Canada: Toronto Real Estate Board Abuse Of Dominance Case Overturned On Appeal

Last Updated: February 11 2014
Article by James B. Musgrove and Éric Vallières

On February 3, 2014, the Federal Court of Appeal reversed the decision of the Competition Tribunal in the Toronto Real Estate Board case1, referring the case back to the Tribunal for decision on the merits.

In April 2013 we released a Bulletin outlining the Tribunal's initial decision2. The case turned on rules of the Toronto Real Estate Board (TREB) which, allegedly, made it more difficult for people to operate brokerages based on a virtual office website (VOW) model, rather than a traditional bricks and mortar operation. The Tribunal rejected the Commissioner's case on the basis that TREB was not a competitor of the VOW brokerages – rather it was an industry association of various brokerages, but was not itself active in the market for real estate brokerage services. Relying on a long line of cases, including NutraSweet3, Laidlaw4 and Tele-Direct5, and culminating in the Federal Court of Appeal decision in Canada Pipe6, the Tribunal noted that abuse of dominance requires, amongst other things, a practice of anti-competitive acts – which in turn requires that the act be undertaken for an anti-competitive purpose, being an intended predatory, exclusionary or disciplinary negative effect on a competitor. The Tribunal found that the conduct at issue was alleged to affect TREB's members, not its competitors, so could not constitute an anti-competitive act. The Tribunal also found that the Toronto Real Estate Board did not "control" a market – or have market power – because it did not itself compete in the market for real estate brokerage services.

The Federal Court of Appeal first determined that the fact that TREB was not a competitor in the market for real estate brokerage services did not preclude it from controlling that market. It noted that the Commissioner's position: that a person not a competitor in a particular market may nevertheless control that market substantially within the meaning of paragraph 79(1)(a) by, for example, controlling a significant input to competitors in the market, or by making rules that effectively control the business conduct of those competitors – was "an interpretation of paragraph 79(1)(a) that the words can reasonably bear". So, the Federal Court of Appeal's first decision was that it was not necessary to be a competitor in a market to control the market. The court stated: 

"I do not interpret Canada Pipe to mean that as a matter of law, a person who does not compete in a particular market can never be found to have committed an anti-competitive act against competitors in that market, or that a subsection 79(1) order can never be made against a person who controls a market other than as a competitor."

The Federal Court of Appeal noted that the court in Canada Pipe interpreted the word "competitor", as a "competitor of the person who is the target of the Commissioner's application". The Federal Court of Appeal in TREB said "I see nothing in the language or the context of the Competition Act to justify the addition of those qualifying words." The Court went on to say, in somewhat more case specific language, that it did not accept that the Canada Pipe decision was intended to preclude the application of Section 79(1) to the Real Estate Board in respect of a rule it makes that is binding on its members.

The Federal Court of Appeal in TREB observed that while the Canada Pipe decision recognized that all but one of the listed anti-competitive acts are acts which are targeted against a person's own competitor, one of the acts listed is not of that type, and that the court in Canada Pipe did not explain the basis for the exception. It stated:

"In my view paragraph 78(1)(f) is an indication that parliament did not intend the scope of Section 79(1) be limited in such a way that it cannot possibly apply to the Board in this case. If the court in Canada Pipe intended to narrow the scope of Section 79(1) as the Tribunal held, then I would be compelled to find that aspect of Canada Pipe to be manifestly wrong because it is based on flawed reasoning." 

The Federal Court of Appeal also noted that while the Tribunal based its decision in part on guidelines which had been issued by the Competition Bureau with respect to the abuse of dominance provisions of the Competition Act, those guidelines were not binding on the Tribunal, or the Court, or even on the Bureau:

"The guidelines indicate at most that the Commissioner's understanding of the scope of subsection 79(1) has changed over time. In my view, they provide no useful guidance to the Court in interpreting that provision." 

The Federal Court of Appeal's decision in the Toronto Real Estate Board case leaves the business community in some confusion. It is now far from clear how broad or narrow the abuse of dominance provisions may be. At the narrow end of the spectrum the case may be limited to the situation of trade associations or the equivalent. It could be argued that the fact that the Real Estate Board was not a "competitor" of the brokerages wishing to offer VOW services was a mere technicality. The Real Estate Board was – arguably – the instrument of the majority of brokers – who were competitors of the VOW brokers, and who allegedly used the instrumentality of the Toronto Real Estate Board to exclude a type of competition. The Federal Court of Appeal may have decided to see through the formal structure to that essence. There is language in the decision to support this more narrow conclusion.

At the other end of the spectrum, however, insofar as the decision means that an anti-competitive act can involve action by a dominant firm directed at another firm or firms that have nothing to do with the market in which the dominant firm participates – or even further, that anti-competitive acts may not have to be acts which are predatory, exclusionary or disciplinary at all – we would be left with a very much wider field of uncertainty. In these latter cases it will be difficult to advise firms with a meaningful market share as to whether any of their conduct risks being challenged as abuse of dominance. Any firm with a significant market share which takes actions which succeed in the marketplace, such that others are limited or excluded could, on the latter interpretation, risk challenge under the abuse of dominance provisions.

While we think that the second possible interpretation is inappropriately wide, and while hope that the Federal Court of Appeal's decision in the Toronto Real Estate Board case will be confined to facts in which an industry association or similar organization is somehow a proxy for competitors in a relevant market, or has some close tie to and community of interest with participants in the relevant market, for now the question is open.

The decision is also noteworthy for its lack of interest in, or deference to, the Competition Bureau's guidelines, or in the Bureau's attempts to resile from guidance provided such guidelines. This will raise questions as to the usefulness or reliability of Bureau guidelines across the full range of the Bureau's activities.

It is possible that the Toronto Real Estate Board will seek to appeal the decision to the Supreme Court of Canada. However, if it does not, or if leave is not granted, or if the appeal is unsuccessful, the question of the breadth of the abuse of dominance provisions – and their application to wide swaths of activity in the economy – will remain open for some considerable period of time. When the Tribunal decided the Toronto Real Estate Board case we offered the view that it provided a level of certainty and predictability in this area. The Federal Court of Appeal's decision meaningfully reduces such predictability. The next steps will be interesting to observe. 

Footnotes

1. The Commissioner of Competition v. The Toronto Real Estate Board, 2013 Comp. Trib. 9; rev 2014 FCA 29.

2. Tribunal De-Lists Bureau's TREB Case, McMillan Competition Bulletin, April 2013. [ Click here]

3. Director of Investigation and Research v. The NutraSweet Company (1990), 32 CPR (3d) 1, [1990] CCTD No. 17.

4. Director of Investigation and Research v. Laidlaw Waste Systems Ltd. (1992), 40 CPR (3d) 289.

5. Director of Investigation and Research v. Tele-Direct Inc. (1997), 73 CPR (3d) 1, 1997 CanLII 11.

6. Canada (Commissioner of Competition) v. Canada Pipe Co. 2006 FCA 233, 268 DLR (4th) 193.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2014 McMillan LLP

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