Increasingly rigorous international cartel enforcement can trigger criminal and civil sanctions in Canada. Significant acquisitions of Canadian businesses may require approval from the Canadian competition regulator before completion.
The Competition Act (Canada) is a federal law which deals with two types of practices:
- Activities subject to prosecution under the criminal law of Canada. Criminal offences include: conspiracies (as well as the implementation in Canada of collusive arrangements entered into outside of Canada), bid-rigging, multi-level marketing and certain misleading advertising and telemarketing practices.
- Practices subject to review by a quasi-judicial body known as the “Competition Tribunal.” These practices include: mergers, strategic alliances, abuse of dominant position, price maintenance, tied selling, refusal to deal, exclusive dealing, market restriction, delivered pricing and certain misleading advertising practices.
The Competition Act (Act) was substantially amended in March 2009. The key amendments include the:
- reform of Canada’s conspiracy law to make certain types of agreements between competitors (those that fix prices, allocate markets or restrict supply) illegal per se without there being any need to prove an undue lessening of competition as required under the prior law;
- introduction of administrative monetary penalties (AMPs) for the abuse of a dominant position;
- decriminalization of price maintenance and repeal of the criminal pricing provisions (price discrimination and predatory pricing);and
- adoption of a two-stage U.S. style merger review process. The changes to the merger process and abuse provisions are now in effect; the change to Canada’s conspiracy law will become effective in March 2010.
The Canadian Competition Bureau has four priority areas of enforcement: (i) conspiracy/cartel enforcement; (ii) mass marketing fraud; (iii) merger review; and (iv) abuse of dominant position.
The Commissioner of Competition and the Bureau staff are primarily responsible for the enforcement of the Act. The Director of Public Prosecutions (DPP) prosecutes violations of the criminal provisions of the Act referred by the Commissioner. Similar to other jurisdictions, the Commissioner and the DPP have leniency guidelines as well as an Immunity Program. A co-operating party who provides information to the authorities and meets the requirements for leniency or immunity may be eligible for a reduced or zero penalty.
The Act permits civil actions for the recovery of single damages suffered and resulting from the failure to abide by an order made by the Tribunal (in the case of a reviewable practice), or resulting from conduct contrary to a criminal offence provision of the Act. Private parties may also obtain leave to challenge certain types of reviewable conduct (price maintenance, tied selling, exclusive dealing, market restriction and refusals to deal) in the Competition Tribunal; however relief is injunctive only and the Tribunal has no power to award damages.
The need to obtain pre-closing approval from a competition authority is very common around the world. In Canada, it applies to transactions where both of the following two monetary thresholds are met:
- The parties to the transaction, together with all of their affiliates: (a) have assets in Canada the aggregate gross book value of which exceeds $400 million; or (b) have aggregate gross revenues from sales in, from or into Canada that exceeds $400 million; and
- (a) for an acquisition of assets in Canada of an operating business, the aggregate book value of those assets, or the gross revenues from sales in or from Canada generated from those assets, exceeds $70 million; or
(b) for an acquisition of voting shares of a corporation that carries on an operating business or controls a corporation that carries on an operating business, the aggregate book value of the assets in Canada of the corporation and all corporations controlled by it (other than assets that are shares of any of those corporations), or the gross revenues from sales in or from Canada generated from those assets, exceeds $70 million.
There are special rules for transactions involving joint ventures or partnerships.
If the transaction is an acquisition of shares, there is an additional threshold relating to the proportion of voting rights acquired. Pre-merger notification is required if the transaction exceeds the monetary thresholds above and, as a result of the acquisition, the buyer would own more than 20% of the outstanding voting rights in respect of a target or, if it already owns more than 20%, as a result of the acquisition it would own more than 50% of the voting rights. If the target is a private corporation, the relevant threshold rises to more than 35% of the voting shares.
Merger Review Process
Where the above thresholds are met, the parties must submit a pre-merger notification filing to the Commissioner, which triggers a 30-day waiting/no-close period. If, prior to expiry of the waiting period, the Commissioner issues a “second request” for information, the waiting period is extended for an additional period ending 30 days following full compliance with the second request. It is anticipated that the Commissioner will issue second requests only in cases that raise potentially serious competition concerns. In other cases, expiry of the initial waiting period constitutes competition law clearance, although the Commissioner retains a residual power to challenge a merger before the Competition Tribunal for up to one year following closing.
Advance Ruling Certificate
Where there is no or very minimal competitive overlap, the buyer can request that the Commissioner issue an advance ruling certificate (ARC) which usually can be obtained within 14 days. The ARC exempts the acquisition from the formal pre-merger notification and clearance provisions of the Act mentioned above, and removes the Commissioner’s power to challenge a transaction following closing.