On September 24, 2012, reasons for sentence were released in the matter of R v. Maxzone Auto Parts (Canada) Corp. In his reasons, Chief Justice Paul Crampton of the Federal Court made a number of critical comments on the well-established Canadian practice of resolving cartel cases through a jointly submitted agreed penalty.
Briefly, Maxzone pleaded guilty to a single charge of implementing foreign directives intended to give effect to a price-fixing agreement entered into by its affiliates outside of Canada, pursuant to section 46 of Canada’s Competition Act. Maxzone Canada, an affiliate of a Taiwan-based manufacturer as well as a U.S.-based entity, is collectively involved in the manufacture, distribution and sale of aftermarket automotive replacement lighting parts. In a statement of admissions and agreed facts, the prosecution and Maxzone agreed that between January 1, 2004 and September 1, 2008, Maxzone and its affiliates entered into a price-fixing agreement with certain of its competitors which, if it had been entered into in Canada, would have been an offence under section 45 of the Act. To satisfy the requirements of section 46, it was agreed that Maxzone Canada carried out directives from its affiliates who had the authority to provide such directives for the purpose of giving effect to the price-fixing agreement in Canada.
It was agreed that total sales during the relevant period amounted to approximately $15 million and the prosecution and defence jointly submitted that a fine in the amount of $1.5 million (being 10% of the volume of commerce) would be appropriate and would properly serve the public interest in the circumstances.
While agreeing to accept the jointly submitted sentence on the basis of previous jurisprudence, establishing that a sentencing judge should not lightly deviate from joint submission recommendations, Crampton, C.J. made a number of significant obiter comments on the sentencing process in cartel guilty plea cases. In substance, he concluded that the parties had not filed a sufficient evidentiary record from which it would be possible for a court to conclude that the objectives and principles of sentencing set out in sections 718 to 718.21 of Canada’s Criminal Code were satisfied. In particular, Crampton, C.J. noted the following:
- it was not apparent that any of the principles and objectives of sentencing set out in the Criminal Code were taken into account
- the framework described in the Bureau’s Leniency Bulletin is consistent with the Criminal Code’s sentencing principles and associated cases if followed in letter and spirit;
- proposing a joint fine, determined by multiplication of a percentage amount was not consistent with the letter or spirit of the Bulletin or the Criminal Code
- the Court was not satisfied that sufficient information had been provided that a fine equivalent to approximately 10% of Maxzone’s volume of commerce would promote respect for the law, assist in achieving in a just society, or constitute a just sanction under the guiding principles and
- the Court was also concerned that there was no evidence upon which it could be satisfied that the fine would likely disgorge, in an approximate way, the ill-gotten gains from the illegal conduct.
The reasons of Crampton, C.J. provide substantial support for the Bureau’s position that price-fixing and hard core cartel agreements ought to be treated at least as severely as fraud or theft, if not more so. As well, the Court adopted the principle expressed in many previous cases that fines in price-fixing cases must be set sufficiently high to ensure that they are more than a mere license fee or cost of doing business. Relying upon Organization for Economic Co-operation and Development (OECD) studies, the Court observed that the combined probability of detection, prosecution and conviction for cartel behaviour was less than 50% and that it would therefore follow that fines for engaging in such conduct should be a “multiple of more than double the expected gain” from the overcharge to be an effective deterrent. In fact, the Court went on to suggest that the true figure of detection is likely less than 33 1/3 percent and therefore a multiple of three times the expected gain from the overcharge would be a conservative starting point for calculating the appropriate fine level. The Court noted the obvious consequence that a more fulsome evidentiary record could increase exposure for civil suits but noted that leniency applicants should make “every effort to provide restitution or otherwise settle with such victims.”
The Court also made observations on the deterrent effect of prison sentences for cartel offences, and observed that while it might be in the public interest for the prosecution to agree to refrain from seeking such sentences, the Court will expect sentencing submissions to explain why fines alone are sufficient to achieve general and specific deterrence, denunciate the crime and reflect other principles of sentencing. The Court also indicated that evidence of restitution, as well as evidence supportive of aggravating or mitigating factors, should be documented as part of the sentencing presentation.
In some respects, these sentencing reasons provide a good deal of support for the Bureau’s leniency program and its stated policies on imposition of fines and potential incarceration of individuals. However, the clear direction from the Chief Justice that a much more robust evidentiary record will be required in future guilty plea cases will require the prosecution and settling defendants to assemble much more material in preparation for a more rigorous sentencing phase of the case resolution. From the point of view of settling defendants, the suggestion that the Bureau’s leniency policy fine guidelines may not be stringent enough, coupled with a more fulsome evidentiary record for a guilty plea, could well generate uncertainty in resolving future Canadian cartel cases even with a jointly-agreed penalty and evidence of the kind suggested in Crampton C.J.’s reasons. Parties might also fear the prospect of providing more detailed commercial information, which by consequence could provide an even clearer “road map” for potential plaintiffs. In one sense, all of the comments made by the Court in this case are obiter and non-binding but inasmuch as they are written by the Chief Justice, they are likely to be very persuasive upon other members of the Federal Court in cartel cases. Since the plea and jointly submitted penalty were accepted, there will be no appeal from this decision and only time will tell as to its impact on the Bureau’s plea practices and sentencing hearings in cartel cases.
For a copy of the sentencing reasons by Crampton C.J., click here.