Canada: Federal Court Sets Aside Competition Bureau Subpoenas

In a pair of unprecedented rulings issued on January 28, 2008, Justice Anne Mactavish of the Federal Court of Canada quashed certain production orders she had previously issued against Labatt Brewing Company Limited and others in the context of the Commissioner of Competition's inquiry into the Labatt/Lakeport merger, on the basis that the disclosure made to the Court by the Commissioner in seeking the orders by way of ex parte application had been "misleading, incomplete and incorrect".

This is the first time a "section 11" order has been struck down in a merger case. The decisions are significant because the judge severely criticized the Competition Bureau's behaviour in this inquiry and ruled that any further orders in the matter must be brought "on notice" to the parties.

Indeed, the rulings by the Federal Court have already prompted the Commissioner and Justice Canada to appoint "an experienced third party" to lead an independent review and recommend changes to the process for bringing section 11 orders under the Competition Act. The report is expected by mid-May.

THE FEDERAL COURT RULINGS

In two related decisions1 handed down on January 28, 2008, the Federal Court of Canada (Justice Anne Mactavish) set aside its own orders (of November 8, 2007) requiring Labatt and certain other beer industry participants to produce documents related to the Commissioner of Competition's ongoing investigation of the Labatt/Lakeport merger, which closed on March 29, 2007. The original orders had been obtained on ex parte application by the Commissioner under section 11 of the Competition Act (i.e., without notice to Labatt and the other targeted companies). While fifteen orders were issued against different parties in November, only Labatt and Moosehead challenged the orders, arguing that they represented substantial duplication with prior orders sought by the Commissioner and, moreover, that much of the additional information and documentation requested was not relevant in the circumstances.

The orders were the third round of such orders made against participants in the beer industry in Ontario within the last four years. As part of her formal inquiry into the Labatt/Lakeport merger, the Commissioner, in February 2007, had obtained Federal Court orders against eleven different entities, including Labatt and Lakeport, for the production of records and other information. A significant amount of information was delivered to the Commissioner at the time, including nearly 140,000 pages by Labatt alone (which incurred substantial costs, including some $750,000 in external legal costs, in order to comply with the orders). Prior to the February 2007 orders, Labatt had also provided the Commissioner with approximately 10,000 pages of records and information in its statutory filing and submission with respect to its proposed acquisition of Lakeport. Moreover, the Commissioner had also obtained extensive information from industry participants in connection with a 2003 inquiry and the review that was carried out in 2006 in relation to the sale of Sleeman Breweries Ltd.

In her reasons, Justice Mactavish pointed out that the Court does not act as a "rubber stamp" in issuing section 11 production orders and retains discretion to set aside or amend such orders to prevent the abuse of its process. She stressed that because ex parte applications are made without notice to an opposing party (thus providing no advance opportunity to challenge the application), the Commissioner has a duty to ensure that the Court is apprised of all the relevant facts, including those adverse to her request. While the burden to inform the Court of any points of fact or law that may favour the other side is not controversial, Justice Mactavish - in her discussion of the type and range of information the Commissioner ought to have presented - has established relatively onerous obligations and appears to have raised the bar that will have to be surmounted in the context of future applications.

Justice Mactavish found that the disclosure made in the Commissioner's applications for the November 2007 orders had been inadequate, inaccurate and/or misleading for three principal reasons.

  • First, the Commissioner failed to disclose previous representations made to the Court to the effect that the extensive information sought in the orders issued in February 2007 "would likely be sufficient" for the purposes of her inquiry. Justice Mactavish rejected the Commissioner's position that she had no obligation to inform the Court about these representations made to a different judge in the context of a different application and that any such representations were irrelevant in the context of a new application. Indeed, Justice Mactavish stated that had she known about the prior representations, she "would not have granted the order that [she] did without some explanation from the Commissioner as to why so much additional information and documentation was now required."
  • Secondly, the Commissioner's counsel misled the Court in the written submissions by stating that "none of the records or information sought has been previously requested," when in fact there were a number of areas of overlap with the previous orders and some of the information had already been obtained by the Commissioner through other means. In Justice Mactavish's view, the fact that the Commissioner had included copies of the February orders in the materials she filed in support of her applications for the November orders did "not excuse the disingenuous and misleading representations made in the [...] written submissions." Justice Mactavish went on to note that had she been aware of the "significant overlap" between the information sought in the applications before her and that previously provided to the Commissioner, she would have insisted that the Commissioner narrow the requests or would have required notice to be given to the targeted companies so as to give them an opportunity to be heard before orders were issued.
  • Finally, the Commissioner failed to inform the Court of the concerns previously communicated by the targeted companies about the burdensome nature and scope of the Commissioner's February 2007 demands and their implications for the November 2007 information requests. Justice Mactavish noted that the material provided by the Commissioner made little mention of the extensive involvement of the Commissioner's office in examining the state of competition in the beer market in Ontario over the last four years.

Given her conclusions on the issue of the disclosure that had been made in the context of the Commissioner's applications for the November 2007 orders, Justice Mactavish found that it was not necessary for her to examine the question of the relevance of the information and records thereby requested.

LIKELY IMPLICATIONS OF THE RULINGS

Going forward, the Commissioner will therefore need to ensure that full disclosure is made to the Court when applying for ex parte production orders and that the nature and scope of the information and documentation requested are not unreasonable. The rulings by the Federal Court also confirm that parties served with section 11 orders may successfully have those orders varied or set aside where they are improper.

It is also clear that parties subject to a production order now have a precedent for challenging it, particularly where production of information, through any means, has already been undertaken by them. It is hoped that these decisions will cause the Competition Bureau to take a more reasonable and measured approach in regard to such orders than has been the case in its recent practice, where the orders applied for have sometimes called for merging parties (and also third parties) to provide an extensive and burdensome amount of information in very short timeframes.

It remains to be seen whether the Commissioner will now consider giving parties advance notice of proceedings seeking such orders, or whether she will be more inclined to work with parties beforehand in order to target the orders to the specific issues under investigation. In any event, the rulings by the Federal Court and its imposition of a heavy burden of disclosure when seeking a production order without notice will likely require the Competition Bureau to scrutinize materials used in support of requests for such orders more closely. Indeed, the decision has already prompted some reconsideration of the Bureau's policy on the use of ex parte applications to obtain production orders, the Commissioner and Justice Canada having recently agreed to an independent review by "an experienced third party" of the section 11 application process.

What appears certain is that the evidence relied upon by the Commissioner in support of a production order will have to be prepared with greater emphasis on identifying any overlap that may exist between the information and records being sought and those already in the Competition Bureau's possession and, where there is an overlap, providing detailed justification for the duplication. The rulings by the Federal Court also suggest that the Commissioner's evidence will need to explain, in some detail, why additional information, beyond that already in the Bureau's possession, is necessary in order for the Commissioner to conduct her inquiry. Just how far the Bureau will need to go in examining its own records and prior examinations of industry sectors before asking parties to produce information is unknown, but it seems clear that it will need to be more diligent in this regard than it has been in the past.

Endnote

1. Commissioner of Competition v. Labatt Brewing Company Limited , 2008 FC 59; Commissioner of Competition v. Moosehead Breweries Limited , 2008 FC 105.

About Ogilvy Renault

Ogilvy Renault LLP is a full-service law firm with close to 450 lawyers and patent and trade-mark agents practicing in the areas of business, litigation, intellectual property, and employment and labour. Ogilvy Renault has offices in Montréal, Ottawa, Québec, Toronto, and London (England), and serves some of the largest and most successful corporations in Canada and in more than 120 countries worldwide. Find out more at www.ogilvyrenault.com.

Ogilvy Renault is the International Legal Alliance's Canadian Gold Award winner for 2008 in M&A and Corporate Finance.

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