As published by the Globe and Mail, February 6, 2008 (www.reportonbusiness.com/law)
The case against the Competition Bureau's no notice subpoenas.
Industry Minister Jim Prentice's probe into the Competition Bureau's use of Section 11 orders in its investigation of the Labatt/Lakeport merger provides a welcome opportunity for the Bureau to restore a greater degree of balance and fairness to its investigations.
Currently, the Bureau's practice is to seek these court orders, which require the production of significant amounts of information, without any notice to the affected parties. In our view, the lack of notice is not only unnecessary in most circumstances, but also unfair. Providing prior written notice to parties that are required to expend extraordinary resources and divert important management time to respond to such orders should be the norm and not the exception.
On January 28, 2008, a Federal Court judge set aside two Section 11 orders previously obtained against Labatt and Moosehead by the Commissioner of Competition as part of her ongoing inquiry into the Labatt/Lakeport beer merger. The judge found that the Commissioner's original applications were "misleading, inaccurate and incomplete". As a result of those decisions, Minister Prentice requested an investigation of the Bureau's conduct.
The Senior Deputy Commissioner of the Mergers Branch of the Competition Bureau has been quoted in the press as stating that the Bureau has reviewed what it had provided to the Court and is satisfied that it "did everything appropriate" in terms of providing the Court with the relevant and necessary information.
We are not writing here to comment on the specific merits of these two decisions. Our concern relates to the Competition Bureau's practice of consistently applying for Section 11 orders without notice to the persons who will have to comply with them. This concern has been building within the Canadian business and legal community for some time, as the Bureau has been resorting to Section 11 orders more frequently.
First some background. Section 11 of the Competition Act allows the Commissioner to apply to a Court for an order that is similar to a subpoena. Section 11 orders can be issued against anyone likely to have information relevant to an inquiry by the Commissioner – not just merging parties, but also customers and suppliers. Such orders can require a company to produce documents and answer questions in writing, often within a very short time.
Responding to such orders can require massive volumes of documents and information, including extensive searches of computer records and electronic databases going back many years. These orders also frequently require the creation of new types of reports or data streams. Once a Section 11 order is issued, grounds for appeal are limited.
Section 11 orders often impose extraordinary costs on the Canadian businesses (both large and small) receiving such orders in terms of diversion of scarce management and employee time and fees for lawyers and electronic data services, for example. In the recent Labatt decision, the judge noted that, under a previous Section 11 order, Labatt had produced thousands of documents and paid approximately $750,000 in external costs alone in order to comply with the previous order.
While public information regarding the cost of Section 11 orders is rare, an affidavit filed in connection with the proposed bank mergers in 1998 indicated that one of the banks produced over 500 boxes of documents pursuant to such an order. Section 11 orders are also routinely used in market practice investigations, such as for allegations of abuse of dominant position. One competition lawyer has written that the cost of responding to the Section 11 orders obtained by the Commissioner in an inquiry into film distribution in 2000–2002 likely exceeded $20 million and involved the production of over 1,000 boxes of documents by the approximately 40 motion picture exhibitors and distributors receiving such orders.
As the Bureau no longer reports on the frequency of its resort to Section 11 orders, it is difficult to measure the full extent of their use. However, a review of the register of just the Federal Court indicates that the Commissioner applied for and obtained over 95 such orders from that Court in 2007. These included over 30 orders issued without notice against advertisers and competitors in connection with the Bureau's review of the Bell Globemedia Inc./CHUM Ltd. merger. [Bell Globemedia is the parent company of The Globe and Mail.]
To be sure, the Competition Bureau does need confidential business information to assess the likely impact of mergers and market practices on competition in order to enforce the Competition Act. In some cases, a great deal of information is required for such analysis, and it is inevitable that Bureau investigations will impose significant costs on the targets of the investigation and potentially also other industry participants. The controversy frequently centres on what and how much information is truly needed for the Bureau to do its job. Section 11 orders can be overly broad, requiring the production of excessive, outdated or irrelevant information, or information in a form that is more readily available in other formats.
While the Competition Act permits applications for Section 11 orders without notice, it does not preclude the Commissioner from advising or consulting with the proposed recipients first. Presumably, the ability to apply without notice was provided in the legislation for rare cases of such urgency that notice was not practical. In the Labatt case, the judge commented that applications without notice are almost always brought on an emergency basis, with little time for preparation of material.
But there was no suggestion of any urgency to the application in the Labatt case - the merger under investigation had closed over seven months previously. In our experience, in the vast majority of cases where the Commissioner has applied for Section 11 orders, the circumstances were not so urgent as to justify a denial of notice to the receiving party.
The National Competition Law Section of the Canadian Bar Association has expressed concern about the Bureau's use of Section 11 orders for some time. In a submission last year, the Section expressed its view that the bias should always be in favour of giving notice where doing so would not impair the integrity of the investigation. Similarly, in its recent comments to the Canadian Competition Policy Review Panel, the Canadian Real Estate Association (most of the members of which are small businesses) recommended that Section 11 orders no longer be obtained without notice to the parties and that the breadth of such orders should be more restricted and less burdensome on the receiving parties. We agree.
In our view, the Commissioner should give notice of applications for Section 11 orders to persons against whom they are proposed to be issued with sufficient time, at least 48 hours, to allow them to appear and make representations to the judge. In many cases, the Bureau may actually receive better or more focussed information more quickly as a result. The proposed recipients of the order may be able to point out aspects of the request which can be narrowed to focus on the relevant information. Indeed, without representations from the persons required to comply with the order, neither the Bureau nor the Court may appreciate the burden or the lack of relevance of some of the broad requests in the Section 11 order.
The judge in the Labatt decision recognized the dangers associated with applications without notice because the party against whom the order is sought is "at the mercy" of the applicant. She quoted previous case law to the effect that "there is no situation more fraught with potential injustice and abuse of the Court's powers". At one time, the staff of the Mergers Branch of the Bureau would, in appropriate circumstances, provide merging parties with a draft of an information request before it was formally issued. In our view, both the Bureau and the parties benefited from such consultation.
Even if a judge does not accept some or all of the submissions of a company about to receive a Section 11 order, the company will at least have an opportunity to have its day in court and have an independent arbiter consider any concerns. Our position is simple: absent very extraordinary circumstances, before a judge imposes on Canadian businesses orders as intrusive and burdensome as most Section 11 orders, such businesses should have a right to be heard by the judge. It's only fair.
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