Published in the Financial Post on June 29, 2011
By Finn Poschmann
The federal Parliament in 2009 handed Canada’s competition commissioner, Melanie Aitken, awesome legal power, and she is using it. She is free to do so — pending potential court reversals, or pending legislative change — but the current law raises serious concerns among economists and legal scholars. It also threatens big costs for businesses — which are inevitably passed to consumers — and a potential chill on competitive behaviour.
The concerns arise from amendments to the Competition Act in 2009, which gave power to the commissioner, through the Competition Tribunal, to seek from businesses that she believes have offended particular non-criminal sections of the act administrative monetary penalties, or AMPs, which to most of the rest of us look like criminal fines.
This might seem a minor matter of process, but it is important: Impugned offenders, who might otherwise be tempted to stand their ground and defend their business practices, face big penalties without the commissioner needing to meet a tough evidentiary standard, or seeing the issues freely aired. Economists call this legal chill — the threat of huge penalties inhibits both business choices and businesses’ ability to defend them.
AMPs are applied in particular in cases of abuse of market dominance, where firms are believed to engage, for example, in price discrimination (charging some customers too much) or predatory pricing (charging customers too little). They are penalties, not fines, as explained by the Competition Bureau, because they are civil remedies intended to “encourage compliance with the Competition Act, and failure to pay one may be enforced civilly as a debt due to the Crown. A fine, by contrast, is a punishment imposed by a court upon conviction of a criminal offence.… ”
That much is true, but other points of similarity and difference are more important. The potential civil remedy, the AMP, is enormous: $10-million on a first occurrence and $15-million for subsequent occurrences. Such penalties have been sought for Rogers Communications Inc., and now BCE Inc., over their allegedly deceptive advertising practices, not abuse of dominance, but the legal issue is the same in the end. The penalties are not recoveries of damages of the sort that private plaintiffs seek in ordinary civil proceedings, or recoveries for consumers. They look and feel a lot like criminal fines, and in fact are much larger than fines typically seen in criminal matters.
Now, Parliament can set whatever penalties it sees fit. However, the Supreme Court has said that if a proceeding has a “true penal consequence,” which explicitly includes a large fine, then it brings with it the legal protections of Section 11 of the Charter of Rights and Freedoms. Section 11 guarantees, among other things, a presumption of innocence, which presumption can be overturned only if a court or proceeding finds otherwise, beyond a reasonable doubt. Under the civil proceeding that the commissioner has pursued in the cases of Rogers and Bell, on the other hand, the evidentiary standard is much weaker — she must prove that an offence under the act had occurred only on a balance of probabilities, not beyond a reasonable doubt, and there is not necessarily full disclosure of evidence.
By implication, Parliament believes that it has escaped Section 11 Charter requirements by describing a $10-million levy as a penalty, not a fine. This is an issue on which legal scholars legitimately differ, and one which deserves a full hearing, eventually at the Supreme Court.
As suggested above, however, the problem is not only a legal one. The threat of the AMP raises the likelihood of chill or other unfortunate outcomes through the murky process of a consent decree. Consent decrees potentially amplify the problem with AMPs, owing to a process change that granted the commissioner the ability, having struck a consent agreement with a presumed offender, to file a notice of consent with the Competition Tribunal, a separate federal body, absent public hearings or economic analyses of the merits of a case.
Consider a scenario whereby the Competition Bureau comes to suspect that a business or organization uses its position in the market — a dominant position, for the sake of argument — to pursue what the bureau sees as anticompetitive practices, such as undercutting the competition on price to drive competitors out of the market.
Many economists and consumers will note at the outset that aggressive pricing indeed could be predatory, or anti-competitive behaviour — or it could be tough competition, of benefit to consumers. Which it is will depend on the facts and economics of the case.
As things stand, however, the commissioner may seek a consent agreement with the presumed offender, in a situation where the business in question knows that declining consent will lead either to an AMP or an expensive higher-court challenge to the AMP’s legitimacy, or both. And upon achieving a consent agreement, the commissioner files it with the Competition Tribunal, where it is more or less rubber-stamped, rather than taking advantage of the tribunal’s economic expertise and airing out the arguments. This process may well suit the impugned business, but prior to the time of filing, there is no public examination of the economic merits of any allegations — and neither is there a window for public judgment on whether the consent agreement in fact serves consumer interests.
Concern over AMPs is not new in the economic and legal communities. When the changes I describe were the subject of consultations and early legislative attempts in the past decade, many stakeholders, including legal scholars, objected. The current, enabling Competition Act amendments, however, were attached to the federal stimulus budget bill in early 2009 and never received serious examination in the relevant House and Senate committees, instead being rushed through — over protests — in the wake of a financial crisis.
Whether AMPs have economic and legal merit or, indeed, are constitutionally sound, is a legitimate question. What is clear is that Parliament did not, when authorizing them, give them serious debate. This may change — while BCE has agreed to pay its AMP, Rogers will defend its position at the Ontario Superior Court of Justice. If or when AMPs arrive at the Supreme Court of Canada, this thorny issue will finally get a decent airing, and we will find out if Ms. Aitken’s impressive power will withstand constitutional scrutiny.
Finn Poschmann is vice-president, research, at the C.D. Howe Institute, where he chairs the institute’s Competition Policy Council.
