In this report, the Blakes Competition, Antitrust & Foreign Investment group outlines the key Canadian developments in the areas of competition and foreign investment law over the past year and sets out the key trends for 2014.
Over the past year, a number of significant developments occurred in this area, both on the legislative and policy fronts. Among the most notable developments were the changes to the Investment Canada Act (ICA), which conferred new powers on the Minister of Industry to assess and review investments by sovereign wealth funds and state-owned enterprises (SOEs). This past year marked the first case in which the Cabinet (the executive branch of the federal government) exercised its authority under the ICA to block an investment on national security grounds following 2009 amendments to the ICA conferring this authority on the Cabinet. We expect the federal government will continue to focus on these types of investments in 2014 and beyond, particularly once new monetary thresholds for non-SOE World Trade Organization investors enter into force. This is also expected to occur in the coming year.
Canada also welcomed a new Commissioner of Competition, John Pecman, who was appointed in June 2013 to a five-year term to head Canada's Competition Bureau (Bureau). Commissioner Pecman's "Bureau without borders" initiative has invited greater interagency cooperation, including with the Investment Review Division of Industry Canada, as well as other agencies, such as the Canadian Radio-television and Telecommunications Commission, and Public Works and Government Services Canada.
Armed with more information and enhanced cooperation, the Bureau and its global partners have closely scrutinized mergers and have obtained significant penalties from both international and Canadian companies for anticompetitive conduct. The Bureau currently has over 22 cases before the courts and the Competition Tribunal (Tribunal) and over 80 major investigations ongoing. We expect the Bureau will continue to actively pursue companies and individuals engaged in anticompetitive conduct, particularly in price-fixing and bid-rigging conspiracies.
Other notable policy changes at the Bureau include the increased focus on transparency initiatives. In this vein, the Bureau's Mergers Branch has published more position statements to inform the public about the Bureau's analysis of particular transactions. In promoting dialogue with the business community and the bar, the Bureau has been more receptive under the new Commissioner's leadership to more streamlined approaches in merger reviews, particularly for upstream oil and gas transactions.
While the Tribunal had not released a decision in four years on a conduct matter, it released two decisions this year (one pertaining to resale price maintenance and the other abuse of dominance), in each case, dismissing the Commissioner's application on technical grounds. We anticipate further guidance from the Tribunal, and possibly the Federal Court of Appeal, on the interpretation of the abuse of dominance provisions in the year to come.
KEY TRENDS FOR 2014
In 2014, we expect the Competition Bureau (Bureau) to seek a permanent replacement for the recently resigned head of mergers. We also expect that the Bureau will continue its collaborative approach to resolving potential competition concerns through negotiated solutions, where possible, and will focus on reducing review times on transactions that clearly raise no substantive issues. One additional development we will be watching is the Bureau's anticipated guidance on mergers involving state-owned enterprises (SOEs).
In light of the 2013 amendments to the Investment Canada Act (ICA) and recent policy statements by the federal government, we expect that foreign investments into Canada, particularly investments by SOEs and investments that raise potential national security issues, will continue to be closely monitored in 2014 and beyond. We also anticipate that the federal government will issue new national security regulations this coming year that, consistent with 2013 amendments to the ICA, will confer additional powers to the Minister of Industry to prolong a national security review. The coming-into-force of the new World Trade Organization (WTO) investor threshold is expected in 2014 as well.
Given the number of investigations currently ongoing at the Bureau, we anticipate that enforcement activities will continue with vigour this year, particularly in the auto parts sector. Following guidance from the Federal Court, we may see Canada's first custodial sentence for a cartel offence issued in the coming year.
The Bureau will continue to investigate and enforce the provisions of the Competition Act, including the abuse of dominance provisions, and primarily in two priority areas: the digital economy and the healthcare sector.
The Bureau will continue to focus its enforcement efforts in this area on the use of fine-print disclaimers in their price advertising and in the making of performance claims.
Following the Supreme Court of Canada decisions allowing indirect purchaser class actions to proceed to certification, a number of claims held in abeyance will restart in 2014, with certification hearings expected to commence in 2015. We anticipate that defendants will contest the ability of plaintiffs' experts to establish a methodology capable of demonstrating common loss or damage, particularly in terms of demonstrating pass-through at each stage of the distribution chain.
We expect that parties faced with ex parte production orders from the Bureau may continue to contest the Bureau's disclosure to the court in light of recent case law from the Federal Court of Appeal.
HIGHLIGHTS FROM 2013
This past year saw a number of significant developments in merger review in Canada, including a rare merger challenge appeal to the Supreme Court of Canada (Tervita Corporation et al. v. Commissioner of Competition), as well as significant personnel changes at the Competition Bureau (Bureau). In addition, consolidation in the retail sector occupied a significant amount of the Bureau's attention, with a number of mergers in such industries being permitted to proceed only after the parties agreed to alter the structure of their transactions, both through formal consent agreements and voluntary pre-closing structure modifications. At the same time, the Bureau took steps to streamline the review of transactions that clearly do not raise competition issues.
Amendments to the Investment Canada Act enacted this year conferred the Minister of Industry additional powers to subject investments by state-owned enterprises to a "net benefit to Canada" review. In a first under the 2009 national security amendments, the Cabinet issued an order blocking an investment on national security grounds. The decision confirms the Cabinet's willingness to put national security ahead of foreign investment where appropriate.
This year also marked the first conviction by trial under the Competition Act applying the Criminal Code provision that assigns corporate liability for conduct of the company's senior officers.
After four years without a substantive decision of the Competition Tribunal (Tribunal) on a conduct case, this year saw the Tribunal release two decisions, dismissing the Commissioner of Competition's applications in both instances.
Rather than relying on guidance documents, the Bureau continues to favour an enforcement-based approach in this area, including bringing an action against leading furniture retailers in which the Bureau has sought administrative monetary penalties and restitution.
The Supreme Court of Canada (SCC) decided a trilogy of cases holding indirect purchaser claims may be brought in class proceedings in Canada. The SCC did not accept the defendants' inability to raise a "passing on" defence as a bar to claiming overcharge. The decisions align Canada's private actions regime more closely to the approach taken by several U.S. states that permit indirect purchaser claims.
The Commissioner announced a change in Bureau policy stating that the Bureau's first course of action in obtaining information from the target of a formal inquiry in non-merger cases will be, for all but exceptional cases, obtaining a section 11 production order as opposed to relying on voluntary requests for information.