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The Second Opinion: A Reassuring Rejection of Anti-Competitive Conspiracy Allegations

A Commentary on Recent Legal Developments by the Opinions Group of McCarthy Tétrault LLP

Posted in The Second Opinion
Anthony Alexander

The federal Competition Act, R.S.C. 1985, c. C-34, criminalizes  conspiracies to prevent or lessen competition unduly.   These criminal conspiracy provisions are notoriously opaque.  This concern is exacerbated by the fact that the Act also creates a parallel civil cause of action, which permits persons — claiming to have suffered loss  as a result of an alleged anti-competitive criminal conspiracy — to recover compensatory damages.

A recent ruling –  321665 Alberta Ltd. v. Husky Oil Operations Ltd., 2013 ABCA 221 – which reversed the trial judgment below, provides some reassurance that unjustified civil claims seeking to utilize these provisions will not succeed.

The facts of the case demonstrate that even tenuous allegations of anti-competitive conspiracy can lead to potential civil liability.  Within a remote region of Alberta, two major oil and gas companies owned several properties jointly, and also owned several additional properties individually.  They agreed to collaborate in an effort to reduce expenses and maximize profits at these properties.

A major expense was the hauling of fluids to and from the oil and gas properties.  There were two competing fluid haulers operating in the region.  The two oil and gas companies decided to consolidate all of their fluid hauling business by using a single service provider.

Both fluid haulers were invited to compete for the business, on the basis of both price and overall service.  After a detailed bidding process, the contract — representing the business of both oil and gas companies in the region — was awarded to one of the fluid haulers.

The unsuccessful applicant brought a civil claim under the Competition Act alleging that the oil and gas companies had conspired to reduce competition unduly.   At first instance, the trial judge found that the defendants’ conduct had contravened the criminal conspiracy provisions of the Act, and awarded $5.5 million in compensatory and punitive damages.

The Court of Appeal reversed this ruling, focusing on two key errors made by the court below.  First, the Court rejected the plaintiff’s argument that the oil and gas companies should have been forbidden from altering their historical work allocation to the two fluid haulers:

[23] Kolt’s position is that the Act precluded Husky and Mobil from restructuring their services by entering into an exclusive arrangement with Cardusty (or Kolt, for that matter) for their joint operations. We disagree. We can discern no reason why Husky and Mobil should not be permitted to rationalize their operations, particularly when the purpose was to increase efficiencies and reduce unnecessary costs. To find otherwise would necessarily undermine the competitive nature of Husky and Mobil’s operations by driving up their costs, and create unnecessary inefficiencies in a highly competitive industry that attempts to efficiently and effectively develop and produce scarce, natural resources. That cannot have been the intent of the Act. We simply do not accept that Husky and Mobil were bound to continue their previous practice of dividing up their fluid hauling requirements between Kolt and Cardusty, to their detriment.

Secondly, the Court found that the trial judge had set the threshold too low by failing to consider whether the parties’ conduct had lessened competition “unduly”:

[24] We are also concerned that the approach taken by the trial judge effectively gave no meaning to the word “unduly” contained in s 45(1)(c) of the Act. The rules of statutory interpretation include the presumption against tautology, which anticipates that every word of a statute has meaning…. The term “unduly” is crucial in giving the conduct proscribed by s 45(1)(c) of the Act its criminal cast, and has long referred to conduct that is “improper, inordinate, excessive or oppressive”… Parliament’s clear intent by the wording of s 45(1) of the Act is to distinguish between the de facto lessening of competition that arises naturally from the ordinary vicissitudes of the free market economy, and the artificial lessening of competition due to conduct that “unduly” prevents or lessens competition. While the Act cannot, and does not, guarantee that a business will successfully continue in perpetuity, the purpose is to provide participants with a fair opportunity to compete for business. …

The Court of Appeal acknowledged that a variety of other important issues were raised by the application of the criminal conspiracy principles to a civil claim for damages, but determined that these matters did not need to be determined definitively in the current case.

The McCarthy Tétrault Opinions Group consists of members of the firm’s litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions.  The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain, Hovsep Afarian and Kirsten Thompson.