.
Overview of Competition Act Changes
The Competition Act’s (Act) 2009 amendments resulted in fundamental changes to the Act’s conspiracy provisions, replacing the Act's old conspiracy offence (which required agreements to lessen competition "unduly") with a two-track regime featuring a per se illegal criminal offence for "hard-core" cartels, and a civil "reviewable" provision for other horizontal agreements between actual or potential competitors. The revised cartel provision also introduced a new defence modeled upon the American "ancillary restraints" doctrine, which provides that criminal liability will be avoided where an agreement between competitors is "ancillary" to a broader agreement that does not contravene the conspiracy provision, and is necessary to give effect to the objective of that broader agreement.
The changes also de-criminalized predatory pricing, price maintenance and price discrimination, and introduced a new civil competitor agreement provision which intended to alleviate concerns that some strategic alliances could be criminally prosecuted. As such, under the new regime, horizontal agreements that are likely to prevent or lessen competition substantially are treated under the new civil "reviewable practice" provision.
The amendments also significantly increased the range of penalties that can be imposed upon both individuals and corporations for all civil and criminal offences under the Act.
Under the amended conspiracy provision the maximum fine for conviction is increased to $25 million from $10 million, and the maximum term of imprisonment is increased from 5 years to 14 years (per count charged). The maximum civil and criminal penalties for misleading advertising also increased from $50,000 to up to $750,000 for a first contravention of the civil provision, and possible prison terms under the criminal provisions increased from 5 years to up to 14 years, while fines remain to the discretion of the Court. Section 730 of the Criminal Code precludes judges from granting conditional or absolute discharges for offences punishable by imprisonment for 14 years or more. As such, discharges are no longer available in conspiracy, bid-rigging or criminal misleading advertising cases.
In addition, the amendments introduced new sanctions for contravention of the abuse of dominance provision, allowing the Competition Tribunal ("Tribunal") to order an "administrative monetary penalty" of up to $10 million for a first offence and up to $15 million for subsequent contraventions. Moreover, the Tribunal, or a Court, now has the power to order restitution to consumers in relation to certain misleading marketing practices and, in certain circumstances, to issue "freezing orders" forbidding the disposition of specified property. Finally, consistent with the penalty prescribed in the Criminal Code for obstruction of justice, penalties for obstruction under the Act increased from five to 10 years imprisonment (on indictment) and maximum fines have been increased from $5,000 to unlimited (on indictment) and $5,000 to $100,000 (on summary conviction).
Bill C-10, The Safe Streets and Communities Act
On March 13, 2012, Bill C-10, the Canadian government’s omnibus crime bill, received Royal Assent. It will come into force on November 20, 2012. Bill C-10 implemented significant changes to Canada’s criminal laws, including amendments that eliminate the discretion of judges to impose a conditional sentence on individuals convicted of a crime which carries a maximum penalty of 14 years imprisonment or more. As a result of the 2009/2010 amendments to the Act, such offences include cartels, bid-rigging and misleading advertising. Individuals convicted of such offences under the Act, will therefore either spend time in a jail cell or receive only a fine as punishment, as the halfway house of conditional sentencing in the community will not be available.
Impact on prosecutions and sanctions
It remains to be seen whether the 2009 amendments will lead to an escalation in prosecutions and increased sanctions for individuals prosecuted under the Act. Indeed, while the new regime makes it easier to prosecute cartels by removing the requirement to prove that the agreement will lessen competition "unduly", proving the existence of an illegal agreement as well as the requisite knowledge or intent beyond a reasonable doubt has often proved difficult in the past, and will remain an issue in future cases. As such, in the in the absence of the "smoking gun" evidence, it remains uncertain that Courts will be willing to sentence individuals to significant jail terms on the basis of indirect or circumstantial evidence.
Consistent with a global trend among competition authorities, the Competition Bureau (Bureau) has declared domestic conspiracies and bid- rigging to be enforcement priorities. However, in recent years, the Bureau has also investigated a number of misleading advertising and telemarketing cases, some of which resulted in criminal convictions.To date, the largest fines imposed by Canadian Courts for price-fixing were a total of $95.5 million, including a fine of $48 million on a single corporation. Individuals have also been fined, but very few jail terms have been imposed, and none for more than one year. In addition, while the Bureau has publicly stated its intention to test the boundaries of the new law by bringing more cases to Court, to date, only one cartel case has been brought under the new provision for which no individual sanctions were sought. In that case, the Bureau announced earlier this year that a company and its affiliate pleaded guilty and were fined a total of $12.5 million for participating in a price-fixing cartel for polyurethane foam. Both companies were charged with, and pleaded guilty to four counts of price-fixing: two charges under the new conspiracy provision for which the companies were fined a total of $2.5 million, and two charges under the former conspiracy provision, for which the companies were fined a total of $10 million.
Finally, the Bureau has indicated many times that its success in obtaining cartel convictions is largely due to the existence of its immunity programme and leniency policy, which encourage cartel participants to disclose their illegal conduct and cooperate with the Bureau in exchange for potential immunity from prosecution or a more lenient sentence. While the recent amendments to Canada’s criminal laws provide for increased sanctions for anticompetitive conduct, it has been suggested that they could result in unintended consequences on the Bureau’s Leniency Program, given that individuals involved in cartels or bid-rigging may be hesitant to cooperate with the Bureau owing to the potential of serving jail time despite co-operating and pleading guilty.