Bid-rigging agreements in natural resource land auctions have become the focus of increased scrutiny by the Antitrust Division of the US Department of Justice (“DOJ”).
In April 2013, energy companies Gunnison Energy Corp. (“GEC”) and SG Interests (“SGI”) settled charges respecting allegations that they had agreed to refrain from bidding against each other in the auction of natural gas leases on state lands in Colorado. The charges were brought under §1 of the Sherman Act (which prohibits conspiracies in restraint of trade or commerce). GEC and SGI agreed to pay fines in the amount of USD $275,000 each.1
In 2012, the DOJ began investigating alleged agreements between natural gas companies Chesapeake Energy Corp. (“Chesapeake”) and Canada’s Encana Corp. (“Encana”) to divide bidding responsibilities in the auction of oil and gas leases in the State of Michigan. It was alleged that the companies allocated State counties and agreed not to bid against each other in auctions taking place in counties allocated to the other, with a view to decreasing prices. Although the DOJ discontinued its investigation in April 2014 without laying charges, the State Attorney General laid charges under Michigan’s antitrust laws, pursuant to which Encana pleaded no contest and agreed to a pay USD $5 million in settlement2. Chesapeake continues to defend against the charges, while both companies continue to defend civil proceedings brought by private parties under both State and federal antitrust laws.
In Canada, the criminal conspiracy and bid-rigging provisions in sections 45 and 47 of the Competition Act (the “Act”) could apply to the types of agreements alleged in the US proceedings discussed above. As the Competition Bureau (“Bureau”) is aggressively pursuing investigations into criminal activity in the oil and gas sector, agreements between competing bidders in resource land auctions expose the parties to significant criminal risk.
Section 47 of the Act captures the following conduct in relation to a call or request for bids:
- agreements between two or more persons whereby one or more of those persons undertakes not to submit a bid;
- agreements between two or more persons whereby one or more of those persons undertakes to withdraw a submitted bid; and
- the submission of a bid arrived at by agreement between two or more bidders.
It is not an offence, however, if the parties to the agreement inform the person calling for or requesting the bids of the agreement, at or before the time when bids are submitted or withdrawn (as the case may be).
Subsections 45(1)(a) and (b) of the Act capture agreements between competitors:
- to fix, maintain, increase or control the price for the supply of a product; or
- to allocate sales, territories, customers or markets for the production or supply of the product.
Persons who engage in the conduct described in sections 45 and 47 of the Act are liable on conviction to significant fines and terms of imprisonment, as well as civil liability in litigation brought by private parties who have suffered injury or loss as a result of this conduct (such as the lessor of a resource property).
Although enforcement activity under these provisions of the Act is most frequently directed at agreements between competing suppliers of products with a view to increasing prices, the wording of these provisions is sufficiently broad that they could apply to agreements between competing purchasers with a view to decreasing prices. In light of the harmonization of US and Canadian price-fixing laws and recent enforcement activity in the oil and gas sector by the DOJ and the Bureau, agreements between competing bidders in resource land auctions expose parties to significant risk of criminal and civil liability under the Act.
Canadian oil and gas companies should seek the advice of experienced competition counsel before communicating with competing bidders (or even potential competing bidders) in resource land auctions. Even negotiations to enter into legitimate joint ventures should be carefully structured to minimize enforcement risk under the Act.