The exit of a respondent in an abuse of dominance case does not
mean the case cannot continue, the Competition Tribunal held recently.
In 2012, the Commissioner of Competition launched abuse of
dominance applications against two residential hot water heater
rental companies, Direct Energy and
Reliance Comfort Partnership. The Commissioner alleged that the
two companies used a variety of tactic designed to make it
difficult for consumers to switch to a hot water heater from a
2014 saw major changes to the hot water heater market. Reliance
settled the case by agreeing to pay an administrative monetary
penalty (AMP) of $5 million and to make it easier for customers to
terminate their water heater rental agreements and return the water
heaters. Reliance also
acquired the competitor whose complaint is believed to have
started the case. Meanwhile, Direct Energy exited the market by
selling its hot water heater business to
EnerCare. As part of the sale, Direct Energy agreed to an eight
Direct Energy then brought a motion to dismiss the
Commissioner's abuse of dominance case. The use of the present
tense in the Competition Act's abuse of dominance
provisions mean that to be caught by the provisions, Direct Energy
must enjoy a dominant position at the time the Tribunal makes its
decision, Direct Energy argued. Since it had completely exited the
market, there was no longer any basis for a finding of dominance,
Direct Energy contended. Direct Energy also argued that the eight
year non-compete meant that it could not re-enter the market,
making any remedial order redundant, and any administrative
monetary penalty (AMP), punitive.
The Tribunal rejected this contention. On Direct Energy's
interpretation, dominant firms would be able to engage in
anti-competitive behaviour, and when targeted by an application to
the Tribunal, escape sanction by exiting the market. The Tribunal
also pointed out that the three year limitation period in the abuse
of dominance provisions indicates that the Tribunal is able to
address conduct even after it has stopped.
The Tribunal also disagreed with Direct Energy's argument
that any AMP imposed on it would be purely punitive given its exit
from the market, and thus contrary to the provisions governing
AMPs, which require that the AMP be imposed to promote
compliance with the Act.
An AMP imposed on a firm that has exited the market is not
necessarily punitive in nature, the Tribunal held. It may be
remedial, depending on the evidence. As well, it is open to the
Tribunal to find that the eight year non-compete is not a
sufficient guarantee that Direct Energy will not re-enter the
market. Direct Energy could, for example, acquire EnerCare,
rendering the non-compete irrelevant, the Tribunal noted.
This decision means that the Commissioner's case against
Direct Energy will continue; Direct Energy remains potentially
liable to paying an AMP of $15 million.
This decision provides helpful clarification on what happens
when market dynamics change in the middle of a Tribunal
While rare, changes in the market have in the past resulted in
cases before the Tribunal being withdrawn. For example, an abuse of
dominance case filed against Air Canada in early 2001, alleging
that the airline engaged in anti-competitive conduct to block
WestJet's entry into Eastern Canada, was withdrawn after Air
Canada went through insolvency restructuring, while WestJet
prospered. Similarly, in 1997, a challenge to Canadian
Pacific's acquisition of Cast, its competitor in the container
shipping industry, was dropped after the entry of a major
In Air Canada and CP, the market had changed
to the point where remedial orders were unnecessary. Since
legislation providing for AMPs had not yet been enacted when the
Air Canada case was launched, there was no question of the case
continuing to determine whether an AMP should be imposed.
By contrast, the Direct Energy case involves a company that the
Competition Bureau claims is a recidivist. Direct Energy had
previously agreed in a consent agreement not to engage in the
conduct at issue in this application. It resumed its allegedly
anti-competitive conduct shortly after the expiry of the consent
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The Canadian Competition Bureau issued a template document for use as a form of Consent Agreement, to be filed with the Competition Tribunal to resolve concerns the Bureau may have with proposed mergers.
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