Criminalising Cartels

Critical Studies of an International Regulatory Movement

Caron Beaton-Wells, Ariel Ezrachi, Caron Beaton-Wells, Ariel Ezrachi

• Publisher: Hart Publishing
• Year: 2011
• ISBN:
  9781847318138
• Edition: 1
• Topic: Jura
• Subtopic: Wettbewerbsrecht

This book is inspired by the international movement towards the criminalisation of cartel conduct over the last decade. Led by US enforcers, criminalisation has been supported by a growing number of regulators and governments. It derives its support from the simple yet forceful proposition that criminal sanctions, particularly jail time, are the most effective deterrent to such activity. However, criminalisation is much more complex than that basic proposition suggests. There is complexity both in terms of the various forces that are driving and shaping the movement (economic, political and social) and in the effects on the various actors involved in it (government, enforcement agencies, the business community, judiciary, legal profession and general public). Featuring contributions from authors who have been at the forefront of the debate around the world, this substantial 19-chapter volume captures the richness of the criminalisation phenomenon and considers its implications for building an effective criminal cartel regime, particularly outside of the US. It adopts a range of approaches, including general theoretical perspectives (from criminal theory, economics, political science, regulation and criminology) and case-studies of the experience with the design and enforcement of existing or contemplated criminal cartel regimes in various jurisdictions (including in Australia, Canada, EU, Germany, Ireland and the UK). The book also explores the international dimensions of criminalisation - its specific practical consequences (such as increased potential for extradition) as well as its more general implications for trends of harmonisation or convergence in competition law and enforcement.

Part C

Experiences Outside the US with Criminal Cartel Enforcement

4

Redesigning a Criminal Cartel Regime: The Canadian Conversion

D MARTIN LOW QC* AND CASEY W HALLADAY**

Introduction

Canada provides an interesting case study for the critical analysis of cartel enforcement as its cartel laws have, in their 120-year existence, embodied a diverse breadth of policy views ranging from regulatory sanctions to severe criminal penalties, and from ‘rule-of-reason’ analysis to per se criminality. Many of the recent global debates about the proper treatment of cartel conduct have been reflected in amendments to the Canadian cartel laws over their lifetime. Moreover, until recently, Canadian cartel laws had been viewed internationally as an agreeable compromise between the administrative (for example, European) and heavy-handed criminal (for example, American) approaches to cartel enforcement, with jurisdictions such as the UK[1] and Ireland,[2] for example, borrowing from the Canadian experience.

From 12 March 2010, legislative amendments enter into force that will dramatically transform the Canadian regime into what is on the face of it, at least, the most severe cartel law in the world, with per se treatment of certain hard-core horizontal agreements and penalties of up to 14 years’ imprisonment for convicted individuals.[3]

This chapter examines the Canadian experience in prosecuting cartels over a 120-year period, and critically explores the substance and effects of the new Canadian cartel regime. The structure of the discussion in the chapter is as follows:

— origins of Canadian cartel law (Part I);

— a century of relative silence—Canadian cartel enforcement until the 1980s (Part II);

— setbacks for the Bureau in the 1980s and 1990s (Part III)

— the decade of reform (Part IV);

— Canadian cartel enforcement in a new era (Part V).

As observed in the Conclusion, while much of the impetus for the recent Canadian reforms has been the notional aligning of Canada’s cartel laws more closely with those of the US, its major trading partner, in many instances the new Canadian laws, on the face of it at least, far surpass the US position. It remains to be seen whether the Canadian conversion will prove more zealous than the model it sought to emulate.

I. The Origins of Canadian Cartel Law

As many commentators on Canada’s competition laws have observed, the Canadian cartel offence is the oldest of its kind in the industrialised world,[4] having predated its more famous cousin, the US Sherman Act, by precisely 14 months.[5] It would be incorrect, however, to attribute this head start to greater levels of regulatory zeal in Canada than south of the border. Rather, Ottawa’s policy in this area, as in so many others, was driven largely by the trust-busting rhetoric which had proved to be so popular with American voters. The Canadian government simply moved faster to capitalise on the legislative opportunity.

In the 1880s, Canadian voters—influenced in large part by the antitrust media coverage in the US—were increasingly concerned that the country’s manufacturers and distributors of goods were forming ‘tyrannical, arbitrary and exclusive’[6] combines and trusts, to the detriment of ordinary consumers. The combines were perceived to be limiting competition and increasing prices both in large industries, such as coal and sugar, and in specialised markets such as farmers’ bailing twine.[7] In 1888, the first steps towards competition legislation were taken when a Conservative Member of Parliament, N Clarke Wallace, struck and chaired a Select Committee to investigate Canadian combines.[8] After two months of study and interviews, Wallace recommended that Parliament take immediate action. Looking south, he found that the American combines had become so advanced and influential that it was proving difficult to legislate against them. (The ability of corporate America to delay the passage of antitrust legislation was undoubtedly the reason why the Canadian legislation predated the Sherman Act.) Concluding that the Canadian combines ‘are yet in their infancy … this is the time when they should be strangled’,[9] Wallace seized the moment and introduced a private member’s bill, which was largely copied from pending legislation in New York State.[10]

While the governing Conservatives and opposition Liberals both publicly supported the goal of restraining combines, they were sharply divided in their methods. The Liberals accused Wallace of trying to ‘chew meal and whistle at the same time’,[11] and argued that the true evil was the Conservatives’ protective tariff regime, known as the National Policy. According to the Liberals, Canadian combines thrived because they were protected from foreign competition. The Conservatives pointed out that some of the industries suffering from the lack of combines control were not subject to tariffs and, in any case, removing the Canadian tariffs would drive the combines ‘jackals’ out of Canada and replace them with ‘a horde of American wolves’.[12]

The Liberals also took the opportunity to criticise a perceived watering-down of Wallace’s bill from the initial to final versions. By the time it reached Second Reading in 1889, the bill had been amended to require that the members of the alleged combine act ‘unlawfully’.[13] As a result, it no longer created a new offence, but effectively codified the common law of conspiracy (while providing a lesser maximum penalty). Liberal Member Louis H Davies, who would become Chief Justice of the Supreme Court of Canada, called the revised bill ‘one of the greatest frauds I have ever read’.[14] In defence of the bill, the Conservatives argued that it served a valuable purpose by clarifying the otherwise obscure conspiracy law.[15]

The bill was further weakened in the Senate. The upper house added a requirement that the conspirators collude to ‘unduly’ affect competition,[16] or ‘unreasonably’ enhance the price of an article or commodity.[17] As a result of these amendments, no combine was ever broken by the Act in its initial form.[18] It was only in the early 1900s that any successful prosecutions were brought under the Act, after a zealous Senator removed the ‘unlawfully’ element of the offence in an attempt to remove ‘surplusage’ from the section.[19]

Upon closer review, the text of the initial Combinations in Restraint of Trade Act reveals much about the purpose and policy goals of cartel regulation in these early years. The opening lines of the offence state that ‘[e]very person who conspires, combines, agrees or arranges with any other person, or with any railway, steamship, steamboat or transportation company, unlawfully’ to restrain competition has committed an offence.[20] The highlighted text, unnecessary in light of the much broader ‘any other person’ standard which precedes it, obviously suggests that these sectors were felt to be in the grip of the combines. Interestingly, unlike the situation under EU law (and many other countries’ domestic laws) today, from the very beginning the Canadian cartel offence was a penal provision—a person convicted faced a maximum penalty of imprisonment for up to two years.[21] (The contemporaneous Sherman Act maximum penalty for similar conduct was only one year.[22]) However, in an effort to perhaps safeguard against overzealous application of this new offence, section 5 of the Act provided that an appeal ‘shall lie from any conviction under the Act by the judge without the intervention of a jury … upon all issues of law and fact’.[23] Having created a potential Frankenstein’s monster, the legislators were clearly concerned about minimising any unintended negative effects of the new offence.

II. A Century of Relative Silence—Canadian Cartel Enforcement until the 1980s

Tinkering with the new offence continued. Only three years later, the provision became the new section 520 of the Criminal Code as part of the latter’s recodification. In 1899, the ‘unduly’ and ‘unlawfully’ requirements were removed, but were then restored the following year.[24] Political lobbying over the legislation appeared to subside in the following years, in part due to the perceived under-enforcement of the Act: in 1908, the Canadian Manufacturer’s Association decided against pursuing further reforms of the offence because ‘any agitation … may only serve to stir things up and direct attention to a law that officials are lax in enforcing’.[25]

In the early 1930s, the cartel offence again came under fire but this time from an unexpected source: the provinces. Ontario and Québec, along with the Proprietary Articles Trade Association, initiated a reference case[26] before the Supreme Court of Canada, and subsequently the Judicial Committee of the Privy Council, contending that the cartel law (both the 1889 offence, then found in the Criminal Code, and companion provisions in a new Combines Investigation Act) were ultra vires the federal government’s legislative authority given the provinces’ jurisdiction over matters of ‘property and civil rights’ in the Canadian constitution. The court rejected the provincial claims, noting that the cartel offence fell within the constitutional power of the federal government to legislate in all matters pertaining to ‘the criminal law including the procedure in criminal matters’.[27]

The Competition Bureau scored an impressive win with its case against a Corrugated and Solid Fibreboard Cartel in the late 1930s, with the Crown successfully defending the convictions in the Supreme Court of Canada.[28] In Container Materials,[29] a group of box manufacturers representing ‘the great bulk of the industry’ founded Container Materials Ltd as a commonly-controlled supplier—and vehicle for price fixing—of fibreboard products.[30] Interestingly, the court rejected the accuseds’ contention that the Crown must prove, as an element of mens rea, that the accused intended their agreement to lessen competition unduly. (This argument subsequently played a role in the Atlantic Sugar and Aetna Insurance cases, and in legislative reforms to the cartel offence in 1986.[31])

While the case represented an important, and high-profile, enforcement victory for the Bureau, the court’s analysis did not add much clarity to the interpretation of the cartel offence. Speaking on the all-important undue lessening of competition element, the court noted that ‘any party to an arrangement, the direct object of which is to impose improper, inordinate, excessive or oppressive restrictions upon that competition, is guilty of an offence’.[32] The Chief Justice’s concurring opinion did not prove any more illuminating on the issue:

The lessening of competition agreed upon will, in my opinion, be undue, within the meaning of the statute, if, when carried into effect, it will prejudice the public interest in free competition to a degree that the tribunal of fact finds to be undue.[33]

This pronouncement unfortunately provided little guidance for future cases, beyond a circular suggestion that undueness will exist when a trier of fact find the effect to be undue.

Successful prosecutions were much the norm for the Bureau and the Crown until the late 1970s.[34] One study has suggested that the Crown obtained a conviction or a prohibition order in a remarkable 90 per cent of its cases in the period 1924 to 1975.[35] However, this trend did not survive in the 1980s.

III. Setbacks for the Bureau in the 1980s and 1990s

The 1980s and especially the 1990s were an extremely active period for cartel enforcement in Canada, with the Bureau (aided by its new Immunity Program[36]) securing numerous guilty pleas and record fines, while at the same time bringing and losing several high-profile cases. The first such case, Atlantic Sugar, came in 1979 and woul...