Competition Bureau Announces Withdrawal of Regulated Conduct Defence Bulletin and Forthcoming Issuance of New Bulletin
On June 20, 2005, Canada’s Competition Bureau changed directions and announced that it would immediately withdraw its Information Bulletin on the Regulated Conduct Defence released in December 2002 (the “Bulletin”) and release a new Bulletin on the Regulated Conduct Defence (“RCD”) in Fall 2005.1 The announcement came after the Bureau reviewed submissions received in response to its invitation for public comment on the Bulletin. The stated purpose of the Bulletin is to “outline and clarify the Bureau’s position with regard to the jurisprudence on [the] regulated conduct defence.” Since its release, however, the Bulletin has been sharply criticized for “ignoring the very jurisprudence which forms the RCD and reflecting a view that is at odds with that jurisprudence.”2 This is troubling and creates uncertainty in the law since the Bureau’s administrative guidance, whether characterized as “guidelines” or an “information bulletin”, often serves in practice as a statement of law. 3
The RCD Permits A Party Acting Pursuant to or At Least Under the Authority of Other Regulation to Escape Liability under the Competition Act
The Regulated Conduct Defence is a principle established in the case law of the predecessor to the Act, the Combines Investigation Act. The RCD constituted a defense to liability for the many criminal offences under this former competition legislation. The RCD provides a means of resolving liability under the Act where the Act overlaps or is in conflict with other valid regulatory legislation. It thus is important to energy, broadcasting, environmental, agriculture and other industries subject to regulatory schemes. Canadian courts have primarily applied the RCD in cases where conduct mandated or authorized by valid provincial regulatory legislation is at the same time inconsistent with the Act. It has, however, also been applied in the federal regulatory context.
Under the RCD, an activity will be excluded from liability under the Act provided the other legislation under which one has acted and raises in its defense is (1) validly enacted; (2) the activity or conduct falls within the scope of the legislation and is at least authorized under that legislation; (3) the regulator exercises its authority (passive acquiescence or tacit approval is not enough); and (4) the conduct does not frustrate the public body from carrying out its responsibilities.
The new Act decriminalized many of the offenses under the former competition legislation and some commentators and the Bureau have questioned whether the RCD is available as a defense to the civil provisions of the Act. In the Bulletin, the Bureau accepted that the RCD could apply to the civil provisions of the Act. Nevertheless, the Bureau adopted a more narrow view of the RCD, stating that the conduct in question must have been mandated or required by the regulator, not just authorized by it. Likewise, conduct that is voluntary and which merely receives regulatory approval would no longer benefit from the RCD. Thus, where there is a conflict between the Act and another statute, the Bulletin prioritizes the Act over such other legislation.
In addition, the Bulletin supplemented the four factor test for the RCD, outlined above, by requiring that there be a “clear operational conflict.” Commentators criticize this narrowing of the principle and point out that the clear operational conflict requirement has no support in the jurisprudence that forms the basis for the RCD. Rather, the requirement is derived from a Supreme Court decision addressing a conflict between decisions of two federal administrative tribunals.4 In that instance, the Court held that such problems should be resolved by a “pragmatic and functional” approach according to which one decision should take precedence over the other only when the conflict is real and not merely apparent.
The Bureau received submissions from stakeholders including media industry participants, the Canadian Bar Association and public interest advocacy groups. Many of those providing submissions to the Bureau admonished it for not consulting with stakeholders, as the Bureau has done in other areas, prior to releasing the Bulletin.5 While one submission adopted the unlikely position that the Act should simply not apply to business transactions in the broadcasting industry, the others implored the Bureau to improve and clarify the Bulletin by specifying the jurisprudence underpinning the propositions in the Bulletin and to update the Bulletin by applying relevant cases decided after the Bulletin was issued in 2002.
How Garland Could Affect Use of the RCD in Competition Cases
One such case is Garland v. Consumers’ Gas Company, decided by the Supreme Court of Canada in 2004.6 Although not a competition case, the Court’s statements in Garland regarding the inapplicability of the RCD to that case could support an argument that the RCD does not apply to per se criminal offences under the Act. In Garland, the respondent utility company attempted to avail of the RCD to escape liability for the plaintiff class action’s unjust enrichment claim that the late payment penalties levied by the respondent exceeded the interest limit prescribed by Section 347 of Canada’s Criminal Code. The Court held that for the RCD to be available, “Parliament needed to have indicated, either expressly or by necessary implication, that Section 347 of the Criminal Code granted leeway to those acting pursuant to a valid provincial regulatory scheme.”7 A valid a provincial regulatory scheme therefore will not displace the application of the Criminal Code unless Parliament indicates, either expressly or by necessary implication, that the relevant section of the Criminal Code grants leeway to those acting pursuant to such a scheme. Garland will likely thus have an impact on parties subject to provincial regulatory schemes where such schemes potentially conflict with the Criminal Code.
With regard to competition cases, Garland could be interpreted to mean that the RCD does not apply to criminal offenses under the Act. The CBA’s National Competition Law Section, for one, believes that the RCD continues to apply to per se criminal offenses under the Act on the basis that those adhering to or exercising powers under a provincial regulatory scheme would not act with criminal intent.8 If the Act is amended to create a per se offense for hard core cartels, this issue will become significant, particularly for the many provincial marketing boards utilized in Canada.
Invoking the RCD in the Merger Context
Another issue the 2002 Bulletin raised is the circumstances in which parties to a merger could invoke the RCD. The Bulletin took the position that the RCD is applicable in the context of civil reviewable practices, including mergers, regulated by the Act. However, the Bulletin suggested that for the RCD to apply, a “clear operational conflict” between regulatory legislation and the Act must be found. As noted by the CBA National Competition Law Section, conceiving of a merger case with “clear operational conflict” between regulatory legislation and the Act is difficult. In the merger context, the parties undertake a merger based on their own private, voluntary decision and not pursuant to any regulatory or legislative mandate. Submissions on the RCD recommended that the Bulletin acknowledge the case law where other regulation has provided an effective defense in the merger context and explain how the Bureau will analyze the relevance of other regulation in similar cases.
Like the filed rate doctrine and the principle of state action immunity in U.S. antitrust law, the RCD, for participants in regulated sectors of the Canadian economy in particular, is a valuable defense to liability for anticompetitive conduct. Whether the recent Garland decision will be applied to a competition case and whether it has any relevance in circumstances where there is potential conflict between two or more federal statutes remains to be seen. Moreover, how the Bureau chooses to reformulate its position on the RCD more generally in issuing its forthcoming bulletin will shed light on the scope and availability of the RCD in Canadian competition law.
- Press Release, Canadian Competition Bureau, Competition Bureau to Draft New Bulletin on the Regulated Conduct Defence (June 20, 2005), online: Competition Bureau Homepage: http://www.competition bureau.gc.ca (last accessed July 29, 2005).
- Submission of the Canadian Bar Association National Competition Law Section, January 6, 2005, available online: Competition Bureau Homepage: http://www.competition bureau.gc.ca (last accessed July 29, 2005).
- Submission of the Canadian Bar Association National Competition Law Section, October 2003, resubmitted January 6, 2005, available online: Competition Bureau Homepage: http://www.competition bureau.gc.ca (last accessed July 29, 2005).
- Shaw Cable Systems (B.C.) Ltd. et al. v. British Columbia Telephone Co. et al (1995), 125 D.L.R. (4th 443 (S.C.C.).
- See the CBA’s October 2003 submission, supra note 3 at 3. Other commentators on the Bulletin express the same view. See D. Jeffrey Brown, “The Competition Bureau’s Information Bulletin on the Regulated Conduct Defence: Observations from the Astral/Telemedia Case,” Canadian Competition Record (2003).
-  1 S.C.R. 629 [hereinafter Garland].
- Id. at para. 77.
- January 6, 2005 submission of the CBA National Competition Law Section, supra note 2 at 2.
Heather M. Cooper