Competitor Agreements: Interpreting Criminal Conspiracy In A Blended Criminal-Civil Regime

1. Introduction

   Parliament enacted Canada's first antitrust statute in 1889,2 one year before the U.S. Congress passed the Sherman Act.3 The 1889 drafters roundly condemned collusive behaviour as "a crying and growing evil", "iniquitous", "pernicious", and "illegitimate".4 They feared the large American trusts and recognized that Canada's protective tariff made certain industries particularly vulnerable to anticompetitive behaviour. But unlike their American counterparts, they did not criminalize all agreements in restraint of trade. As a result,Canada's antitrust laws were shaped by an economic threshold: an agreement's undue effect on competition.

   One hundred and twenty years passed before Canada adopted the bifurcated per se and rule of reason approach to agreements in restraint of trade that American jurists had fashioned out of the Sherman Act's stark prohibition.5 The March 2010 amendments to section 45 of the Competition Act6and the introduction of section 90.1 are the most significant change to Canada's prohibition of agreements in restraint of trade in a generation. They largely complete the transition the Competition Act began in 1986: from a competition regime based on the criminal law to a blended criminal-civil regime founded on Parliament's legislative authority over the criminal law and trade and commerce in Canada.7

   This paper traces the evolution of Canada's criminal prohibitions on the "hard core" cartel offences of price-fixing, market allocation, and big-rigging which are set out in sections 45 to 47 of the Competition Act. It briefly examines their origins in 1889, their inclusion in the Competition Act in 1986, and the calls for their amendment. It reviews the amendments to the Competition Act in 2010 and how they complete the transition of Canada's competition regime from its historical basis in the criminal law to mixed criminal-civil regime. Finally, it discusses how Parliament's creation of a dual criminal and civil regime to regulate agreements between competitors informs the appropriate scope of the criminal conspiracy offence, sentencing principles, and the intent requirements for conviction under the new section 45.

2. The 1986 Act

   Origins and Evolution (or lack thereof)

   Commentators described the 1986 Competition Act (and its companion statute, the Competition Tribunal Act) as "a giant leap forward",8 a fundamental reformulation of the law,9 and laws which "literally rewrote the book on competition law in Canada".10 Together these Acts sharply departed from strict criminal prohibitions on anticompetitive behaviour – the historical foundation of competition regulation in Canada11 – and transitioned Canada's regime to a blended criminal-civil approach.12 A civil process to review mergers, abuse of dominant position cases and other matters replaced the existing criminal review process. The legislation also established the quasi-judicial Competition Tribunal to adjudicate the new civil matters. This was the "beginning of a new regulatory system... based on the federal power to regulate trade and commerce",13 a sharp contrast to the previously narrow criminal law basis.

   In the midst of this "giant leap forward" to an increasingly civil regime, the criminal prohibitions against conspiracy and bid-rigging remained largely unchanged. Indeed, the conspiracy offence had changed so little in one hundred years that the 1889 drafters of Canada's first antitrust statute,14 would have recognized their handiwork in the text of the "new" conspiracy provision, section 45 of the 1986 Act:15

   1889 language (after it was incorporated into the Criminal Code)

   Section 45 of the 1986 Act

   Everyone is guilty of an indictable offence... who conspires, combines, agrees or arranges with any other person... unlawfully16...

   (c) to unduly prevent, limit, or lessen the manufacture or production of any article or commodity, or to unreasonably increase the price thereof; or

   (d) to unduly prevent or lessen competition in the production, manufacture, purchase, barter, sale, transportation, or supply of such an article or commodity17

   Every one who conspires, agrees or arranges with another person...

   (b) to prevent, limit or lessen, unduly, the manufacture or production of a product or to enhance unreasonably the price thereof,

   (c) to prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, storage, rental, transportation or supply of a product, or in the price of insurance or persons or property...

   is guilty of an indictable offence...

   The lack of change in 1986 was not for lack of trying. In 1971, Bill C-256 proposed to make ten types of horizontal agreements between competitors illegal per se, similar to American jurisprudence under the Sherman Act and as would become the case with respect to horizontal agreements between banks in the 1986 Act. However, the business community opposed the per se proposal and the government abandoned it.18

   There was also no lack of condemnation for the harm caused by naked price-fixing and other types of horizontal agreements. In 1981, the Minister of Consumer and Corporate Affairs stated that the "evil of conspiracy is self-evident, and there is general agreement that what is needed is a strong criminal provision that will inhibit competitors from getting together to fix prices, allocate markets, retard technological advances, or otherwise harm competition".19

   Yet the competitive effects test persisted in the new section 45. The Crown had to prove an agreement's undue effect on competition to convict. The modest amendments to the conspiracy offence in 1986 did little more than return the offence's historical breadth after two then recent Supreme Court of Canada decisions had imported new mens rea requirements into the offence.20

   The relatively unchanged conspiracy offence left many commentators unhappy. One commentator called it "an appalling concession to the business community".21 Another urged a per se approach as both practical, because it provided certainty and would simplify prosecutions, and philosophically defensible, because price-fixing and market sharing agreements were clear assaults on the free enterprise system.22 Twenty years later, then Interim Commissioner Aitken would describe the unchanged conspiracy prohibition in section 45 as "ineffective and badly out of step with that of our major trading partners".23

   According to the Commissioner24 and other commentators,25 section 45 was both too narrow and too broad. It made prosecuting naked price-fixing agreements too difficult, making Canada an "outlier around the world".26 But at the same time, section 45 criminalized or potentially criminalized what one commentator described as "socially beneficial cooperative arrangements".27 The resulting chill deprived Canadians of the benefits of some joint business action. Thus, those seeking reform urged a hybrid criminal-civil system along the lines of the American bifurcated per se and rule of reason approach.

   Not everyone thought the unchanged conspiracy offence was a bad thing. Although he made no comment on its propriety, in Nova Scotia Pharmaceutical Society ("PANS"), Gonthier J. described the offence as "somewhere on the continuum between a per se rule and a rule of reason",28 in other words, a classically Canadian middle-of-the-road approach to economic policy. His Honour also commented that requiring the Crown to establish on an objective view of the evidence that the accused intended to lessen competition unduly "surely does not impose too high a burden on the Crown".29

   Those opposed to a per se approach argued that change was not necessary because section 45 operated well under the framework Gonthier J. developed in PANS both from an economic perspective30 and with respect to convictions for "hard core" cartel behaviour.31 After 1986 and continuing after PANS, the Crown secured dozens of convictions, mostly as a result of guilty pleas,32 and over $100 million in fines33 calling into question characterizations of section 45 as "ineffective".

   Establishing Undueness: PANS and its aftermath

   Admittedly, despite the record fine amounts and the total number of convictions, the Crown had a losing record in contested conspiracy cases following the 1986 Act and the Supreme Court of Canada's seminal decisionin PANS in 1992.34 Described as the "most significant development for Canadian conspiracy law" in the years after 1986,35 PANS laid out a framework for proving i) an undue effect on competition and ii) the intent required to justify a criminal conviction.

   First, writing for the Court, Gonthier J. considered the "undueness" requirement and rejected arguments that it was unconstitutionally vague. His Honour reasoned that analysis of an undue effect on competition had two components: the applicable market structure (a prerequisite of which was the definition of the relevant market) and the behaviour of the accused.36 In Gonthier J.'s view, a conviction required proof of some market power and some behaviour likely to injure competition and it is "the combination of the two that makes a lessening of competition undue".37

   However, the Crown did not have to prove an accused's subjective intent to unduly lessen competition.38 Gonthier J. held that proof of a subjective element and an objective element sufficed. First, the Crown had to prove the accused's subjective intent to enter into the agreement with knowledge of its terms. It was then reasonable to conclude the accused intended to carry out the agreement's terms unless there was contrary evidence.39 Second, the Crown had to establish "that on an objective view of the evidence adduced the accused intended to lessen competition unduly".40

   As noted, some thought the PANS approach effective, but the fact remained that post-PANS the Crown convicted in only one case, R. v. Perreault,41 a conspiracy case involving driving school services in Sherbrooke, Quebec. In contrast, the Crown...