August 12, 2008
Privileged and Confidential
Delivered Via Email and Courier
John H. Sims
Deputy Minister of Justice
East Memorial Building, Room 4121
284 Wellington Street
Ms. Sheridan Scott
Commissioner of Competition
50 Victoria Street
Dear Mr. Sims and Ms. Scott:
Re: Review of s. 11 of the Competition Act
You have asked us to review and provide an opinion on the Competition Bureau's process forobtaining orders under s. 11 of the Competition Act, R.S.C. 1985, c. C‑34 (the Act). We set out our findings and recommendations in the following opinion.
1. Executive summary
We conducted a review that focused on the Bureau's process to obtain orders under s. 11 of theAct and the Commissioner of Competition's duty of disclosure to the Court when applying for orders of this kind.
We have concluded that the Bureau conducts its role responsibly under s. 11 and it properlybalances the burden on respondents, particularly third parties, against the need to obtain theinformation necessary for an inquiry.
During our consultations, it became apparent that the private competition law bar's maincriticism was levelled at the existence of a s. 11 power itself. In our view, however, there is nodoubt that s. 11 is a necessary power to enable the Commissioner to effectively administer andenforce the Act. Our recommendations focus on improvements to the Bureau's current practicein order to make the s. 11 process more efficient and less burdensome on respondents.
The Bureau recently implemented a new three‑member review committee, to internally reviewall proposed s. 11 applications. We recommend that this review model remain in place and thatthe Bureau and the Department of Justice review its efficacy within two years.
In the past, a practice had developed before the Federal Court whereby the Bureau made its s. 11applications in writing without the personal attendance of the Commissioner's counsel. On theCommissioner's most recent s. 11 application, counsel for the Commissioner attended before theCourt in person.
We recommend that counsel personally attend on all s. 11 applications before the Court.Whenever possible, the Commissioner should apply to the same judge for all s. 11 ordersobtained in a particular inquiry.
In order to obtain a s. 11 order, the Commissioner must satisfy two substantive requirementsonly: (i) that an inquiry under s. 10 has commenced, and (ii) that a person has or is likely to have information that is relevant to the inquiry. There has been a tendency on the part of the courts and counsel for respondents to attempt to read‑in additional substantive requirements. Thisshould be resisted. Parliament has clearly mandated that only two requirements need to be metunder s. 11.
To this end, the substantive legal test under s. 11 and the duty of disclosure to the Court must be kept distinct. On all ex parte applications, the moving party is under an obligation to make full, frank, and fair disclosure to the Court. In the context of s. 11, this means that the Commissioner should state his or her case for obtaining a s. 11 order fairly and must inform the Court of any point of fact or law known to the Commissioner why the s. 11 order should not be granted. The standard of disclosure is the same whether the enforcement process ultimately invoked under the Act is civil or criminal.
The Bureau should engage in both a pre‑application and post‑service dialogue with respondentsto s. 11 orders. This dialogue should be the norm. Nonetheless, there will be circumstanceswhere the Bureau will need to make s. 11 applications without such dialogue, such as when thereis urgency or when there is a concern that records in the possession of a respondent may bedestroyed. The dialogue is voluntary and non‑binding on the Bureau. If a respondent isrecalcitrant or is delaying the process, the Bureau is under no obligation to continue the dialogueand should either proceed with its s. 11 application or, if a s. 11 order has already been obtained,move to enforce the order. In the merger context, the timelines for review impose significantpressure on the Commissioner to move expeditiously to obtain s. 11 orders in order to completethe inquiry before the waiting period lapses or the transaction closes. Even in the mergercontext, however, the Bureau should strive to implement a pre‑application dialogue with theproposed respondents to s. 11 orders.
We anticipate that this dialogue process will reduce the burden of responding to s. 11 orders onrespondents and make the s. 11 process more efficient. In this regard, the private competitionlaw bar will have to move away from its current adversarial approach towards a more cooperativemodel.
In this vein, we also recommend that the Bureau and the private competition law bar continue toengage in more general discussions, particularly with a view to developing best practices.
We set out our findings and recommendations in greater detail below.
Table of contents
- Executive summary
- Terms of reference
- Section 11 of the Act
- The legal test under s. 11
- Applications to vary
- Duty to make full, frank. and fair disclosure
- The Labatt case
- The Bureau's internal process
- Investigative orders in the United States
- Issues and recommendations
- The Bureau's use of s. 11 orders
- The Bureau's internal review process
- Practices in applying for s. 11 orders
- Statutory test for obtaining s. 11 orders
- Duty of disclosure to the Court
- Material already in the possession of the Bureau
- Potentially burdensome nature of s. 11 orders
- Section 11 in criminal inquiries
- Giving formal notice of s. 11 applications
- General dialogue with the private Competition Law Bar
2. Terms of reference
On March 3, 2008, the Deputy Minister of Justice, John Sims, and the Commissioner ofCompetition, Sheridan Scott, appointed me to review and advise on the Competition Bureau's s. 11 process, and to prepare an opinion within three months. The terms of reference are to:
- Review and advise on the standard of disclosure required in ex parte applicationsunder s. 11 of the Act with reference to litigated cases.
- Review and advise on the Bureau's s. 11 process with a view to ensuring that courtsto which the Commissioner makes s. 11 applications obtain the information requiredto allow them to determine whether or not to issue orders under that section.
- Make recommendations to assist in ensuring that the Bureau makes adequatedisclosure to the courts in making applications under s. 11 of the Act having regard to,among other things: the applicable legal principles pertaining to disclosure; theCommissioner's mandate under the Act; the operational exigencies, including timelimits, which the Commissioner and the Competition Bureau must address; practicesand procedures of counsel in obtaining s. 11 orders; and the need to ensure theefficacy of s. 11 orders as an effective investigative tool.
In conducting the review, I have been assisted by Owen Rees of this firm.
In order to consider these issues fully, we carried out consultations with the Competition Bureau, the Department of Justice Canada, the United States Department of Justice — Antitrust Division, certain former Directors of Investigation and Research, the Canadian Bar Association — National Competition Law Section, and counsel representing a client in a constitutional challenge to s. 11 that is presently before the courts.
Within the Bureau, we held discussions with the Commissioner of Competition, Sheridan Scott;the Senior Deputy Commissioner of Competition, Mergers, Melanie Aitken; the DeputyCommissioner of Competition, Civil Matters, Richard Taylor; the Deputy Commissioner ofCompetition, Legislative and Parliamentary Affairs, Colette Downie; the Assistant DeputyCommissioner of Competition, Mergers, Ann Wallwork; and with members of the CompetitionBureau and Department of Justice team for the Labatt‑Lakeport merger: Competition LawOfficer, Greg Lang; Senior Counsel, John Syme; and Counsel, Roger Nassrallah
Within the Department of Justice, we held discussions with the Assistant Deputy AttorneyGeneral, Litigation Branch, Donald Rennie; Senior Counsel, Office of the Deputy Minister ofJustice, Simon Fothergill; and members of the Public Prosecution Service of Canada whoprosecute Competition Act offences: Jim Sutton, Guy Pinsonnault, and Stkphane Hould.Throughout the review, we have been assisted by the Special Counsel to the Commissioner ofCompetition, Adam Fanaki.
In order to obtain a comparative perspective on investigatory orders in the United States, we metwith the United States Assistant Attorney General, Antitrust Division, Tom Barnett; DeputyAssistant Attorney General for International, Policy and Appellate Matters, James J. OYConnell;Director of Operations, J. Robert Kramer, 11; and Chief, Foreign Commerce Section, Edward T.Hand.
We also sought the input of the private competition law bar in a meeting with the outgoing andcurrent chairs of the Canadian Bar Association ‑ National Competition Law Section: James B.Musgrove of Lang Michener LLP and Barry Zalmanowitz, Q.C. of Fraser Milner Casgrain LLP ,who are practitioners at the private competition law bar.
Finally, we sought the views of certain former Directors of Investigation and Research. To thisend, we interviewed George Addy, the Honourable Konrad von Finckenstein, Q.C. , Calvin S.Goldman, Q.C. , Lawson Hunter, Q.C. , and the Honourable Howard Wetston, Q.C.
We provided the Bureau and the Department of Justice with executive briefings on May 29 and30, 2008, respectively, and we provided an interim report on June 10, 2008.
4. Section 11 of the Act
The Commissioner may apply under s. 11 for an order requiring the respondent to: attend for anoral examination before a presiding officer ( para. (l)(a)); produce records or any other thing( para. (l)(b)); and make and deliver a written return on information as required by the order ( para. (1)(c)).
Section 11 sets out the criteria for obtaining the order (subs. (1)). As will be discussed below,these criteria are minimal and have resulted in the contention that courts to which applicationsfor s. 11 orders are made are relegated to the role of "rubber stamps". Section 11 also addressesthe production of documents in the possession of affiliate corporations (subs. (2)), use immunity(subs. (3)), and the territorial effect of an order (subs. (4)). Section 11 provides:
- 11. (1) If, on the ex parte application of the Commissioner or his or herauthorized representative, a judge of a superior or county court is satisfied byinformation on oath or solemn affumation that an inquiry is being made undersection 10 and that a person has or is likely to have information that is relevantto the inquiry, the judge may order the person to
- attend as specified in the order and be examined on oath or solemnaffirmation by the Commissioner or the authorized representative of theCommissioner on any matter that is relevant to the inquiry before a person,in this section and sections 12 to 14 referred to as a "presiding officer",designated in the order;
- produce to the Commissioner or the authorized representative of theCommissioner within a time and at a place specified in the order, a record, acopy of a record certified by affidavit to be a true copy, or any other thing,specified in the order; or
- make and deliver to the Commissioner or the authorized representativeof the Commissioner, within a time specified in the order, a written returnunder oath or solemn affirmation showing in detail such information as isby the order required.
- (2) Where the person against whom an order is sought under paragraph (l)(b) inrelation to an inquiry is a corporation and the judge to whom the application ismade under subsection (1) is satisfied by information on oath or solemnaffirmation that an affiliate of the corporation, whether the affiliate is located inCanada or outside Canada, has records that are relevant to the inquiry, the judgemay order the corporation to produce the records.
- (3) No person shall be excused from complying with an order under subsection(1) or (2) on the ground that the testimony, record or other thing or returnrequired of the person may tend to criminate the person or subject him to anyproceeding or penalty, but no testimony given by an individual pursuant to anorder made under paragraph (l)(a), or return made by an individual pursuant toan order made under paragraph (l)(c), shall be used or received against thatindividual in any criminal proceedings thereafter instituted against him, otherthan a prosecution under section 132 or 136 of the Criminal Code.
- (4) An order made under this section has effect anywhere in Canada.
Subsection ll(1) establishes a precondition for obtaining a s. 11 order, namely that theCommissioner has commenced an inquiry under s. 10 of the Act. Subsection 10(1) provides:
- 10. (1) The Commissioner shall
- on application made under section 9,
- whenever the Commissioner has reason to believe that
- a person has contravened an order made pursuant to section 32, 33or 34, or Part VII. 1 or Part VIII,
- grounds exist for the making of an order under Part VII.1 or PartVIII, or
- an offence under Part V1 or VII has been or is about to becommitted, or
- whenever directed by the Minister to inquire whether any of thecircumstances described in subparagraphs (b)(i) to (iii) exists,
- cause an inquiry to be made into all such matters as the Commissioner considersnecessary to inquire into with the view of determining the facts.
The Commissioner is required to commence an inquiry oil the application of six Canadianresidents under s. 9 of the Act ( subpara. 10(l)(a)); when the Commissioner has reason to believethat a person has contravened an order made under the Act ( subpara. (l)(b)(i)), grounds exist forthe making of an order under the Act ( subpara. (l)(b)(ii)), or an offence under the Act has been oris about to be committed ( subpara. (l)(b)(iii)); or when directed by the Minister ( para. 10(c)).
5. The legal test under s. 11
A distinction must be drawn between the statutory test under s. 11 of the Act and the duty ofdisclosure owed by an applicant to the Court on any ex parte proceeding. In this section, we will consider the statutory test for obtaining a s. 11 order; in the section that follows, we will examine the duty of "full, frank, and fair" disclosure owed by the Commissioner to the Court on a s. 11 application.
In order to obtain a s. 11 order, the commissioneFootnote 1 must satisfy the Court, by affidavit evidence, (i) that an inquiry under s. 10 has commenced, and (ii) that a person has or is likely to have information that is relevant to the inquiryFootnote 2 . These are the only substantive requirements under s. 11. Where these requirements are met, a judge may issue an order. There remains, however, a residual discretion with the Court to determine whether to make a s. 11 orderFootnote 3 .
The proposed subject of the order is not a party to the application. The application under subs.1l(1) is to be made ex parte by the Commissioner. Section 11 does not provide that there should be any material before the Court apart from that filed by Commissioner. The two‑part test may be decided on the basis of affidavit evidence provided in the Commissioner's applicationFootnote 4 .
In the course of the review, the question arose whether s. 11 requires the Commissioner to apply ex parte or whether it is merely permissive. In our view, s. 11 contemplates that theCommissioner will apply ex parte. Nonetheless, in special circumstances, the Court considering a s. 11 application may make a special order to permit the respondent to the s. 11 application to attend and make submissions before any decision is made on the issuance of the orderFootnote 5 .These special circumstances will be considered below.
As with other ex parte applications, it is essential that there be full, frank, and fair disclosure on a s. 11 applicationFootnote 6 .
A. "An inquiry under section 10 has commenced"
The Federal Court has suggested that there are additional requirements that the Commissionermust meet on an application for a s. 11 order. The Federal Court has suggested that a baldassertion that an inquiry has commenced is not enough. The Court held that the Commissionershould provide:
- "some description" of the nature of the alleged conduct that is the subject of the inquiry;
- the basis of the Commissioner's decision to commence an inquiry; and
- the Commissioner's reason(s) for believing that conduct to which the inquiry is addressedhas occurredFootnote 7 .
In our view, courts should guard against departing from the Parliamentary‑mandatedrequirements for obtaining a s. 11 order. Parliament deliberately intended the requirementsunder s. 11 to be minimal. This is clear when s. 11 is compared to the search warrant provisionfound in s. 15 of the Act:
11. (1) If, on the ex parte application of the Commissioner or his or her authorized representative, a judge of a superior or county court is satisfied by information on oath or solemn affirmation that an inquiry is being made under section 10 and that a person has or is likely to have information that is relevant to the inquiry, the judge may order the personto [...I
15. (1) If, on the ex parte application of the Commissioner or his or her authorized representative, a judge of a superior or county court is satisfied by information on oath or solemn affirmation
(a) that there are reasonable grounds to believe that
(i) a person has contravened an order made pursuant to section 32, 33 or 34, or Part VII.1 orVIII,
(ii) grounds exist for the making of an order under Part VII. 1 or VIII, or
(iii) an offence under Part VI or VII has been or is about to be committed, and
(6) that there are reasonable grounds to believe that there is, on any premises, any record or other thing that will afford evidence with respect to the circumstances referred to in subparagraph (a)(i), (ii) or (iii), as the case may be,
the judge may issue a warrant under his hand authorizing the Commissioner or any other person named in the warrant to [. . .I
On a s. 11 application, it is not for a Court to determine whether the Commissioner hadreasonable grounds to cause an inquiry to be madeFootnote 8 . Nonetheless, it would be sound practice for the Commissioner to include the following in the affidavit material on s. 11 application:
- A brief description of the nature of the alleged conduct that is the subject of the inquiry.The description of the conduct need not be detailed. But it should be adequate for theCourt to judge the relevance of the information sought in the proposed order.
- A statement whether the inquiry was commenced under s. lO(a), (b)(i), (b)(ii), (b)(iii),and/or (c).
Contrary to the suggestion by the learned judge in Air CanadaFootnote 9 , the burden should not lie on the Commissioner is a public officer with a statutory obligation to act fairly and in the public interest. As a result, the Commissioner's good faith is properly presumed by the courtFootnote 10 . It should be for the respondent to a s. 11 order to bear the burden of establishing bad faith. The approach we suggest is consistent with general public law principlesFootnote 11 .
B. "A person has or is likely to have information that is relevant to the inquiry"
In selecting a respondent to a s. 11 order, the Commissioner is entitled to choose betweenalternative sources of information. By implication, it is not for the Court to determine whetherthere is another source that would be more effective or efficientFootnote 12 . The Commissioner must provide the Court with "cogent material" to show the "person has or is likely to have information that is relevant to the inquiry"Footnote 13 .
Surprisingly little consideration has been given to the "relevance" requirement. In determining"relevance" under s. 11, the statutory context of s. 11 is important. The Federal Court hascautioned that "the order relates to the production of information and documents for the purposeof an inquiry, not for the purpose of the prosecution of a criminal offenceFootnote 14 . This context is relevant in determining whether the Commissioner has met his or her burden on an application under s. 11. At the investigative stage, "relevance" must be judged by a more relaxed standard than it would were one considering the admissibility of evidence at trial or even the standard applied at the discovery stage of civil proceedings.
In our view, a document or information should be considered "relevant" if it reasonably couldafford information, taken by itself or in relation to other documents or information, concerningthe subject matter of the inquiry. This proposed standard draws on the test for search warrants under s. 487 of the Criminal codeFootnote 15 , with appropriate modifications for the statutory language under s. 11 of the Act and its purpose.
C. Cost of compliance
The cost of compliance is not a factor in the test for obtaining a s. 11 order. It has beensuggested, however, that a s. 11 order may be varied in exceptional circumstances to provide forthe reimbursement of costs, particularly where compliance with an order may be compromisedbecause of severe lack of resourcesFootnote 16 . This suggestion has been cast into serious doubt by the Supreme Court of Canada's recent decision in the context of production orders under s. 487.012 of the Criminal codeFootnote 17 . There is simply no statutory authority for the Court to order the reimbursement of costs to the respondent to a s. 11 order.
6. Applications to vary
Section 11 applications brought in the Federal Court are governed by the Federal Court Rules.Rule 399(1), which applies to applications to vary ex parte orders, applies to s. 11 ordersFootnote 18 . Rule 399 provides:
- 399. (1) On motion, the Court may set aside or vary an order that was made
- ex parte; or
- in the absence of a party who failed to appear by accident or mistake orby reason of insufficient notice of the proceeding,
- if the party against whom the order is made discloses a prima facie case why theorder should not have been made.
- (2) On motion, the Court may set aside or vary an order
- by reason of a matter that arose or was discovered subsequent to themaking of the order; or
- (b) where the order was obtained by fraud.
- (3) Unless the Court orders otherwise, the setting aside or variance of an orderunder subsection (1) or (2) does not affect the validity or character of anythingdone or not done before the order was set aside or varied.
Under Rule 399(1), a s. 11 order may be set aside where the party seeking to set aside or vary the order can establish that it was made on the basis of misleading, incomplete, or incorrect facts, or a willful omission or fraud by the Commissioner. The non‑disclosure of errors in the evidence before the issuing judge must be of a nature such that had the issuing judge known of them, he or she would have refused to grant the orderFootnote 19 . Further, if the subject of the order can demonstrate that the documents or information sought by the order are irrelevant to the s. 10 inquiry, the portions of the order relating to their production can be vacatedFootnote 20 .
Rule 399(1) provides a mechanism whereby the subject of an ex parte order can enforce theobligation on a moving party to be scrupulously fair to the absent party. This obligation will beconsidered in the next section of this memorandum.
7. Duty to make full, frank, and fair disclosure
A. ex parte Orders generally
ex parte hearings are a departure from the fundamental principle of procedural fairness: audi alteram partemFootnote 21 . On a motion for ex parte relief, the party against whom the relief is sought is denied the opportunity to be heard and to present to the Court the case for why the requested relief should not be granted. Thus, the law imposes on the moving party an obligation to be scrupulously fair to the absent party by disclosing all material facts in a fair manner.
The rationale for this obligation and for the consequences of a failure to meet this obligation is explained by Sharpe J. (as he then was) in the leading Ontario authority, United States ofAmerica v. FriedlandFootnote 22:
It is a well established principle of our law that a party who seeks theextraordinary relief of an ex parte injunction must make full and frankdisclosure of the case. The rationale for this rule is obvious. The judge hearingan ex parte motion and the absent party are literally at the mercy of the partyseeking injunctive relief. The ordinary checks and balances of the adversarysystem are not operative. The opposite party is deprived of the opportunity tochallenge the factual and legal contentions advanced by the moving party insupport of the injunction. The situation is rife with the danger that an injusticewill be done to the absent party. As a British Columbia judge noted recently [inWatson v. Slavik [(1996), 65 A.C.W.S. (3d) 831 (B.C.S.C.)]:
There is no situation more fraught with potential injustice and abuse ofthe Court's powers than an application for an ex parte injunction.
For that reason, the law imposes an exceptional duty on the party who seeks ex parte relief. That party is not entitled to present only its side of the case in thebest possible light, as it would if the other side were present. Rather, it isincumbent on the moving party to make a balanced presentation of the facts inlaw. The moving party must state its own case fairly and must inform the Courtof any points of fact or law known to it which favour the other side. The duty offull and frank disclosure is required to mitigate the obvious risk of injusticeinherent in any situation where a Judge is asked to grant an order withouthearing from the other side.
If the party seeking ex parte relief fails to abide by this duty to make full and frank disclosure by omitting or misrepresenting material facts, the opposite partyis entitled to have the injunction set aside. That is the price the Plaintiff must payfor failure to live up to the duty imposed by the law. Were it otherwise, the dutywould be empty and the law would be powerless to protect the absent party.
This principle is codified in rule 39.01(6) of the Ontario Rules of Civil Procedure, whichprovides:
Where a motion or application is made without notice, the moving partyor applicant shall make full and fair disclosure of all material facts, andfailure to do so is in itself sufficient ground for setting aside any orderobtained on the motion or application.
Although there is no similar provision codifying the requirement in the Federal Court Rules, the same duty has been imposed in the Federal Court on the moving party in applications for ex parte reliefFootnote 23 . Rule 399(1), as applied by the Federal Court, also has this effect.
An Anton Piller order requires the defendant to permit a plaintiff to search the defendant's premises for evidence and retain it for litigation purposes, provided that certain conditions are metFootnote 24 . Where a party is seeking an Anton Piller order, a very high standard of disclosure is required:
[T]he plaintiff is required to disclose every fact within his or herknowledge relevant to the "weighing operation which the court has tomake in deciding whether or not to grant the order" (Thermax Ltd . v.Schott Industrial Glass Ltd ,  F.S.R. 289 at 298 (Ch. D.)). InColumbia Picture Industries v. Robinson,  Ch. 38,  F.S.R.367 at 441 (Ch. D.), Scott J. held "that the affidavits in support ofapplicants for ['Anton Piller' orders] ought to err on the side of excessivedisclosure. In the case of material falling into the grey area of possiblerelevance, the judge, not the plaintiffs' solicitors, should be the judge ofrelevance"Footnote 25.
The relevant facts that a party seeking an ex parte order must disclose include facts that mayexplain the position of the respondent to the order, if known to the moving partyFootnote 26 . Any fact that would be weighed or considered by the motions judge in deciding the issues, regardless of whether its disclosure would change the outcome, is materialFootnote 27 .
The duty to make full, frank, and fair disclosure applies to other ex parte investigatory processes, such as search warrants under the Criminal CodeFootnote 28 . This standard does not vary depending on the nature of the process ultimately invoked, that is whether civil ( e.g. matters reviewable by the Competition Tribunal under Part VIII of the Act) or criminal ( e.g. offences under Part VI and VII of the Act).
B. The duty on a s. 11 application
What is the content of this duty to the Court on a s. 11 application? In our view, it is twofold: the Commissioner must (i) state his or her own case for obtaining a s. 11 order fairly and (ii) inform the Court of any points of fact or law known to the Commissioner why the s. 11 order should not be granted. The Federal Court's decision in Labatt (above) suggests that, at a minimum, the material facts the Commissioner should disclose include:
- Facts that may explain the respondent's position regarding the scope of the order and therelevance of the material sought, if known to the Commissioner.
- Whether, in the same s. 11 inquiry, previous orders have been sought and a generaldescription of the information previously obtained in those orders.
It is sound practice to include reference to any fact that could reasonably be considered by thejudge in deciding whether to grant the order.
However, it is important to keep distinct the statutory requirements of s. 11 on the one hand, and the duty of disclosure to the Court on the other. The duty of disclosure does not augment orimpose additional substantive requirements that must be met in order to obtain a s. 11 order.
8. The Labatt case
In the Labatt case, Labatt Brewing Company Ltd . ("Labatt") and Lakeport Brewing IncomeFund ("Lakeport") sought an order under Federal Court Rule 399 setting aside a s. 11 order.
The s. 11 order required Labatt and Lakeport to produce documents and written returninformation. Labatt and Lakeport argued that the information provided by the Commissioner onher ex parte application was misleading, inaccurate or incomplete, and the order should neverhave been made. They further argued that much of the information sought by the Commissionerhad already been produced or was irrelevant to her inquiry into the competitive effect of Labatt'sacquisition of LakeportFootnote 29 .
The Court found that the disclosure made by the Commissioner on the ex parte application for a s. 11 order had been "misleading, inaccurate and incomplete". The Court held that had it been provided with complete disclosure, it would not have granted the order that it did, in the form that it did. Therefore, the Court set aside the s. 11 order, without prejudice to the Commissioner bringing a fresh application for a s. 11 order, on notice to both Labatt and Lakeport.
A. The factual findings of the Court
The facts found by the Court in Labatt are, briefly, as follows:
- On January 3 1, 2007, Labatt agreed to acquire Lakeport. Labatt and Lakeport provided"extensive" information to the Commissioner regarding the competitive implications ofthe proposed acquisition, pursuant to s. 114 of the Act.
- On February 15, 2007, the Commissioner commenced an inquiry into the acquisition,pursuant to paragraph 10(l)(b) of the Act.
- Further to the inquiry, the Commissioner brought eleven ex parte applications for s. 11 orders against different respondents (the "February 2007 application")Footnote 30. On February 22, 2007, Noel J. issued orders requiring Labatt and Lakeport, among others, to produce "extensive" records and written returns (the "February 2007 order").
- In response to its s. 11 order, Labatt provided the Commissioner with 7,432 documents,consisting of over 138,620 pages. The production of the documents cost Labattapproximately $750,000 in external costs alone.
- On March 26, 2007, the Commissioner applied to the Competition Tribunal for an orderunder s. 100 of the Act, enjoining the closing of the acquisition for 30 days. The Tribunal refused to grant the injunction. The acquisition closed on March 29, 2007.
- The Commissioner's inquiry into the acquisition continued.
- On November 6, 2007, the Commissioner brought before Mactavish J. a second set of ex parte applications for s. 11 orders against fifteen respondents (the "November 2007application"). These applications were made without a personal attendance by theCommissioner's counsel. Eight of the fifteen respondents had been subject to the s. 11orders previously granted by Noel J.
- On November 8, 2007, Mactavish J. granted the Commissioner's second set ofapplications. These s. 11 orders required the production of "copious" records and"extensive" information (the "November 2007 order").
- On November 23, 2007, Labatt and Lakeport brought a motion under Rule 399 to haveMactavish J.'s November 2007 order set aside or varied.
The Court appears to have applied a higher standard to the Commissioner's affidavit materialsthan would be usual on an ex parte application, because the Court held that the usual reason why latitude is given to a moving party on an ex parte application‑that such applications are broughton an emergency basis‑was absent in this case. It found that the Commissioner's applicationfor a s. 11 order was not urgent and the inquiry had been ongoing for months.
Latitude is given to a moving party on an ex parte application‑that such applications are brought on an emergency basis‑was absent in this case. It found that the Commissioner's applicationfor a s. 11 order was not urgent and the inquiry had been ongoing for months.
The Court found that the Commissioner's disclosure was "misleading, inaccurate or incompletein several material respects." It also found that the information required in the proposed orderwas duplicative of information already in the possession of the Commissioner. The Court madeno finding as to the relevance of the information sought.
In our respectful view, the conclusions of the Federal Court in Labatt were not warranted and the Court erred in exercising its discretion to vacate the November 2007 s. 11 order. Nevertheless, the decision was a discretionary one and, as such, the prospects of overturning the decision at the Federal Court of Appeal were not favourable.
B. Failure to mention the representations made to Noel J.
The Commissioner's affidavit material before Mactavish J. for the November 2007 applicationdid not refer to the statement of the Commissioner's authorized representative in an affidavitbefore Noel J. in February 2007 that "[tlhe Commissioner believes that the responses to thesequestions from the Brewers will be sufficient for the purposes of her inquiry."Footnote 31.
The Court held that had it known of the Commissioner's representation to the Court that theextensive information sought in the February 2007 s. 11 orders "would likely be sufficient" forthe purposes of the inquiry, it would not have made the November 2007 order without anexplanation from the Commissioner as to why additional information was required. It was, according to the Court, a material omission that justified setting aside the November 2007order.Footnote 32 .
The Court held that the Commissioner was obliged to advise the Court of any representationsthat may have been made to the Court as to whether the information previously sought wouldsuffice for the purposes of the inquiry.Footnote 33.
The Court further held that in order to properly exercise its discretion under subsection 11 (1) and to properly control its own processes, the Court must be "fully apprised of the relevantcircumstances" surrounding a s. 11 order. It explained that, depending on the circumstances, theCourt may decline to grant the order, seek further information or clarification from theCommissioner, or require notice to be given to the proposed subject of the order so that theaffected party may be heard before an order is made.Footnote 34.
In our respectful view, it should have been plain to the Court that the statement in the Bureau's affidavit on the earlier s. 11 application was not intended as a warranty that no further order would be necessary. It is simply not possible to know at the investigative stage‑which isnecessarily fluid‑whether the information sought will be obtained and, if obtained, whether itwill be adequate for the purposes of an inquiry.
Where the Commissioner makes representations to the Court on an earlier s. 11 application in thesame inquiry, those representations should be put before the Court on any subsequent s. 11application in the same inquiry.
We agree with the Court's conclusion that the Commissioner must fully apprise the Court of thecircumstances relevant to the s. 11 application, and that the Court may decline to grant the order,or seek further information or clarification from the Commissioner. Moreover, as an incident of the Court's control over its own process, the Court may require that notice be given to theproposed respondent to the order so that the affected party may be heard before an order is made.
C. Degree of overlap with material already provided
Significant information had already been provided to the Commissioner in response to theFebruary 2007 order. The Court held that it was "disingenuous and misleading" that theCommissioner's written submissions on the November 2007 application stated that "[nlone ofthe records or information sought has previously been requested from the respondents." To thecontrary, the Court found that there was "considerable overlap" with information previouslygiven to the CommissionerFootnote 35.
The Court stated that it was inadequate for the Commissioner simply to have included a copy ofthe February 2007 order in the materials submitted on the November 2007 application given the volume of material before the CourtFootnote 36.
The Court also held that the failure of the Commissioner to draw the Court's attention todocuments in the Commissioner's possession that had been produced as part of a 2004 inquiryinto the Standard Mould Bottle Agreement, which had been entered into by a number ofbreweries in the province, was material as there were a number of areas of overlap with theinformation sought on the November 2007 applicationFootnote 37. Similarly, the Court appeared to view as material the omission of any mention of the information filed by Labatt and Lakeport in compliance with s. 114 of the Act and s. 17 of the Notifiable Transactions RegulationsFootnote 38.
In our respectful view, it was plain from the draft order sought, as well as from a fair reading of the supporting affidavit, that the Bureau was not seeking to duplicate information provided bythe respondents in compliance with the earlier s. 11 order. In the draft order on the November2007 application, the Commissioner had included the following paragraph immediatelypreceding the list of records required to be produced by the respondent:
Certain of the Records hereinafter required may already have been previouslyprovided to the Commissioner. The Respondent is not required to produce asecond copy of such Records in response to this Order, provided that theRespondent:
- Identifies to the Commissioner's satisfaction any Records in thepossession of the Commissioner which are responsive to the Order;
- Agrees that such Records shall be deemed to have been provided to theCommissioner pursuant to this Order; and
- Receives confirmation from the Commissioner that the Records are inthe Commissioner's possession.
The Court selected a handful of examples of potential overlap in the information sought, withouttaking into account that the information previously produced to the Bureau was not necessarily inthe form relevant to the continuing inquiry. There would be no utility for the Bureau to seekduplicative information.
The Court's reliance on Sharpe J.'s observation in Friedland‑that "the fact that a document isbefore the Court, given the volume of exhibits and the time which an ex parte judge has to deal with such matters, does not relieve the moving party of its duty to make hll and fairdisclosure"‑was misplaced in Labatt. A review of the record on the November 2007application shows that it is not correct to suggest that the record was voluminous, as is often thecase when ex parte injunctive relief is sought. The application record was approximately 75pagesFootnote 39 .It was no burdensome matter for the Court to have reviewed the materials. Nor was the information relevant to the exercise of the Court's function under s. 11 buried in the material. The February 2007 order could easily have been reviewed by the Court.
With respect to the 2004 inquiry into the Standard Mould Bottle Agreement, it is a surprisingsuggestion that information produced in an earlier and unrelated inquiry should be retained bythe Bureau, reviewed, and used in a later inquiry. It is far from clear that it is permissible for the Commissioner to retain information or documents obtained on a s. 11 inquiry for use outside ofthe inquiry in which they were obtainedFootnote 40 . Quite apart from the question of statutory authority, information obtained on the Standard Mould Bottle Agreement inquiry in 2004 was potentially stale, irrelevant, or produced in a form unsuitable to the Labatt‑Lakeport merger inquiry.
Finally, regarding the information filed by Labatt and Lakeport in compliance with s. 114 of the Act and s. 17 of the Notifiable Transactions Regulations, their compliance with statutory obligations ought to be presumed by the Court, and would not necessarily be material to the exercise of the Court's function under s. 11 of the Act.
D. The burdensome nature of the order
Although the Court observed that a s. 11 order will not be refused only because it imposes aheavy burden on the respondent to the order, the Court found that the burdensome nature of theorder and the potential for duplicative requests are relevant factors in the exercise of the Court's discretion whether to grant a s. 11 application. In this respect, the Commissioner has a duty to disclose the concerns expressed by a respondent to a proposed order in complying with theCommissioner's prior demandsFootnote 41.
Subsequent to the Federal Court's decision in Labatt, the Supreme Court of Canada released its decision in Tele‑Mobile (above) in which it held that the issuing judge could not make compensation to the respondent a term of a production order under s. 487.012 of the Criminal Code. The Court observed that there was a general moral and social duty on citizens to assist the State in the administration of justiceFootnote 42.
Parliament has recognized that Criminal Code production orders potentially represent anunreasonable burden, by providing for an exemption from the order in those circumstances setout in s. 487.015(4)Footnote 43. In Tele‑Mobile, the Court held that in order to obtain an exemption, the respondent would have to establish that the financial consequences of compliance must be so burdensome that it would be unreasonable in the circumstances to expect complianceFootnote 44.
The exemption from a Criminal Code production order is rooted in statutory language. Bycontrast, Parliament has not mandated that an exemption from compliance be available under s.11 of the Act. Can a respondent to a s. 11 order obtain similar relief? In our view, the Court hasthe inherent authority to protect its process from abuse. In the absence of a statutory exemption,we suggest that a respondent to a s. 11 order would have to demonstrate that the burden ofcompliance in the circumstances rises to the level of an abuse of process. Cases in which thiscan be established will be very rare.
9. The Bureau's internal process
Before applying to a Court for a s. 11 order, the Bureau follows an internal approval process.Over time, the process has varied.
In merger cases, for example, applications for s. 11 orders are prepared by the team assigned tothe merger, in consultation with counsel from the Competition Law Division and could include arepresentative of the Economic Policy and Enforcement Branch ("EP&E). In certaincircumstances, the team may consult an outside economic expert and outside counsel.
Historically, all s. 11 applications were reviewed internally by a Strategic Policy Advisor in the Compliance and Coordination Branch who had accumulated expertise. However, this processwas discontinued in February 2007 for three reasons. First, there was a general process ofstreamlining the organization of the Bureau. Second, the Bureau determined that it wasunreasonable and ineffective to ask a single individual who was not involved in the particularinquiry to approve or refuse the application, where that individual did not have adequateinformation about the inquiry. Finally, the Bureau determined that it would instil greaterdiscipline and accountability in the team seeking the s. 11 order for it to bear the responsibility to review and approve of the s. 11 application. The Bureau's decision in this respect wasreasonable.
Prior to the November 2007 s. 11 application in Labatt‑Lakeport, the Bureau conducted a RedTeadGreen Team exercise, in which two teams within the Bureau mooted the merits ofchallenging the merger before senior management of the Bureau and the Commissioner.Through that process, it became clear to the Bureau that further information was needed before adecision whether to challenge the merger could be made.
Subsequent to the Federal Court's decision in Labatt, the Bureau implemented a new approval process. A three‑member review committee has been established to review proposed s. 11applications. It is composed of the Assistant Deputy Commissioner responsible for the case, aSenior Counsel, Competition Law Division (LA2B or higher) who does not have carriage of thefile, and the Special Economic Advisor to the Commissioner (or his or her designate). Eachmember must approve the application before it can be filed.
10. Investigative orders in the United States
The United States Department of Justice (DOJ) and the Federal Trade Commission ( FTC ) have a wider range of investigatory tools available to them in investigating antitrust matters than does the Bureau. The variety of tools in the antitrust enforcement context reflects the variety of investigatory tools across the spectrum of U.S. federal regulatory agencies.
A. Second requests
In the merger context, after the initial Hart‑Scott‑Rodino Antitrust Improvements Act ("HSR Act") filing with the FTC or DOJ , a 30‑day waiting period must be observed before closing atransactionFootnote 45. If substantive antitrust issues cannot be resolved during that period, the FTC or DOJ may issue a Second Request lo each party to the transaction. The FTC or DOJ (but not both) may issue a Second Request seeking additional documents from the parties to a proposed mergerFootnote 46:
The Federal Trade Commission or the Assistant Attorney General may,prior to the expiration of the 30‑days waiting period (or in the case of acash tender offer, the 15‑day waiting period) specified in subsection(b)(l) of this section, require the submission of additional information ordocumentary material relevant to the proposed acquisition, from a personrequired to file notification with respect to such acquisition... or fromany officer, director, partner, agent or employee of such person.
A Second Request is issued by the FTC or DOJ without judicial pre‑authorization. However,enforcement of a Second Request requires an order from the United States District CourtFootnote 47. Further, the respondent to a Second Request may seek an internal review of the Second Request by the FTC or DOJ on the basis that it is "unreasonably cumulative, unduly burdensome, or duplicative."Footnote 48.
Issuance of a Second Request extends the HSR waiting period, typically until 30 days aftercertification of "substantial compliance" with the Second RequestFootnote 49.
B. Civil investigative demands
The DOJ and the FTC may obtain documents or compel testimony through Civil InvestigativeDemands (CIDs). CIDs are authorized under s. 1312 of the Antitrust Civil Process ActFootnote 50:
Whenever the Attorney General, or the Assistant Attorney General in charge ofthe Antitrust Division of the Department of Justice, has reason to believe thatany person may be in possession, custody, or control of any documentarymaterial, or may have any information, relevant to a civil antitrustinvestigation.. . he may, prior to the institution of a civil or criminal proceedingby the United States thereon, issue in writing, and cause to be served upon suchperson, a civil investigative demand requiring such person to produce suchdocumentary material for inspection and copying or reproduction, to answer inwriting written interrogatories, to give oral testimony concerning documentarymaterial or information, or to furnish any combination of such material, answers,or testimony.
The availability of CIDs is not restricted to the merger context, but they are frequently used in the merger context. They may be directed against true third parties. Unlike Second Requests, CIDs do not have the effect of suspending or extending the applicable merger waiting period.Like a Second Request, CIDs are issued without judicial authorization but do require an orderfrom the United States District Court to be enforced. There is express statutory provision for apetition to modify or set aside the demand.
CIDs are not available once a civil or criminal process has been launched, nor may compliancebe enforced after that time.
C. Other investigative tools
There are other tools available to U.S. antitrust authorities in investigating antitrust matters:
investigative subpoenas and the grand jury process.
The FTC uses investigatory subpoenas to compel oral testimony or the production of documents.Section 49 of the Federal Trade Commission Act provides:
[. . .T]he Commission shall have power to require by subpoena theattendance and testimony of witnesses and the production of allsuch documentary evidence relating to any matter underinvestigation. Any member of the Commission may signsubpoenas, and members and examiners of the Commission mayadminister oaths and affirmations, examine witnesses, and receiveevidence.
In criminal matters, the DOJ also has resort to the grand jury process. Grand juries usesubpoenas to gather the evidence they need to use in deciding whether a federal crime has beencommitted. They can subpoena documents and physical evidence and they can subpoenawitnesses to testify before them.
11. Issues and recommendations
A. The Bureau's use of s. 11 orders
During our consultations, the private competition law bar was generally critical of the Bureau'suse of s. 11 of the Act, particularly in the merger context. The Canadian Bar Association —National Competition Law Section was concerned that, in the merger context, the Bureau reliedon s. 11 as a matter of course rather than relying on voluntary information requests of parties to a merger, with resort to s. 11 only when the parties were not cooperating, when the Bureau believed that parties were withholding information, or when there was a risk of destruction of documents. Nonetheless, the Canadian Bar Association — National Competition Law Sectionrecognized that there must be a compulsory method of obtaining information from parties to amerger, as well as in civil and criminal inquiries.
The Bureau expressed grave concerns about its ability to adequately carry out its merger reviewfunction without the use of s. 11 orders. Based on past experience, the Bureau's view was thatparties to a merger would not fully comply with voluntary disclosure requests. Further, therewas little if any incentive on third parties to voluntarily disclose information. The overridingconcern of the Bureau in the merger context is the ability lo complete merger review inquirieswithin the merger waiting periods for notifiable transactions under s. 123 of the ActFootnote 51 or before closing of the transaction. The Bureau expressed concern that making voluntary information requests first, followed by s. 11 applications as a last resort, would inevitably put the Bureau on the other side of the statutory waiting periods or the time for closing transactions.
Voluntary information requests were the norm in the merger context until the early to mid‑1 990s. The Bureau has resorted to s. 11 orders more frequently since then. While parties to a mergercontinue to make voluntary disclosure, there appears to be an increasingly adversarialrelationship and less cooperation between the Bureau and the private competition law bar withrespect to voluntary information requests. Responsibility for this adversarial relationship rests,in part, with the private competition law bar.
The following table summarizes the s. 11 orders obtained by the Bureau in the period between2003 and 2007:
|Branch||Mergers Reviewed or Complaints Received||Number of Inquiries||Number of Inquiries Where Orders Obtained||Total number of orders|
|Fair Business Practices||68,478 Complaints||52||17||78Footnote 52|
The number of orders sought per inquiry varies widely, from a high of 34 orders to one order.Inquiries differ significantly in terms of their scope and complexity, and the variation in thenumber of s. 11 orders sought per inquiry reflects their context‑specific nature. The MergersBranch obtained s. 11 orders with the greatest frequency, in two thirds of inquiries. By contrast,the Civil Matters Branch relied on s. 11 orders in only 23.5% of inquiries. Given the factspecificnature of inquiries, it is not clear what conclusions may properly be drawn from thesestatistics. But it can be said that the Bureau relies on s. 11 orders with less frequency than issuggested anecdotally by the private competition law bar.
In our view, s. 11 orders are‑and should remain‑an essential tool for the Commissioner togather the information necessary for an inquiry. The Commissioner would be impededsignificantly in administering and enforcing the Act if s. 11 orders were unavailable.
The Bureau would be assisted considerably in carrying out merger review if it had at its disposal an investigative tool similar to a Second Request for obtaining information from the parties to the proposed merger, which would automatically extend the waiting period for closing thetransaction. This could also serve to attenuate some of the Merger Branch's concerns regardingmaking voluntary information requests prior to seeking s. 11 orders.
The private competition law bar and certain former Directors of Investigation and Researchcalled for pre‑application dialogue with the proposed respondents of s. 11 orders. The purposeof this dialogue would be to obtain some voluntary disclosure and to tailor the proposed s. 11 order. Even in the context of a compulsory process there is scope for cooperation byrespondents.
Within the Bureau, there appears to be a variety of approaches to pre‑application dialogue, withthe Mergers Branch expressing reluctance to engage in pre‑application dialogue and thus waterdown the efficacy of the ex parte process and jeopardize obtaining information within the mergerwaiting periods set out in s. 123 of the Act or before closing of the transaction. By contrast, incivil matters the Bureau will often engage in pre‑application dialogue with third parties who arecooperating in the inquiry; often, the Bureau will require testimony from these third parties. Incriminal matters, some counsel engage in pre‑application dialogue, but this practice is notuniform.
In our view, as a matter of best practice, the Bureau should engage in pre‑application dialoguewith the respondent of a proposed s. 11 order. The Bureau will need to make s. 11 applicationswithout pre‑application dialogue when faced with time constraints, when there are concernsabout the destruction of documents, or when the Bureau is coordinating a "dawn raid" with otherjurisdictions.
This pre‑application dialogue should be voluntary and non‑binding on the Bureau. Ifrespondents prove to be recalcitrant or delay the process, the Bureau is under no obligation tocontinue the dialogue and should proceed with its application under s. 11.
B. The Bureau's internal review process
The private competition law bar has the impression that there are few internal controls within the Bureau before it makes a s. 11 application. On our review, it became apparent that the oppositeis true. The Bureau takes seriously its responsibility to properly vet proposed s. 11 applicationsbefore applying to a Court. Over time, the Bureau has adopted different models to ensureaccountability and oversight of the s. 11 application process. Regardless of the process, theBureau scrutinizes whether a s. 11 order is truly necessary in a particular inquiry, whether itshould seek a s. 11 order against third parties, and in each case whether the scope of the draft order is sufficiently tailored to balance the burden of compliance against the need for theinformation sought.
Subsequent to the Federal Court's decision in Labatt, the Bureau adopted a new review process. As discussed above, a review committee of two senior members of the Bureau and a seniordelegate of the Attorney General who does not have carriage of the file has been established toreview proposed s. 11 applications. The committee works on a consensus model, requiring theapproval of all committee members.
In our opinion, the Bureau should retain the new committee model. It should also continue torequire the consensus of the entire committee before seeking a s. 11 order. The goal should be tomaintain discipline and accountability within the team seeking the s. 11 application, whileproviding an internal check on s. 11 applications.
We considered whether the Senior Counsel, Competition Law Division who sits on the reviewcommittee should be replaced by a Senior Counsel within the Department of Justice withsignificant experience in obtaining other forms of ex parte orders. Our concern was thepossibility that co‑located counsel may not have sufficient independence from their client toadequately perform the review hnction. Ultimately, however, we do not recommend thissubstitution. In practice, Senior Counsel, Competition Law Division possesses the necessarydegree of independence to carefully scrutinize proposed s. 11 applications. Moreover, a certainlevel of accumulated expertise in competition law is necessary to effectively review proposed s.11 applications.
The new model is too new to assess its efficacy in practice. But, in principle, its approach issound. We recommend that, within two years, the Bureau and the Department of Justice performan assessment of the new model's efficacy in scrutinizing s. 11 applications.
C. Practices in applying for s. 11 orders
In the past, the Bureau made s. 11 applications to the Federal Court in writing; theCommissioner's counsel did not attend in person before the issuing judge. It was not that theBureau was unwilling to appear in person; rather, a practice at the Federal Court had developedwhereby s. 11 applications did not require the personal attendance of counsel and the person whoswore the affidavit in support of the application.
In the first s. 11 application following the Labatt case, counsel for the Commissioner and theaffiant personally attended before the Court.
Where the Bureau seeks a s. 11 order from a provincial Superior Court, it follows the practice of that Court as to whether the application should be made in writing only or by attendance inperson before the issuing judge.
The Bureau typically applies to the provincial Superior Court in which criminal proceedings mayultimately be commenced, and for civil matters to the Federal Court. Section 11 applications arenot assigned to the judges of the Federal Court who are designated to sit on the CompetitionTribunal in order to avoid disqualifying judges from sitting on the Tribunal to hear the samematter in which the applications were made.
We endorse the move away from making applications in writing without a personal attendance ofcounsel for the Commissioner. As a rule, counsel should attend before the Court with the personwho swore the affidavit. This attendance could be in chambers or in camera before the Court, atthe discretion of the judge. Counsel and the person who swore the affidavit are there to provideclarification based on the affidavit. Where the trial judge elicits information not in the affidavit, the affiant should swear a supplementary affidavit, if the additional information is minor, or withdraw the application in order to amend the affidavit, if the additional information is more significant. In any event, the basis for the Court's decision to grant the s. 11 application should be found within the four corners of the record before the Court.
Personal attendance should go some way towards addressing the concern that the Federal Courtis used as a "rubber stamp" on s. 11 applications.
We considered recommending that when a s. 11 application is made to the Federal Court, itshould be made to one of the judges designated to sit on the Competition Tribunal. Theirexpertise in competition law matters would be valuable in reviewing s. 11 applications.Applying to this group of judges may create consistency in practice. The problem ofdisqualification from eventual Competition Tribunal proceedings could be addressed by applyingfor all s. 11 applications in a particular inquiry to the same judge. But only six judges may beappointed to the Competition TribunalFootnote 53 and it would require the cooperation of the Federal Court. As such, there would likely not be adequate judicial resources to review s. 11 applications in a timely way. For this reason, we do not advance this recommendation.
Whenever possible, all s. 11 applications in a particular inquiry should be made to the samejudge. This will promote full, frank, and fair disclosure and a concomitant thoroughunderstanding of the facts and issues by the judge hearing the application. We recognize thatscarce judicial resources may require the Bureau to depart from this practice on occasion in orderlo obtain a s. 11 order in a timely way.
D. Statutory test for obtaining s. 11 orders
There is a tendency among members of the private competition law bar to conflate therequirements of s. 11 and s. 15 (search warrants) of the Act. The Federal Court has also soughtto read in additional requirements to the statutory test in s. 11. For example, the Federal Court in Air Canada (above), in order to give content to the residual discretion of the Court, read in the requirement that the Commissioner must provide "[sufficient] evidence to support a conclusionthat a bonafide inquiry has been commenced.Footnote 54
There are two, and only two, requirements to obtain a s. 11 order. It is necessary that the Court be satisfied, by affidavit evidence, (i) that an inquiry under s. 10 has commenced, and (ii) that a person has or is likely to have information that is relevant to the inquiry. As we have observed, there is a residual discretion to refuse to grant the s. 11 order. However, where these two conditions are satisfied, the order should issue unless it would be an abuse of the Court's process.
In our respectful opinion, the Federal Court erred in suggesting that the onus is on theCommissioner to present sufficient evidence that the inquiry has been commenced in good faith.A Court should not second‑guess the Commissioner's decision to commence an inquiry. TheCommissioner acts in the public interest and, as such, good faith should be presumed. Theburden is properly on the responding party to establish bad faith on an application to vary or setaside a s. 11 order.
The Bureau should continue to resist the imposition of further substantive requirements beingread in to s. 11. In the materials for a s. 11 application, it may be useful to draw attention to the significant differences between s. 11 and s. 15 of the Act as a clear illustration of Parliament's intent that the Commissioner need not demonstrate on a s. 11 application that there are reasonable grounds to believe that a breach of the Act has occurred.
Certain members of the private competition law bar suggested that the proper reading of s. 11requires the Court to read in what they suggested was the requirement in s. 10 that theCommissioner have "reasonable grounds to believe". This interpretation is not correct. First, thestatutory language of s. 10 is "reason to believe", which does not require that the belief beobjectively reasonable. The Commissioner need only have an honestly held belief that a personhas contravened an order made under the Act ( subpara. (l)(b)(i)); that grounds exist for themaking of an order under the Act ( subpara. (l)(b)(ii)); or that an offence under the Act has beenor is about to be committed ( subpara. (l)(b)(iii)). Second, s. 10 also requires the Commissionerto commence an inquiry on the application of six Canadian residents under s. 9 of the Act( subpara. 10(l)(a)) or when directed by the Minister ( para. 10(c)). None of these triggers for aninquiry imports a reasonable belief requirement.
Finally, when a search warrant is challenged by the respondent, the courts usually accord theapplicant a certain degree of deference on the basis that the warrant is an investigative tooltypically obtained at an early stageFootnote 55 .It is proper for the Court to give a similar measure of deference to the Commissioner on a s. 11 order, particularly with respect to the relevance and scope of the material sought and whether additional s. 11 orders are required against the same respondents. These are investigative orders and, as such, the Commissioner‑who is charged with administering and enforcing the Act‑is in the best position to determine relevance and scope, and whether additional s. 11 orders are needed for the inquiry.
E. Duty of disclosure to the Court
The Commissioner is under a duty to make full, frank, and fair disclosure to the Court. TheCommissioner should state his or her own case for obtaining a s. 11 order fairly and must informthe Court of any points of fact or law known to the Commissioner as to why the s. 11 ordershould not be granted.
The standard of disclosure is the same whether the enforcement process ultimately invokedunder the Act is civil or criminal.
When an earlier s. 11 order has been sought against a respondent in the same inquiry, the recordshould include the order previously sought against the respondent. The affidavit material shouldinclude a general description of the information previously obtained in those orders and shouldexplain why additional information is sought. The affidavit should address the issue of potentialduplication between earlier and later orders. The affidavit should generally explain the terms ofthe draft order. The draft order should include the Bureau's standard provision regardingduplication, and this provision and its purpose should be set out in the affidavit.
When the Bureau has engaged in a pre‑application dialogue with the respondent, this should bedisclosed to the Court. So too should any facts known to the Bureau, particularly as a result ofthis dialogue, that may explain the respondent's position regarding the scope of the order and therelevance of the material sought.
The Commissioner should not actually or apparently warrant to the Court that no further orderswould be required for the purposes of an inquiry.
The Bureau should have a standard affidavit for s. 11 applications, which would be tailored tothe circumstances. The standard affidavit should refer to the three‑member review committeeand its decision to approve the application.
F. Material already in the possession of the Bureau
It was suggested by the Federal Court in Labatt that the Bureau should be required to review all material in its possession fiom a previous inquiry in order to avoid duplication in a s. 11 order in a later inquiry.
In our opinion, it is not clear whether the Commissioner has the statutory authority to retaininformation obtained pursuant to an inquiry once the inquiry has concluded and theCommissioner has decided not to institute proceedings. Moreover, the Bureau should considerwhether it is proper to use the information obtained pursuant to one inquiry on a differentinquiry. Although s. 18(3) authorizes the Commissioner to make and retain a copy of any recordproduced under s. 11 (among other provisions) it is not clear whether this section authorizes theindefinite retention of information by the Commissioner.
Quite apart fiom the propriety of retaining this information, information produced years earlier(or even a few months earlier where it is a highly dynamic market) on a different inquiry may bestale or of limited utility because it was not produced in a form relevant to the later inquiry.
Moreover, the volume of material collected by the Commissioner on inquiry makes it undulyburdensome on the Bureau to identify and review information produced on an earlier andunrelated inquiry for the purpose of advising the Court on a s. 11 application of material alreadyin the Commissioner's possession and to avoid duplication of information sought in the proposedorder. The most efficient and practical method of avoiding duplication is to require therespondent to identify any records it previously produced that are in the possession of theCommissioner, subject to confirmation that the records are in the Commissioner's possession.
G. Potentially burdensome nature of s. 11 orders
The private competition law bar expressed concern with the burden s. 11 orders impose,particularly on true third parties to mergers, civil and criminal inquiries. 'The Bureau is sensitive to the potentially burdensome nature of s. 11 orders.
In deciding whether to apply for a s. 11 order, the Bureau should continue to weigh the burden of a s. 11 order on a respondent against the need to obtain the information necessary to conduct aninquiry. However, there is a social and moral duty on respondents, including third parties, toassist the Commissioner in the administration and enforcement of the Act.
As a matter of best practice, the Bureau should collaborate with the respondent both beforeapplying for a s. 11 order and after obtaining it. As we discussed above, pre‑applicationdialogue will not be appropriate where there are real concerns about meeting timelines or thedestruction of documents by the respondent. Nonetheless, dialogue with the respondent afterservice of the s. 11 order should be the norm.
The Bureau and the respondent should adopt a collaborative approach, in order to:
- tailor the scope of the order;
- determine the respondent's record‑keeping practices;
- identify the respondent's custodians for records and information and seek tolimit the number of custodians who are required to search for records andinformation to a manageable size, while still providing the Commissioner withthe information necessary for the inquiry; and
- limit the relevant period for which records and information are required.
Again, this process of dialogue is entirely voluntary on the part of the Bureau and the respondent. Where the respondent proves uncooperative or recalcitrant, the Bureau should apply for the s. 11 order or, if one has already been granted, should seek to enforce the order. For their part, respondents should recognize that there are strong incentives to timely cooperation.
The Bureau expressed a desire to have the ability to accept less information or fewer documentsthan are directed to be produced in the s. 11 order ("reading down"), where the respondent'sproductions adequately address the needs of the inquiry. The Bureau also expressed a desire tohave the ability to accept voluntarily produced information or documents in substitution forinformation or documents directed to be produced in the s. 11 order ("reading across").
A balance has to be struck between the use of s. 11 as a compulsory court order and the need forflexibility and accommodation to reduce the burden on respondents. Language should beincluded in the draft order allowing the Commissioner some flexibility to "read down" the scopeof the production ordered. However, because a s. 11 order is a Court order, there must be a clearlimit on this "reading down"; otherwise, an impermissible delegation of the judicial functionwould result. The Commissioner should not unilaterally vary the order by "reading across". If,after post‑service dialogue, a respondent voluntarily discloses information or a document thatbetter fits the needs of the inquiry in substitution for the information or documents directed bythe order, the Commissioner should, on consent, apply to vary that part of the s. 11 order. Thereare obvious incentives to respondents to consent to these variations, and they can be applied forand obtained in writing from the Court.
Because of the burdensome nature of s. 11 orders and the potential need to vary them, weconsidered whether a date to re‑attend before the Court (either in person or by teleconference) should be included in draft orders. This would comport with the practice in relation to AntonPiller orders and be consistent with the greater degree of judicial supervision implied by thedecision in the Labatt case. Ultimately, however, we concluded that resorting to this practice is not warranted at this time. Our view is that including a date for re‑attendance in the draft order could actually impair post‑issuance dialogue and result in hardening of positions. It would also impact on limited judicial resources. Nevertheless, if further problems arise in the s. 11 application process, further consideration should be given to the return date concept.
H. Section 11 in criminal inquiries
Section 11 orders are used in criminal and dual‑track inquiries. The Commissioner generallyapplies for s. 11 orders to the Superior Court of the jurisdiction in which the prosecution is likely to occur. Generally, counsel appear in person before the issuing judge where the s. 11 application is made on a criminal inquiry.
Counsel should continue to attend before the issuing judge with the person who swears theaffidavit. Likewise, the Commissioner should continue to apply to the Superior Court of thejurisdiction in which the prosecution is likely to occur. Where possible, all applications for s. 11 orders on a particular criminal inquiry should be made to the same judge.
As discussed above, the same standard of full, frank, and fair disclosure applies to both criminal and civil inquiries.
We would advise against seeking s. 11 orders, in furtherance of a criminal inquiry, against aperson who is a suspect at the time of the s. 11 application. Where s. 11 is used to compel asuspect to produce documents, give testimony under oath, or prepare a written return for the purpose of building a criminal case against him or her, it is questionable whether this wouldcomply with ss. 7 and 8 of the Canadian Charter of Rights and FreedomFootnote 56 .
I. Giving formal notice of s. 11 applications
As a general rule, the Commissioner does not give formal notice of a s. 11 application. Thequestion arises, when (if at all) is formal notice appropriate?
The Bureau expressed a concern that engaging in pre‑application dialogue would require theBureau to give respondents formal notice of s. 11 applications and thus lead to regular challengesto s. 11 applications. For pre‑application dialogue to prove practicable, it will require anattitudinal shift by the private competition law bar. There are strong incentives for therespondent to a proposed s. 11 order to cooperate with the Bureau in tailoring the scope of theorder, and limiting the number of custodians who must search for information, the relevantperiod for the search, and the nature of the information sought.
In our view, pre‑application dialogue does not create the obligation on the Bureau to give formal notice to a respondent, nor does it give a respondent a right of audience on the s. 11 application. Section 11 contemplates an ex parte application process. This should be the norm. Concerns regarding disclosure of the pre‑application dialogue are best addressed (and should be addressed) in the Commissioner's affidavit material put before the Court on the s. 11 application.
In our opinion, formal notice of a s. 11 application should be given to a respondent where aprevious s. 11 order has been successfully varied or set aside in the same inquiry. Moreover,consideration should be given to providing formal notice where there is a previous s. 11 orderagainst the same respondent and a challenge to a further s. 11 order is likely.
Providing formal notice does not necessarily entitle the respondent to appear before the issuingCourt. It is within the discretion of the Court to grant or refuse the respondent audience on the s. 11 application.
J. General dialogue with the private Competition Law Bar
The Bureau has a general dialogue with the private competition law bar, through a workinggroup with the Canadian Bar Association — National Competition Law Section, as well as bymeeting with the outgoing and current presidents of the Section. The Bureau is keen to continuethis dialogue, as is the private competition law bar.
The Bureau should continue this general dialogue. It would be a useful method of discussingpossible merger review practice reforms. For example, the Bureau and the bar could discusswhether it is possible to import the innovations developed by the FTC in the United States, suchas :
- Developing a presumption regarding the number of custodians who should be required tosearch their files, provided the parties to a merger fulfil certain pre‑requisites; and
- Developing a presumption regarding the relevant time period for documents andinformation requests.
It is clear from our review of the Bureau's s. 11 application process that the Bureau conducts its role responsibly. The burden on respondents, particularly third parties, is at the forefront of the Bureau's mind when weighing whether to seek a s. 11 order.
We have no doubt that s. 11 is an essential investigative tool for the Commissioner to effectively fulfil her mandate. Indeed, in the merger context, a legislative power similar to the U.S. Second Request (which automatically extends the merger waiting period) would be a salutaryamendment to the Act.
The recommendations we have made seek to address the concerns expressed by the FederalCourt, the private competition law bar, and the Bureau. We found that both the Bureau and thebar sought to reduce the adversarial nature of the s. 11 process and to improve cooperation inresponding to s. 11 orders. It is our hope that pre‑application and post‑service dialogue willaddress this.
The Bureau should continue to resist attempts by respondents and the courts to read in additional requirements to s. 11. To obtain a s. 11 order, Parliament has clearly mandated that the Commissioner need satisfy only two requirements: (i) that an inquiry under s. 10 hascommenced, and (ii) that a person has or is likely to have information that is relevant to theinquiry.
Finally, we have suggested best practices to ensure that the Bureau continues to meet thestandard of full, frank, and fair disclosure to the Court on s. 11 applications. We will soonprovide a template affidavit and draft order to assist the Bureau.
If you have any questions, or would like to discuss our opinion, please do not hesitate to contact me.
Yours very truly,