In cases heard barely two weeks apart, Canada’s Competition Bureau obtained record-setting fines against two Japanese auto parts suppliers that pleaded guilty to bid-rigging charges. Although these significant penalties (obtained under the Bureau’s leniency program) are a strong milestone for the Bureau’s enforcement program, issues remain as to whether Canada can establish subject-matter jurisdiction over bid-rigging arrangements concluded entirely in offshore jurisdictions.
In the first case, on April 4, 2013, Furukawa Electric Co., Ltd. pleaded guilty in Superior Court on a single-count indictment charging bid-rigging in relation to the supply of electrical boxes to be used in 2001 and 2006 model years Honda Civics manufactured in Canada. As is typical in these cases, the plea took place under a plea agreement that included a public statement of admissions filed with the Court. The notable features of the admissions are that Furukawa has no facilities in Canada, but voluntarily agreed to attorn to Canadian jurisdiction for purposes of the plea. All meetings and communications in relation to the bid-rigging took place outside Canada, a fact reaffirmed by the wording of the indictment, stating that all acts occurred “in Japan and elsewhere outside of Canada.” The admissions also asserted that knowledge, participation in and/or acquiescence with the agreements and arrangements “reached North American regional sales management levels” as well as sales management levels at Furukawa. The company agreed with the Director of Public Prosecutions (DPP) to a C$5-million fine and was the first leniency applicant for this product under the Bureau’s leniency program. The fine represented approximately 12% of Furukawa’s commerce in the products, totalling some C$40.9 million.
In the second case, on April 18, 2013, Yazaki Corporation agreed to a record-setting fine of C$30 million in a guilty pleain Superior Court to a three-count indictment charging bid-rigging offences in relation to events that occurred in 2002/2003 “in Japan and elsewhere outside of Canada” regarding rigged bids for electrical wire harnesses and related products for the 2006 model year Honda Civic, the 2005.5 model year Honda Ridgeline and the 2006 model year Corolla/Matrix, all manufactured in Canada. The admissions filed in the Yazaki case were very similar to those in the Furukawa case, and stipulated that all meetings and other forms of communications took place outside Canada. Moreover, the admission asserted that such meetings and communications “did not involve any personnel resident in Canada” (thereby excluding Yazaki’s Canadian enterprise). In a slight refinement of the Furukawa admissions, it was agreed that Yazaki was aware that the vehicles in which the wire harnesses were to be installed were assembled by Honda Canada or Toyota Canada in Ontario and that the unlawful bid-rigging agreements “would have a direct effect on commerce in Canada.” However, the assertion of knowledge of these practices was stated to be only at sales management levels in Yazaki, which were not indicated to be in Canada. Beyond the fact that the bid-rigged components were to be used in vehicles manufactured in Canada, there was no assertion that any acts occurred in Canada.
Yazaki also took advantage of the leniency program and was the second applicant to receive a fine of approximately 12% (C$30 million based on total sales of C$260 million) of its commerce in the relevant products over the period of the bid-rigging arrangements. This 12% fine was in line with the Furukawa plea. In its sentencing submissions, the DPP affirmed that none of the bid-rigging conduct occurred in Canada or involved Canadian-based personnel. It was also observed that by the time of its Canadian plea, Yazaki had been fined US$470 million in the United States and five executives had been sentenced there to imprisonment ranging from 14 to 24 months with various fines imposed. In addition, the Japanese FTC had imposed a fine of approximately C$120.4 million on the company for the conduct. The admissions noted that Yazaki had implemented a competition compliance program to prevent recurrence of this activity and that it had never been convicted of a criminal offence in Canada.
These cases represent real and genuine milestones for the Bureau’s leniency program and clearly establish that the Bureau is very actively enforcing its bid-rigging laws in relation to foreign anti-competitive activity.
Since these cases involved guilty pleas, the issue of subject-matter jurisdiction in Canada was uncontested. However, analysis of the underpinnings of Canada’s bid-rigging offence under section 47 of the Competition Act suggests that subject-matter jurisdiction for offshore conduct may be problematic for Canada.
In stark contrast to certain provisions of the Competition Act,1 the bid-rigging offence does not contain a jurisdiction-extending clause that would permit prosecution of domestic entities for foreign-hatched antitrust agreements following offshore issuance of “directives” to unknowing Canadian affiliates that implement agreements made outside Canada. Furthermore, it does not appear that the Bureau was relying on the foreign conspiracy provisions of the Criminal Code2 insofar as those provisions arguably permit prosecution in Canada of persons conspiring outside Canada on conduct that constitutes a Canadian offence. Reliance is placed solely on the s. 47 bid-rigging offence, which notably does not contain language asserting that the offence can be committed in a place outside Canada or that persons may commit the offence whether or not they are in Canada, as do the referenced Criminal Code sections. There appears to be no Canadian case holding that an offence under s. 47 can constitute a continuing offence, which might enable extension-of-jurisdiction arguments if there were Canadian acts in furtherance or implementation of the bid-rigging subsequent to the rigging of the bids in question. Moreover, in conspiracy cases, the Supreme Court has consistently affirmed that the offence is complete upon the formation of the agreement3 and no doubt a similar analysis would apply to the s. 47 offence. It has also been frequently noted that subsection 6(2) of Canada’s Criminal Code establishes that no person shall be convicted for an offence committed outside Canada. Thus, on the facts asserted in the admissions in these cases, the offences consist entirely of offshore conduct, with the Bureau asserting that effects of the bid-rigging on commerce in Canada (i.e., the sale of the price-fixed product as a component of a vehicle assembled in Canada and sold to a buyer in Canada) constitute a sufficient basis upon which to assert subject-matter jurisdiction. No Canadian court has yet held, in a contested bid-rigging case, that jurisdiction may be established in this way. In the United States, there is statutory and judicial support4 for the position that foreign conspiracies having a “direct, substantial and reasonably foreseeable effect” on domestic or export commerce of the United States that gives rise to a claim under the U.S. Sherman Act are justiciable before U.S. courts. However, Canadian law has not extended jurisdiction in this manner. In its hallmark Libman5 decision, the Supreme Court established that jurisdiction for criminal offences may be established where “a significant portion of the activities constituting the offence took place in Canada.” The Supreme Court also noted that there needs to be a “real and substantial link” between the offence and Canada. In civil cases, the Federal Court of Appeal has affirmed6 that, for conspiracy allegations, effects of the conspiracy under s. 45 of the Competition Act cannot be used to extend jurisdiction for limitation purposes. Finally, it should be noted that, at least in Yazaki’s case, the conduct that occurred in Japan has been subjected to a penalty imposed there.
While the guilty pleas in Furukawa and Yazaki appear to extend the Competition Bureau’s jurisdictional reach, it remains to be seen whether in a contested case a Canadian court would find sufficient subject-matter jurisdiction over bid-rigging arrangements if the conduct was committed entirely outside Canada’s borders by non-Canadian parties, even if there could be said to be an effect on Canadian commerce.