The Competition Bureau just telephoned. They have started an "inquiry". Your company is about to receive a "section 11 Order". What's happening, and what's next?
The Bureau may use both mandatory Orders and voluntary requests to collect evidence during an investigation or formal Inquiry, from the target, its competitors, suppliers and customers in the industry. In most cases there is a navigable channel down the investigation river – even if there are a few rapids to run along the way.
The Commissioner of Competition, through investigating officers at the Competition Bureau, investigates possible violations of the Competition Act.1 Although it is sometimes called a regulator, the Bureau is better described as a federal law enforcement agency. Its investigations under the Competition Act include both criminal law investigations into, for instance, conspiracy and bid-rigging, and non-criminal investigations into deceptive marketing practices, proposed merger transactions, and "reviewable practices" such as abuse of dominant position and refusal to deal.
Bureau investigations and "inquiries" outside of the criminal provisions generally focus on collecting documents and data, and on interviewing participants in the business sector under review. In some investigations, most of the focus is on the company whose conduct is under review (for example, in some misleading advertising cases). In others, such as mergers, abuse of dominance matters or non-criminal agreements between competitors, the Bureau may seek out a great deal of broader market, financial and economic information from the target or the merging parties, and from competitors, suppliers, customers and (rarely) the general public.
The Bureau gathers information through both formal and informal methods, ranging from voluntary requests for information, to obtaining a court order under s. 11 of the Competition Act, to obtaining search warrants and authorizations to use a wiretap. Because some conduct could fall under both a criminal law provision and a non-criminal section of the Act,2 certain investigations are on "dual track" and the Bureau uses the full range of investigative techniques. For merger investigations there are mandatory initial filing requirements in the Competition Act, which the Bureau may supplement by requiring additional information from the parties to the transaction.
In non-criminal matters, which are the focus of this article, a Bureau investigation often obtains section 11 Orders and information through voluntary requests.
In Bureau parlance, there is a difference between an investigation and an inquiry. The Bureau receives many complaints, some seemingly valid and some unmeritorious or outside its mandate. Some complaints have enough merit to warrant an initial investigation, in which Bureau officers gather facts and consider whether there may have been a violation of the Competition Act.
In some cases, the maturing investigation may become an Inquiry under the Competition Act. If the Commissioner has "reason to believe" that "grounds exist for the making of an Order" under the Competition Act, or the Bureau has received a complaint signed by six residents who have that opinion, then the Commissioner shall "cause an inquiry to be made… with a view to determining the facts". Inquiries are commenced where the Bureau has collected some evidence to support a possible violation but needs more to decide whether to take further steps such as commencing an enforcement proceeding.
The Bureau's practice in non-criminal matters is to contact a company when it opens an Inquiry into the company's conduct. The Bureau will disclose the nature of the conduct and the provisions of the Competition Act it is concerned about. The amount of disclosure depends on the individual case and the progress to date of the Bureau investigation.
Both a target company and the persons who lodge a "six-resident" complaint have the statutory right to be informed of the progress of the inquiry (on written request). Where the Commissioner discontinues an inquiry, those six residents also have the right to be informed of both the decision to discontinue and the grounds for doing so. A complainant who initially brings evidence to the Bureau about a company's conduct will also be kept apprised, in a general way, by investigating officers.
The practical importance of being "on inquiry" is that without an open Inquiry, the Commissioner cannot seek an Order requiring production of documents or data under section 11. Put another way, an Inquiry is a prerequisite to obtaining a section 11 Order.
Voluntary Interviews and Document Requests
In virtually every investigation, the Bureau conducts interviews beyond the target company. Typically the Bureau interviews competitors, suppliers and customers to find out what evidence they have about what is actually going on in the marketplace. Many interviews are voluntary. The Bureau takes notes and at the initial stages, there is no formal exchange of paper about what is communicated.
The Bureau may also ask for documents, or data, to be provided voluntarily. Some companies do so, under certain confidentiality conditions, while others require the Bureau to obtain an Order under section 11 compelling them to produce the information.
Section 11 Orders
In January 2013, the Commissioner of Competition stated that "going forward, the Bureau's first course of action in obtaining information from the target of a formal inquiry in non-merger cases will be, for all but exceptional cases, obtaining a legally binding section 11 order from the Court" (emphasis added).
Since then, section 11 Orders have been commonly obtained by the Commissioner against targets during non-criminal Inquiries under the Competition Act. Section 11 Orders are not limited to the targets of investigations. Orders may also be obtained against its competitors, suppliers and customers that have information relevant to the Inquiry. Separate Orders are obtained against each company. Over 50 have been issued in the past two years.
Under section 11 of the Competition Act, the court may order that a person (a) attend and be examined under oath about any matter relevant to an Inquiry, (b) produce "records" relevant to an Inquiry, or (c) provide a "written return" under oath "showing in detail such information" as the Order requires. Where a corporation is ordered to produce records, the court may also order an affiliated corporation to produce records, including records belonging to affiliates located outside Canada.
To obtain a section 11 Order the Commissioner files a formal application, usually to the Federal Court in Ottawa.3 The respondent on that application is the company whose information is needed. Similar applications against many different parties to gather information for one Inquiry may be commenced and heard concurrently. A number of recent applications have been heard by Chief Justice Crampton, who has released written reasons for his decisions to grant section 11 Orders in three cases.4
On the application, an investigating officer files an Affidavit that describes the Inquiry and sets out why the information requested in the Order is relevant to it. The Affidavit must make certain disclosures to the court, including information already in the Bureau's possession. The Affidavit also describes any feedback received from the company on the Commissioner's draft Order during what has become known as the "pre-issuance dialogue" between the Commissioner and the company (a topic discussed further below). The application itself is technically ex parte, meaning the affected company receives no formal service of the filed materials, and no formal notice of the hearing. Counsel for the Commissioner files the evidence and written representations to the court and appears at an oral hearing. The company is almost never represented at the hearing.
In a section 11 Order, the details of what must be provided to the Bureau are set out in the Schedules. There may be three principal elements:
- Documents or "records", including emails and other electronic evidence. The Schedules typically specify the categories of persons (custodians) whose emails and files must be searched for responsive records, for example to "senior management" as expressly defined, or to a specified group or class of employees.
- Transaction-level Data for a specified time period (usually years not months). This data may be combined by the Bureau with data obtained from other parties for use by economists, econometricians and other experts; and
- Written Answers or "returns of information". The company may have to provide detailed information to respond to requests for explanations and information posed in writing. The company's responses should be carefully prepared with the assistance of legal counsel.
An Order need not contain all three; in 2015, for example, there were Orders requiring only returns of information and only data.
Section 11 Orders also have a number of other important characteristics:
- They contain deadlines for compliance, usually within 30 to 90 days. The precise time depends on the scope of the Order. Where the deadline is longer, there may be an interim date for providing some responsive information.
- Section 11 Orders require that a company representative attest that to comply with the Order, a thorough and diligent search has been made of the company's records and appropriate inquiries have been made with its personnel; and that the representative believes that the company has complied with the Order.
- The company's records must not only be gathered and produced; they must be listed in an Index. A separate list is required for privileged records.
- The Orders contain provisions that are designed to make it easy for the Commissioner to file the records in a later court or Tribunal proceeding, without further proof.
- The Orders contain technical requirements and may attach the Bureau's guidelines on production of electronic evidence.5
Prior to seeking the Order, the Bureau's practice is to contact the company and send its counsel a copy of the proposed Order in draft. The Bureau requests feedback on the draft Order and proposes a conference call to discuss it. That call (or, sometimes, calls) can happen very quickly, within a couple of days after first contact. After receiving feedback in this "pre-issuance dialogue", the Bureau may – or may not – revise its proposed draft Order before filing it with the court.
The feedback to the Bureau on the draft Order is quite important – this is a key moment for the respondent company. The draft Order may be lengthy and technical. But the company must be able to advise the Bureau whether, and by when, it will be able to comply with the terms in the proposed Order, as drafted.
Reading the draft Order and its Schedules, the company and its counsel may have real concerns about the burden on it and its employees to comply. Section 11 Orders are intrusive. They range from comprehensive Orders against targets of an Inquiry for information about each of the elements in a Competition Act section, to Orders against competitors for particular transaction data. Compliance is often costly for the company and time-consuming for employees including internal counsel. There may be many employees whose emails and documents are potentially responsive to the Order. Members of senior management will have responsive records and are nearly always closely involved in preparing the company's responses to returns of information. To assist in providing the prompt feedback to the Bureau and then to comply by the deadlines, many respondent companies hire external legal counsel and professional document management services to locate, gather and list the records being provided to the government in response to the Order. Those records must also be reviewed, for responsiveness to the Order, to ensure no privileged information is produced, and to obtain advice about the information that is being disclosed.
When providing feedback to the Bureau on the draft Order, a critical objective is the identification and meaningful description of the company's concerns about the burden of the Order. If the Commissioner does not address the concerns by a change to the draft Order, he is required to disclose them to the court under his duty to make "full and frank" disclosure.
On the application, the court assesses whether the burden on the respondent company would be "excessive, disproportionate or unnecessarily burdensome." The court will consider factors including the time period covered by the requested information, the number of employees whose files and email accounts will have to be searched for that time period, the proposed deadline for compliance, and the possibility that a reliable, representative sample of information or data would suffice rather than a complete production of all responsive records. In the end, the court balances what the Commissioner reasonably requires to conduct his Inquiry, with the burden imposed in the draft Order.
Not all concerns raised by a responding company will be persuasive to the court but in his written reasons and at oral hearings, Chief Justice Crampton has expressed sympathy for certain concerns. Both the production requirements in the Schedules and the terms in the main body of the draft Order may be altered.6
It is possible to challenge a section 11 Order after it is granted, by applying to the court to set it aside or vary it. In addition, if the Commissioner seeks records or data from a company outside Canada, issues may arise that support a challenge to the jurisdiction of the court to make the Order.
Specific Provisions Related to Mergers
At a very general level, the Competition Act requires parties to substantial proposed merger transactions to notify the Bureau of the proposed merger. If notification is required, the parties must supply the Commissioner with certain prescribed information.
The Commissioner may also, within 30 days of receiving the prescribed information, send an additional notice requiring a party to supply additional information that is relevant to the Commissioner's assessment of the proposed transaction. This is known as a Supplementary Information Request or SIR and may involve very significant production of documents, including electronic records such as emails, production of transaction-level data, and production of information and data related to economic efficiencies that may arise from the merger transaction.
Counsel will brief the parties on the specific filing requirements for a merger transaction. It should be observed, however, that the Commissioner may still seek section 11 Orders to assist his assessment of merger transactions – even after he has commenced proceedings challenging the merger before the Competition Tribunal. The Commissioner has done so very recently to collect data from third parties, in part to assess possible anti-competitive effects arising from a merger transaction.
Confidentiality in Investigations and Tribunal Hearings
Maintaining the confidentiality of interviews, written returns of information, documents and data provided is important to the company and to the Bureau. It is sensible to raise and address confidentiality concerns early on in the process, particularly where the company is being asked to provide transaction data or sensitive commercial documents. Of course, if records or data are not required to be produced to the Bureau in the first place (for instance by narrowing the scope of a section 11 Order), some confidentiality concerns may be avoided.
In non-criminal matters, the Bureau seeks to address the confidentiality of records and data in at least three ways:
- under section 29 of the Competition Act. This section requires information obtained by the Bureau to be kept confidential, with certain stated exceptions. One exception concerns disclosure for the purposes of the administration or enforcement of the Act. Another exception concerns disclosure to a Canadian law enforcement agency;
- through claims of privilege by the Commissioner over the information during later enforcement proceedings before the Competition Tribunal or the courts. Relying on Tribunal jurisprudence, the Commissioner has claimed "public interest" privilege in many cases so that records in his possession and information are not provided to the responding company;7 and
- by formally designating the information as confidential under Confidentiality Orders obtained in Tribunal proceedings. This may shield the information from being read by competitors entirely, or limit who may see it to specified persons such as internal counsel. Separate public and confidential versions of designated documents are filed with the Tribunal, certain parts of the hearing may occur in camera, and separate confidential hearing transcripts are prepared. The Tribunal's reasons for its decision on the merits may be edited to maintain confidentiality.
The Bureau has published an Information Bulletin on the communication of confidential information.8
Consent Agreements and Contested Tribunal Applications
After the Commissioner has obtained and assessed the evidence gathered, an Inquiry in a non-criminal matter may end in several ways. First, the Commissioner may discontinue the Inquiry, as mentioned above. Second, the Commissioner and the company under investigation may settle, usually by entering into a "consent agreement" or, on occasion, by agreeing to written undertakings. Lastly there is litigation: the Commissioner may file an application for a remedy before the Competition Tribunal.
A consent agreement is essentially a written settlement agreement that may be filed with the Competition Tribunal. It may be agreed early on in an investigation, or later after most of the facts have emerged – usually after the Commissioner has reached conclusions based on the evidence collected. A consent agreement may also be entered after the Commissioner has commenced an application before the Tribunal. In that case, its registration with the Tribunal automatically terminates the proceedings.
Importantly, if a consent agreement is filed for registration with the Tribunal, it has the force and effect, and proceedings may be taken, as though it were an Order of the Tribunal. That means that the Commissioner may seek to enforce the terms of a consent agreement using contempt proceedings against the company, if the Commissioner believes the company has violated its terms.9
The Commissioner and the respondent company may later seek to vary or rescind the consent agreement, by applying to the Tribunal. In addition, a person directly affected by a consent agreement may apply to the Tribunal to rescind or vary one or more of its terms, on the basis that "the terms could not be the subject of an order of the Tribunal". The Tribunal's jurisdiction to rescind or set aside on that basis is limited.10
If the Commissioner commences an application to the Competition Tribunal or the courts, the Bureau continues to gather evidence. The application does not automatically end an Inquiry and the Bureau may ask a company to update information that provided voluntarily. Although there may be legal arguments against it, the Commissioner has also obtained section 11 Orders after commencing an application to the Tribunal, at least against companies that are not a party to the application.
During the litigation, competitors, suppliers and customers may be asked if a representative could testify as a witness before the Tribunal. In addition, shortly after the application is filed, a competitor or a trade association in the industry may apply for permission to be an Intervenor in the proceeding, so that it can be represented by counsel, submit its own evidence and make legal arguments.11
For the target company that is now a respondent in the litigation, the application triggers a process under the Competition Tribunal Rules that includes formal production of records and oral pre-hearing examinations. The Commissioner is also required to produce records and his representative may be examined for discovery.
Depending on how their business and financial interests are affected by an Inquiry, a telephone call about a pending section 11 Order can draw target companies, competitors, suppliers and customers quickly into the churning water of a Competition Bureau investigation and ultimately a hearing before the Competition Tribunal. By knowing the river ahead, counsel can assist in deciding whether to run the rapids around the corner – or portage instead.