Canada: Canada Issues ´Technical Bulletin On "Regulated" Conduct´: Competition Bureau Maintains A Cautious Approach

On June 29, 2006, the Competition Bureau (the Bureau) released the final version of its Technical Bulletin on "Regulated Conduct" (the Bulletin). The Bulletin outlines the Bureau’s approach to enforcement of the Competition Act (the Act) in respect of conduct that is authorized or required by a federal, provincial or other law (i.e., the so-called "regulated conduct doctrine", or "RCD"). Given that the RCD operates to immunize certain conduct from the Act, and therefore narrows the Bureau’s jurisdiction, it is perhaps not surprising that the Bulletin reflects a strict approach to the RCD’s application. That said, the Bulletin notes that even if the RCD is not available in a given case, other defences, such as a lack of mens rea or official inducement of error, may apply to exempt conduct from the Act’s application. In short, in cases where the RCD does not apply, the Bureau will still consider, using other tools of statutory interpretation, whether Parliament intended that the impugned conduct be exempt from the relevant provisions of the Act.

The RCD has been the subject of litigation – and indeed considerable controversy – in recent years. This controversy arose in part from a series of cases that appeared to have expanded the doctrine beyond its traditional limits, in particular by applying the RCD to:

  • conduct not strictly mandated under other legislation, but which was authorized in general terms;
  • conduct authorized by other federal as well as provincial legislation; and
  • prevent the application of both the criminal and civil provisions of the Act.

Faced with what one expects the Bureau might perceive as the threat of encroachment on its jurisdiction, and armed with a Supreme Court of Canada decision (albeit with respect to the Criminal Code and not the Act – see Garland, discussed below) espousing a relatively restrictive view of the RCD’s application, the Bulletin reflects the Bureau’s assertion of jurisdiction to challenge anti-competitive conduct in all but the most clear cases of legislative desire to the contrary.

The Bulletin reflects stakeholder feedback received by the Bureau since its release of a draft version in November, 2005 (the Draft Bulletin). The Draft Bulletin itself constituted a substantial revision of an earlier attempt at setting out the Bureau’s views on the RCD in the form of an Information Bulletin on the Regulated Conduct Defence issued in December 2002. The original attempt had met with significant criticism and was subsequently overtaken by the Supreme Court of Canada’s statements, albeit in obiter, in Garland.

In setting out the Bureau’s approach to the application of the RCD, the Bulletin (understandably) starts from the premise that the Bureau "is obliged to administer and enforce the Act, and that the Act is a framework law of general application". Consistent with the views espoused by the Supreme Court of Canada in Garland, the Bulletin goes on to state that Parliament "is not presumed to depart from the general system of law without expressing its intentions to do so with irresistible clearness." Characterizing the RCD case law as "underdeveloped" and as an "exception" to this rule (and to other rules of statutory interpretation, including the general rule of federal paramountcy), the Bulletin states the Bureau’s view that "a cautious application of the RCD is warranted."

An example of the Bureau’s "cautious" application of the RCD is its view that the RCD will apply only where a validly enacted provincial law conflicts with the Act in such a way that a party cannot comply with both laws (i.e., so-called "impossibility of dual compliance"). While the Bulletin recognizes that other courts, including the Supreme Court of Canada in Jabour, had previously applied the RCD to conduct that was simply authorized and not compelled by provincial law, and in circumstances in which compliance with both laws would have been possible, it confines Jabour to its facts. The result, it appears, is the recognition that the RCD may apply to allegations of anti-competitive conspiracy arising out of conduct generally authorized by provincial legislation, but the potential imposition — presumably — of liability (barring other defences) for other sections or in respect of federally authorized conduct which was clearly authorized and not required.

In contrast, the Bulletin highlights the Supreme Court of Canada’s "most recent pronouncement on the RCD," notwithstanding the fact that Garland was not a competition law case and that its treatment of the RCD was obiter. In Garland, the Bulletin notes, the Supreme Court of Canada "held that the RCD can only immunize conduct from the Criminal Code where the Criminal Code clearly allows for application of the RCD, for example, by ‘leeway language’ such as "against the interests of the public’ or ‘unduly [limiting competition]’ found in the competition law provisions at issue in previous RCD case law. The Bulletin, therefore, treats the RCD as frozen in time, pinning it to specific language addressed in "previous RCD case law" (i.e., "undueness" language in the Act’s criminal conspiracy provisions, which continues to exist through section 45) and excluding similar language contained in more recently enacted provisions of the Act (such as the requirement of a "substantial prevention or lessening of competition" found in the Act’s reviewable practices provisions). The Garland approach similarly excludes provisions without leeway language, even though conduct that was the subject of the earlier case law could be challenged as a contravention of the Act’s price maintenance provision, which, unlike section 45, is a per se offence without the "leeway language" necessary to allow application of the RCD.

The effect of the Bulletin’s approach is significant. In a nutshell, it limits the RCD’s potential application to allegations of criminal anti-competitive conspiracy to a single provision of the Act (section 45). It also limits it to conduct that is provincially (not federally) regulated. Therefore, while the Bureau will refrain from investigating conduct as a criminal conspiracy under section 45 of the Act if it was "authorized" or required by valid provincial legislation, it considers itself to have retained jurisdiction to investigate such conduct as a potential violation of any other provision of the Act – even where a direct conflict between the laws exists, provided that it determines that Parliament intended for the Act to apply to the conduct.

Although the Bulletin contains no practical examples, the analytical framework it describes leads logically to the conclusion that even provincial marketing boards (the source of most of the early RCD cases and long thought to lie outside the scope of the Act) could potentially be subject to investigation under the abuse of dominance provisions, or even the criminal prohibition against price maintenance. It is doubtful that the Bureau would actually seek to enforce its jurisdiction in this manner, but, as the Bulletin points out, the case law in the area is underdeveloped and the potential for such enforcement flows from the Bureau’s strict reading of (or, in any event, some of) the RCD case law.

While there is no principled reason why the RCD could not extend to conflicts between the Act and other federal laws, the Bulletin points to a relative absence of jurisprudential support for such application of the RCD. It does not follow that the Bureau would necessarily seek to apply the Act in such a case, since the Bulletin makes it clear that other defences or doctrines might apply to achieve the same result. Consistent with the "impossibility of dual compliance" approach to statutory conflict, however, when faced with potentially conflicting federal laws, the Bureau will first determine whether a party may reasonably comply with both laws. If there is a conflict between the Act and another federal law, the Bureau will seek to determine whether Parliament intended that the Act apply to the impugned conduct. If it determines that Parliament has expressly or impliedly articulated an intention to displace competition law enforcement, the Bureau will not pursue the matter further. The Bulletin clarifies the Bureau’s position on implied intention, stating that the other federal law is intended to take precedence over the Act where Parliament has enacted specific "provisions to address the conduct in question," or has provided an exhaustive statement of law concerning the matter.

Despite acknowledgement in the Bulletin that the case law does not expressly distinguish between regulators (such as provincial marketing boards) and those they regulate (so-called "regulates"), and despite strong submissions made in response to the Draft Bulletin against drawing such a distinction, the Bulletin maintains the Bureau’s position that regulatees (including self-regulatory bodies such as medical associations or law societies) may be subjected to greater scrutiny than regulators.

There can be no doubt that the Bulletin adopts, as the Bureau puts it, a "cautious approach" to the application of the RCD. However, the Bulletin also leaves the door open for a pragmatic, flexible approach toward actual enforcement activity. While stating that the RCD will not often operate to deprive the Bureau of jurisdiction, Bulletin also states that the Bureau will not necessarily proceed simply because it has the jurisdiction to do so. In each case, the Bureau will consider whether it is "in the public interest to pursue the conduct under the Act in the circumstances." Members of provincial marketing boards presumably need not fear the competition police at their doors just yet.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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