Required and Regulated Conduct under Canada’s Competition Act

The Competition Bureau’s updated Abuse of Dominance Enforcement Guidelines expressly provide, for the first time, that a party’s compliance with a statutory or regulatory requirement may constitute a “business justification” for conduct that is potentially anti-competitive.

This business justification is similar to the regulated conduct defence, which may be raised in criminal cases and to defend class actions under the Competition Act. The regulated conduct defence has not yet been applied to an abuse of dominance proceeding in Canada.

The Competition Tribunal will soon issue its decision in the Vancouver Airport Authority abuse of dominance case. The airport has raised both a business justification and a regulated conduct defence. The Tribunal’s pending reasons could be very influential for the future, given the wide range of statutes and regulations applicable to companies doing business in Canada.

Anti-competitive Acts and Required Conduct

Abuse of dominance under s. 79 of the Competition Act requires the Commissioner to prove that a party has engaged in, or is engaging in, a practice of “anti-competitive” acts. Knowing what is “anti-competitive” (and what is not) is often a thorny question. There are examples of “anti-competitive” acts in the Competition Act. In law, anti-competitive acts are understood to have an intended negative effect on a competitor that is exclusionary, predatory or disciplinary.

One way to defend against an allegation of abuse of dominance is to raise a “business justification” for the conduct. Proof of a valid business justification demonstrates that the overall “character” of the conduct is not anti-competitive. To succeed, a business justification must be a “credible efficiency or pro-competitive rationale” for the conduct. That rationale must relate to and counterbalance the anti-competitive effects and/or the subjective intent of the impugned acts.

In its Toronto Real Estate Board decision, Canada’s Federal Court of Appeal held that if a respondent engages in a practice that is required by a statute or regulation, it could constitute a business justification. That is, conduct may not be “anti-competitive” under paragraph 79(1)(b) of the Act if a statute or regulation required the party to do it. In its case, TREB claimed that compliance with federal privacy legislation (PIPEDA) was a business justification for restrictions it imposed on its members’ use of sale prices and other information in its database. TREB’s argument failed, because it did not implement the restrictions to comply with PIPEDA.

TREB raises many questions about defending an abuse of dominance case based on conduct “required by statute or regulation”. One legal question is: how does it relate to the regulated conduct defence under the Competition Act?

The Regulated Conduct Defence

The regulated conduct defence (RCD) allows a party in some competition proceedings to rely on legislation to defend itself. If a party engages in conduct that is required, directed or authorized by a federal or provincial statute or regulations, and a provision expressly (or by necessary implication) directs or authorizes the person to engage in the conduct, then the conduct may not be a violation of the criminal law provisions of the Competition Act. The RCD uses statutory interpretation rules to ensure the criminal law provisions in the Competition Act are read harmoniously with other federal and provincial statutes.

The RCD is expressly preserved as a defence to the price-fixing offence in the Competition Act. It is also used to defend class proceedings in which plaintiffs rely upon alleged price-fixing to ground a claim for civil damages.

Importantly, the RCD has not (yet) been extended to the “reviewable practices” provisions of the Competition Act, such as abuse of dominance in s. 79. Abuse of dominance is not a criminal offence and the Commissioner has consistently resisted the application of the RCD beyond the criminal provisions of the Act.

While the RCD and the Court of Appeal’s legal conclusion in TREB are different in law, they share a common element: a statute or regulation that either requires or authorizes the party to engage in certain conduct. In both cases, if the necessary criteria are met, the conduct does not violate the Competition Act.

The Vancouver Airport Authority Case

The Competition Tribunal heard the Commissioner’s abuse of dominance case against the Vancouver Airport Authority (VAA) last autumn. The Commissioner alleges that VAA engaged in anti-competitive acts by excluding certain parties from offering catering services at the airport. The Tribunal has not yet released its decision.

Both a business justification and the RCD are at issue. The VAA’s formal Response pleads that it had a “valid efficiency-enhancing, pro-competitive business justification” for its actions – and specifically that its conduct was carried out in “fulfilment of its public interest mandate”, including to ensure the competitiveness of the airport.

After the hearing, the Tribunal directed the parties to address specific questions, including:

  • Does the RCD operate to exempt allegedly anti-competitive conduct from the abuse of dominance provision in the Competition Act? Does the rationale from the criminal law cases extend to abuse of dominance?
  • What specific aspects of VAA’s mandate, and of the regulatory regime under which it operates, authorized or required it to refrain from licensing additional caterers?
  • Why shouldn’t the Competition Act and the regulatory regime under which the VAA operates be interpreted in a manner that enables them to co-exist?

The Tribunal’s decision is expected sometime this year.

The Tribunal’s Pending Decision in VAA

The Tribunal’s decision in VAA will review the existing law on abuse of dominance including the decisions in TREB. In its decision, the Tribunal will hopefully determine whether, in law, the RCD applies to abuse of dominance.

In addition, based on the parties’ filed written arguments, the Tribunal will likely determine whether VAA’s decision to exclude any additional caterers from the airport was “anti-competitive” or not. The Tribunal may also decide whether the VAA’s actions are immunized from a remedy under s. 79 because they were “authorized” by its public interest mandate under a federal Order-in-Council and the terms of the VAA’s lease of the airport from the government.

Statutes and regulations governing business conduct in Canada are abundant. A defence or legal exemption to abuse of dominance, based on required or regulated conduct under legislation, would be a significant development in Canadian competition law. A Tribunal decision favourable to VAA could expand the boundaries of lawful competition under the Competition Act by narrowing what conduct is considered “anti-competitive” under s. 79. That could have a real impact on how Canadian businesses compete, and on future Bureau investigations and litigated cases under the Competition Act.