Canada

Canada: Proposed Competition Act amendments will create new but uncertain form of class proceeding

By , , , and

In brief

The Canadian government continues to propose and implement major legislative reforms that will dramatically change Canadian competition law and policy.1 Newly proposed amendments to the private access provisions of the Competition Act (“Act“) are the latest examples of this and will have a significant impact on businesses operating in Canada – including their potential litigation exposure and strategy.

The amendments to the private access provisions, proposed in Bill C-59, The Fall Economic Statement Implementation Act, 2023 (“Bill C-59“), are anticipated to be passed into law in early 2024. If adopted as drafted, Bill C-59 will introduce a new form of collective redress and grant the Competition Tribunal (“Tribunal“) powers akin to those that courts exercise in class actions. Bill C-59 would also broaden the range of conduct that can be challenged through a private right of access, ease the burden on private applicants to obtain leave from the Tribunal to bring private actions, and create a disgorgement remedy.2

Key takeaways

Bill C-59 will transform private access to the Tribunal for civil reviewable conduct, including refusal to deal, price maintenance, exclusive dealing, tied selling and market restriction, abuse of dominance, civil agreements, and deceptive marketing. The proposed amendments are likely to increase the number of private actions to the Tribunal and create additional litigation risk for businesses.

Here are the key takeaways:

  • New Group Action. Bill C-59 will effectively create a new avenue for collective redress before the Tribunal, with many similarities to existing class action regimes in courts. The Tribunal will have the discretion to order disgorgement of profits to be distributed among the successful applicant and any other person affected by the misconduct. The proposed amendments would also empower the Tribunal to establish a payment, claims, and notice process that is similar to the powers available to courts in Canadian class actions.
  • Private Access Rights Expanded to include Civil Agreements and Deceptive Marketing. Bill C-59 will expand private access to include conduct under the civil agreements and deceptive marketing provisions of the Act. Currently, private applicants may only seek leave for conduct under the refusal to deal, price maintenance, exclusive dealing, tied selling and market restriction, and abuse of dominance provisions of the Act.
  • Increased Litigation Risk for Businesses. Bill C-59 is likely to increase the number of private actions that are initiated by reducing the procedural hurdles in obtaining leave from the Tribunal to bring a private action. In particular, the existing legal threshold for private leave applicants will be lowered and a new “public interest” leave test will be introduced.
  • Short-Term Uncertainty. Bill C-59 will introduce new concepts, procedures and remedies into the Act that are untested and likely to create short-term uncertainty until the Tribunal begins developing case law on their application.

In more detail

Bill C-59 is the latest step in the Canadian federal government’s sustained efforts to modernize Canadian competition law and policy. The proposed amendments to the Act’s private access framework were introduced as part of omnibus legislation and are expected to pass into law with little debate or revision in early 2024. Certain of the proposed amendments, including the introduction of the new group action right, would not come into effect until one year after Bill C-59 comes into law.

In more detail, the significant proposed amendments to the Act’s private access framework are:

  • New Group Action for Civil Conduct. Bill C-59 will, for the first time, allow the Tribunal to order a financial remedy for civil conduct. Specifically, a private applicant could seek disgorgement of the value of the benefit derived from the anti-competitive conduct, to be distributed among the private applicant and any other person affected by the conduct. If passed as currently drafted, this would create a new collective remedy separate from the existing class action regime. Under the Act’s current class action regime, private applicants may only bring an action alleging criminal conduct, including conspiracies, bid-rigging and criminal deceptive marketing. Introducing a financial remedy and group action right for civil conduct is likely to increase the number of private actions to the Tribunal. However, it remains to be seen whether the limited nature of the financial remedy and potential for freeriding will impact whether and how the new group action is used in practice as part of a commercial or litigation strategy.
  • Private Access Rights Expanded to Include Civil Agreements and Deceptive Marketing. Currently, private actions may only be brought in the refusal to deal (since 2002), price maintenance (since 2009), exclusive dealing, tied selling and market restriction (since 2002), and (as of June 2022) the abuse of dominance provisions of the Act. Bill C-59 would now permit, with leave from the Tribunal, private actions for conduct under the civil agreements and deceptive marketing provisions of the Act. The civil agreements provision currently applies to agreements between competitors that substantially prevent or lessen competition in a market, but may soon apply to anticompetitive agreements involving non-competitors.3 The deceptive marketing provisions apply to, among other things, false or misleading representations,4 claims not based on an adequate and proper test, misleading warranty claims, drip pricing, ordinary sale prices, bargain pricing, bait and switch selling, sales above advertised prices and promotional contests.
  • New Powers to Distribute the Financial Remedy. Bill C-59 will grant the Tribunal extensive powers to dictate the terms of the financial remedy ordered under the new group action. In particular, the Tribunal will be permitted to specify how the payment is administered, appoint an administrator to facilitate payment, order the person against whom the order is made to pay administrative costs and the administrator’s fees, require notification to potential claimants, specify the time and manner for making claims, specify conditions for the eligibility of claimants, and determine how unclaimed and undistributed payment amounts are dealt with. If passed as currently drafted, these changes would provide the Tribunal with broad procedural powers similar to that of a Court in a class action, without the established safeguards.
  • Lower Threshold to Obtain Leave from the Tribunal to Bring a Private Action. Private applicants may only bring a private action for civil conduct with leave from the Tribunal. Currently, the legal threshold for obtaining leave is that the private applicant’s business is directly and substantially affected by the relevant anti-competitive practice, with the substantial effect on a business measured in the context of the entire business. The Tribunal has frequently denied leave applications because the private applicant failed to establish that the impugned conduct directly and substantially affected the applicant’s entire business. Bill C-59 will amend the leave test to allow the Tribunal to grant leave for conduct under the refusal to deal, exclusive dealing, tied selling and market restriction, abuse of dominance, and civil agreements provisions of the Act where (1) the private applicant’s business is directly and substantially affected either in whole or in part by the conduct, or (2) it is in the public interest to do so. For deceptive marketing, the Tribunal will only be permitted to grant leave where it is in the public interest to do so. The public interest leave test is a novel and untested concept in Canadian competition law that is likely to create significant uncertainty until the Tribunal begins developing case law.
  • Unanswered Questions. Bill C-59 will create a new group right of action that exists outside Canada’s well-established class actions regime. This raises concern because the new group action right does not have the protections and requirements, including class certification, class-wide releases, and court-supervised settlements, that have been established by Canadian class action legislation. Practical and procedural differences between the new group action regime and the existing class actions regime are unclear at this time and will require significant Tribunal and judicial guidance to come into focus. In the meantime, significant questions remain unanswered, including: Will the application for leave hearing be expanded to include a certification screening mechanism? Will the Tribunal have expansive procedural and case management powers similar to courts under existing class proceedings legislation? What effect will the availability of a disgorgement financial remedy, which is a departure from the usual practice of awarding damages based on the injuries of the claimant, have on claimants’ and defendants’ litigation and settlement strategy? 

Bill C-59 will transform the Act’s private access framework for civil conduct. The proposed amendments are intended to incentivize parties to bring more private actions and will create an unpredictable level of additional litigation exposure for businesses operating in Canada.

1 For further details on previously enacted and proposed amendments, see our client alerts on the Affordable Housing and Groceries Act (“Bill C-56“) here, abuse of dominance amendments here, merger review developments here, and our competition law and foreign investment 2023 year in review here.

2 While not defined as such in the Act, disgorgement is a legal remedy which aims to deprive a wrongdoer of its ill-gotten gains and has the practical effect of transferring the benefit derived from the wrongful act (generally, profits) to those injured by the conduct.

3 Previous amendments to the civil agreements provision, introduced in Bill C-56, will come into effect on 15 December 2024, and will expand the civil agreements provision to include vertical agreements (i.e., between non-competitors) where a significant purpose of the agreement is to prevent or lessen competition in any market. For further details on the Bill C-56 amendments see our client alert, here.

4 Bill C-59 proposes to amend the civil false and misleading representation provisions to explicitly prohibit greenwashing claims.

Categories:
Author

Arlan Gates practices commercial and regulatory law as a member of Baker McKenzie's Global International Commercial & Trade and Antitrust & Competition groups. He leads the Canadian Antitrust, Competition and Foreign Investment Practice, which has been ranked by The Legal 500 and Chambers Canada. Arlan regularly advises on Canadian and international merger control, foreign investment and national security in corporate and commercial transactions, including under the Canadian Competition Act and the Investment Canada Act. He also advises on competition investigations and inquiries by the Canadian Competition Bureau, and provides competition law advice on pricing policies, distribution arrangements, joint ventures and other competitor collaborations, cartels, abuse of dominance, and the implementation of industry-tailored compliance programs.

Author

David Gadsden represents global clients in complex commercial disputes. He is the Chair of Baker McKenzie's Canadian Class Actions Group and is known for his sound advice on commercial class actions, competition and antitrust matters, arbitration, fraud cases and product liability matters. As Chair of Baker McKenzie's Canadian Class Actions Group, David draws on his extensive class action experience, having acted as counsel for defendants and plaintiffs in numerous national and global class action lawsuits involving allegations of anti-competitive conduct, professional service negligence, product liability and securities fraud.

Author

Justine Johnston is a senior associate in Baker McKenzie’s International Commercial Practice Group and the Global Antitrust & Competition Group, focusing on competition/antitrust law and foreign investment review. Justine has been recognized in WWL's Competition Future Leaders - Non-Partners 2023 category.

Author

Brendan O'Grady is a senior associate advising on complex business litigation and commercial arbitration. He is a member of Baker McKenzie's North American Litigation & Government Enforcement Practice Group in Toronto. Brendan is regularly engaged in specialized contract and high stakes business disputes. Brendan has appeared before the Supreme Court of Canada, superior courts across Canada, the Federal Court of Canada and the Tax Court of Canada. He has acted in major class proceedings across the country involving allegations of anti-competitive activity, securities misrepresentations, privacy breaches, product liability and breaches of employment standards and consumer protection laws.

Author

Anton Rizor is an associate in Baker McKenzie's Litigation & Government Enforcement Practice Group in Toronto. Anton joined the Firm as a summer student in 2021 and completed his articles in 2023. Anton is fluent in English and German. Anton focuses his practice on a wide range of commercial litigation, class action, and arbitration matters, assisting clients in navigating complex commercial and contracts disputes.

Related Posts