On Friday, February 6, 2009, Canada’s Minister of Finance, James Flaherty, introduced in Parliament Bill C-10, the Budget Implementation Act, to implement fiscal and economic measures Canada is taking to deal with the current economic crisis and that were set out in the January 27, 2009 federal budget. The 558-page Bill C-10 is, however, much more than a usual budget bill. Not only does it implement the announced measures, but it also makes important changes to laws that are usually amended by specific amending legislation, rather than being rolled up into a budget bill.

Of important note is the fact that Bill C-10 converts a three-paragraph reference at page 178 of the 2009 federal budget into a significant overhaul to a number of key provisions of the Competition Act and the Investment Canada Act. The overhaul includes, as set out in more detail below, amendments to the Competition Act to create new U.S.-style “per se” offences and merger review processes, as well as changes to the Investment Canada Act to create a new national security criterion and remove existing constraints on transportation and other sectors.

The Competition Act and Investment Canada Act amendments in Bill C-10 are based on several recommendations of the government-appointed Competition Policy Review Panel, which published its report Compete to Win in June 2008. The federal budget did state that the government would implement those recommendations, but it is somewhat unusual for the government to include the amendment in a budget bill, rather than by way of separate bill amending the legislation. Typically, proposed amendments to the Competition Act and the Investment Canada Act of this magnitude would be considered and debated in Parliament and relevant parliamentary committees, sometimes for many months. As part of the budget implementation legislation, committee review is limited to a review by the Finance Committee and, given the state of the Canadian economy, there will be significant pressure to pass Bill C-10 as quickly as possible. As a result, unless the government agrees to split Bill C-10 or the Senate splits the bill, it could be that the proposed amendments to the Competition Act and the Investment Canada Act will pass with limited debate and consideration.

It is also noteworthy that a vote in Parliament on a budget bill can be a “confidence vote”, and a lack of parliamentary support for Bill C-10 from a majority of the House of Commons (which is possible given the current minority status of the government) could possibly trigger a federal election. Given the current political climate in Canada (which is in the shadow of a recent federal election with little apparent appetite for a second election in a matter of months), Bill C-10 could for this reason as well be subject to very limited parliamentary scrutiny or debate.

The Investment Canada Act amendments that are detailed below will likely be welcomed by the business community as they will make it easier and less burdensome for foreigners to invest in Canada. The Competition Act amendments are, however, much more controversial. Many proposed amendments to the Competition Act, such as the new conspiracy provisions, the adoption of a U.S.-style second request merger review process or the introduction of administrative monetary penalties for abuse of dominance, may hurt Canada’s competitiveness by increasing the cost of doing business in Canada.

Business enterprises, their associations and other stakeholders will need to act quickly to review the potential benefits and adverse effects of the amendments given the pressure to quickly pass Bill C-10. They will also need to move with haste to make any concerns known to the government, the Finance Committee and Members of Parliament. Second reading of Bill C- 10 is expected soon and committee hearings will probably commence by the end of February.

What follows is an overview of the proposed amendments to the Competition Act and the Investment Canada Act.

The Competition Act

The most noteworthy proposed amendments to the Competition Act include:

CONSPIRACY AND BID-RIGGING

  • Introduction of a dual-track approach and increased penalties for anti-competitive arrangements between competitors. The criminal anti-cartel provision would be limited to hardcore “cartel-like” agreements aimed at fixing or otherwise controlling prices, maintaining, lessening or eliminating the production of a product, and allocating sales, territories, customers or markets, which would become “per se” offences for which it would no longer be necessary to prove an undue lessening of competition. Maximum prison terms under this new criminal anti-cartel provision would rise from 5 to 14 years, while maximum fines would rise from $10 million to $25 million. A new civil conspiracy provision would permit the Competition Tribunal to address other types of agreements between competitors that have anti-competitive effects.
  • Broadening of bid-rigging provisions and increased penalties. The bid-rigging provisions would be broadened to include arrangements to withdraw contract bids or tenders. Maximum imprisonment for bid-rigging offences would increase from 5 to 14 years.

MERGER REVIEW

  • Introduction of a two-stage (second request) merger review process. A new merger review process would be introduced to replace the current 14/42-day review periods for short-form and long-form notifications. The new process would replicate the U.S. Hart-Scott Rodino Antitrust Improvements Act process by requiring the submission of prescribed information, followed by an initial 30-day review period during which the proposed transaction could not be completed. The Commissioner of Competition could then extend this initial review period by making a “second request” for further information, after which time closing could only occur 30 days following receipt of the additional information (barring a challenge to the transaction by the Commissioner).
  • Increased merger notification thresholds. The monetary threshold for mandatory merger notification would rise from $50 million to $70 million. The threshold would be reviewed annually and adjusted based on GDP.
  • Additional exempt transactions. Additional classes of transactions (i.e., certain amalgamations) would be exempt from the merger notification requirement.
  • Reduced merger review limitation period. The amendments would reduce the current 3-year period during which the Commissioner may challenge a completed merger to only 1 year.

ABUSE OF DOMINANCE

  • Introduction of administrative monetary penalties for all abuse cases. The amendments would enable the Tribunal to impose administrative monetary penalties of up to $10 million for corporate violations of the abuse of dominant position provision, and $15 million for each subsequent violation. Such penalties are currently restricted to conduct by a domestic airline.
  • Airline industry. All abuse of dominance provisions dealing specifically with the airline industry would be repealed.

MISLEADING ADVERTISING AND DECEPTIVE MARKETING PRACTICES

  • Targeted individuals outside Canada. The amendments would extend the false and misleading advertising and deceptive marketing practices provisions to apply to companies targeting individuals who are outside Canada.
  • Clarifications. The amendments provide that in false or misleading advertising proceedings, it would not be necessary to establish that the impugned representation was made to the Canadian public or was made in a place accessible to the public. The “general impression test” – that the general impression and literal meaning will be considered in assessing if a representation is reviewable – applies to the deceptive marketing practices outlined in sections 74.01 and 74.02.#
  • Increased penalties. The amendments would increase maximum imprisonment terms from 5 to 14 years for criminal offences. Administrative monetary penalties of up to $10 million ($15 million for subsequent violations) could be imposed by the Tribunal for corporate false and misleading advertising and deceptive marketing practices.

OTHER IMPORTANT AMENDMENTS

  • Price discrimination and predatory pricing. The amendments propose to repeal the criminal provisions dealing with price discrimination, promotional allowances and predatory pricing.
  • Resale price maintenance. The criminal resale price maintenance provision would be repealed and replaced by a new civil price maintenance provision to address this practice when it has an anti-competitive effect. The amendment would also provide a right of private-party access to the Tribunal for price maintenance.
  • Increased penalties for obstruction and contraventions of section 11 court orders. The amendments propose to introduce penalties of up to 10 years’ imprisonment and increased fines (from $50,000 up to $100,000) or both, for obstruction in connection with an inquiry or examination under the Competition Act. The amendments would also increase sanctions for contraventions of section 11 orders to imprisonment of up to 2 years and fines in the discretion of the court or both.

The Investment Canada Act

Important proposed amendments to the Investment Canada Act include:

  • Increased threshold for investments made by a WTO investor. The review threshold for acquisitions of control of a Canadian business (other than a cultural business) would increase to $1 billion over 5 years. The measurement standard would be changed from gross assets to the enterprise value of the acquired assets.
  • National security test and review procedure. The amendments would introduce a broad national security test and review process, authorizing the Minister of Industry to review investments that “could be injurious to national security”, regardless of the size of transaction. Following the Minister’s review and consultations with the Minister of Public Safety and Emergency Preparedness, the Minister would be required to refer transactions of concern to national security to the Governor in Council, who would have the ability to take any measures in respect of the investment that the Governor in Council considers advisable to protect national security, including prohibiting investments made by non-Canadians.
  • Elimination of lower threshold for transactions in non-cultural sectors. The amendments would eliminate the existing lower thresholds for review of transactions in the transportation, uranium production and financial services sectors. Only cultural businesses would remain subject to a lower threshold.
  • Written reasons for not approving an investment. Where the Minister of Industry is not satisfied that an investment is of net benefit to Canada, the Minister would be required to provide reasons for the decision to block the investment.
  • Disclosure of privileged information. Privileged information obtained during the review of an investment could be communicated or disclosed by the Minister of Industry to prescribed investigative bodies, or investigative bodies of a prescribed class, if the communication or disclosure was for the purposes of the administration or enforcement of national security provisions.
  • 45 days for ministerial opinions. The Minister of Industry would be forced to issue, within 45 days of the filing of an application for review, an opinion stating whether the Minister is satisfied that a proposed investment is likely to be of net benefit to Canada.
  • New undertakings. If the Minister of Industry believes that a non-Canadian has failed to comply with a written undertaking relating to an investment that the Minister is satisfied or is deemed to be satisfied is likely to be of net benefit to Canada, the Minister would be able to accept a new undertaking from the non-Canadian after the investment has been implemented.