The Role of Class Actions in Price-Fixing Enforcement
I’ve spent my legal career acting for plaintiffs in price-fixing class actions, a somewhat obscure niche which, until recently, simultaneously confounded and fascinated most people I met.
Last fall, the Canadian Competition Bureau raided the offices of several major grocery chains, investigating a fourteen-year price-fixing conspiracy affecting bread prices. This aroused the public’s interest in price-fixing, illegal cartels, and the related criminal and civil legal processes.
A recent Globe and Mail article about the Competition Bureau by Mr. John Pecman, the Commissioner of Competition, addressed the bread conspiracy and the workings of the Bureau’s immunity program.(1) While this article provides a glimpse into the world of competition enforcement, it also highlights some of its shortfalls and the role that civil class actions play in enforcing Canada’s competition laws.
Price-Fixing by Multinational Corporations
Mr. Pecman is right—price-fixing allegations do “strike a nerve” with Canadians. These concerns stem, in part, from the power that large multinational corporations wield over the average Canadian consumer. A lot of Canadians buy the majority of their consumer goods from large retail chains. Many of these products are manufactured overseas and sold into Canada through complex distribution chains, meaning that price-fixing conspiracies by conglomerates based in Europe or Asia impact individual consumers, even though that company may not carry on business in Canada.
Enforcement activities by the Competition Bureau (and the Public Prosecution Service of Canada (“PPSC”) can be effective tools in ending uncompetitive practices, but historically, price-fixing convictions have been limited to transactions occurring in Canada. Where the price-fixed sale occurs offshore, a conviction is rarely obtained here. A large percentage of transactions by Canadian consumers relate to goods and services from the United States, Mexico, South America, the European Union or other trading partners. From guilty pleas obtained by international agencies in the United States, the European Union and Japan (among others), we know that many conspirators are never fined in Canada, even though their products are sold here. The investigations conducted by the Bureau, and the resulting guilty pleas and/or convictions obtained by PPSC, are just the tip of the price-fixing iceberg.
There are likely several reasons for this.
The secretive nature of price-fixing conspiracies makes them difficult to investigate and prosecute. The advent of smartphones and encrypted messaging apps further complicate investigations, because they have the potential to make it impossible for investigators to establish what co-conspirators actually communicated. Fortunately, the Competition Act specially contemplates the secretive nature of price-fixing conspiracies and includes provisions allowing for the use of circumstantial evidence.(2)
Limited funding and resources are more likely to blame for the bulk of price-fixing activities that go unpunished in Canada. The relevant provisions of the Competition Act are not limited to Canadian companies or unlawful agreements made in Canada, but conducting international investigations can be complicated and time-consuming.(3) While the Competition Bureau has, in recent years, increased its cooperation with its (often better funded) international counterparts, which could magnify its effectiveness when it comes to international conspiracies, this is surely a complex, expensive process. Results from these efforts (in the form of convictions) are likely to be slow. Similarly, the legal case against an overseas conspirator may be more difficult from an evidentiary standpoint, simply by virtue of having to rely on international partners or processes during the investigative stage. In a world of limited resources, the Bureau’s focus on Canadian-centric conspiracies is not surprising. Without intervention by the Bureau, these conspiracies would go unpunished. Additionally, it is likely that these conspiracies are easier to investigate, as the relevant evidence and witnesses are within Canada.
Increasing annual funding of the Competition Bureau would enhance its ability to identify and investigate cartels on an international scale. Increasing funding to the PPSC would build its capacity to pursue more complex cases.
Enforcement and Deterrence
The Competition Bureau’s immunity and leniency program is a key competition enforcement and cartel deterrence tool. The program is, as Mr. Pecman says, “used by law enforcement agencies around the world.” It has helped the Competition Bureau identify a number of conspiracies affecting Canadian consumers. However, I think this system would be enhanced by some legislative changes, especially to the maximum fines imposed on conspirators.
The statutory maximum fine for each cartel participant is $25 million (and likely significantly less if the company cooperates with the Competition Bureau).(4) Consider the bread conspiracy, which allegedly involved several large, profitable corporations. For companies like Costco, with annual revenue of over $100 billion, a $25 million fine may be insignificant in comparison to the unlawful profits gained over the course of fourteen years.
It is time for Canada to reconsider the fixed maximum fine set out in the Competition Act. Adopting a maximum fine that is tied to the conspirator’s profits or to the size of the gain obtained from the unlawful activity would be more effective and appropriate. In the United States, prison sentences are not uncommon and the maximum fine is the greatest of US$100 million or twice the pecuniary gain the conspirators derived from the crime. In Europe and Australia, the maximum penalty is ten percent of the convicted company’s annual turnover.
Class Actions: A Path to Justice for Consumers
Even if we increase funding for competition enforcement activities and reconsider the maximum statutory fine for price-fixing conspirators, that leaves a hole with respect to compensation for the actual victims of the crime—Canadian consumers. I would redefine Mr. Pecman’s conclusion that “the system works” to include price-fixing class actions. The current competition enforcement scheme only really works for Canadian consumers when they are able to recover the money they overpaid to conspirators.
The Competition Act contemplates that where a person has incurred losses as a result of an unlawful conspiracy, a person can bring a civil action to recoup those losses. (5) Of course, for the average consumer, bringing a lawsuit for a small financial loss is impractical, especially when the case is against a large multinational corporation. Class action lawsuits make recovery of price-fixing damages attainable.
Importantly, Canadian courts allow for class actions against international defendants in relation to international conspiracies, even when they do not carry on business in Canada. The fact that their products enter the “stream of commerce” in Canada is sufficient.
Class action lawsuits serve as an additional deterrent for conspirators. Although Loblaw was granted immunity from prosecution by the Competition Bureau in the bread case, that immunity does not extend to civil actions. Loblaw and its co-conspirators are now facing class action lawsuits alleging that they conspired to fix the prices of bread. These lawsuits were brought on behalf of Canadian consumers to recoup their overpayments on bread purchases for the duration of the conspiracy.
The bread class actions have not been resolved. In Canada, price-fixing class actions often settle, rather than going to trial. For example, our team has settled price-fixing class actions relating to chocolate, LCD and CRT products, and automotive parts installed in new vehicles. The settlement funds are then distributed to Canadian consumers and businesses that were harmed by the alleged conspiracy. Filling out a simple form on the Siskinds website will sign you up to receive email notices when settlement funds in our various actions are about to be distributed. Filing a claim is often a quick, electronic process. (6)
As class counsel, I love the days when settlement funds are distributed to class members. On those days, it actually does feel like the system is working.
(1) John Pecman, “Competition Bureau: What Canadian need to know about price-fixing probes”, The Globe and Mail (February 2, 2018), online: <https://www.theglobeandmail.com/report-on-business/rob-commentary/competition-bureau-what-canadians-need-to-know-about-price-fixing-probes/article37830190/>.
(2) Competition Act, RSC 1985, c. C-34, s. 45(3).
(3) Competition Act, RSC 1985, c. C-34, ss. 45-47.
(4) It should be noted, though, that in 2013, Yazaki Corporation, a Japanese automotive parts maker, agreed to plead guilty and pay a $30 million fine for its involvement in a bid-rigging conspiracy relating to automotive wire harnesses. This remains the largest fine ever ordered by a Canadian court for a bid-rigging offence. See: “Record $30M fine obtained by Competition Bureau against Japanese Auto Parts Supplier” (April 18, 2013), online: < http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03560.html>.
(5) Competition Act, RSC 1985, c. C-34, s. 36.