On September 14, 2023, the Prime Minister released a statement, "Fighting for the middle class," announcing a number of affordability measures said to support "the middle class and people working hard to join it" as part of the Liberal Party's political strategy meetings to address the cost-of-living increases in Canada.1 The measures focus on the rising grocery prices across Canada and the lack of affordable housing.2 This bulletin addresses the statement regarding proposed amendments to the Competition Act that will have much broader implications than with respect to just groceries.
Proposed Amendments to the Competition Act
The Prime Minister announced the Federal Government will introduce a "first set" of amendments to the Competition Act that "focus on the grocery sector". Additional amendments are anticipated in "the coming months" in response to the public consultation process to modernize the Competition Act that ran from November 17, 2022, to March 31, 2023.3
While the specific wording in respect of the proposed amendments to the Competition Act has not been released at the time of this bulletin, the three amendments that are described in the Prime Minister's September 14th statement are as follows:
1. Provide the Bureau with powers to conduct market studies: In order to "study" markets, the Competition Bureau has long sought powers to compel companies to provide information, instead of relying solely on publicly available information and information supplied on a voluntary basis by market participants. The Bureau already has such powers when investigating conduct it believes may be contrary to the provisions of the Competition Act. Such compulsory market study powers would be consistent with many other jurisdictions4 and would allow the Bureau to gather all relevant information to advocate for competition.5 However, the history of market studies in Canada's prior competition law regime is mixed, at best.6 There is a risk that such powers could be used to compel businesses to engage in extensive and expensive investigative processes (which could also raise procedural fairness concerns and confidentiality issues), without any procedural fairness protections of inquiry processes. Unpopular industries or those that attract political attention are likely to be subject to such studies.
It is not possible to assess properly the potential impact of these proposed new powers without the precise wording of the amendment, but we expect the amendments will include restrictions to lessen the burden on companies and to address concerns regarding procedural fairness, and they may compel the Federal Government to respond to any recommendations made by the Bureau in its market study reports.7
2. Remove the efficiencies defence in merger reviews: As with the proposed amendment to add compulsory market study powers, an amendment to remove or lessen the relevance of the Competition Act's efficiencies defence for mergers has been advocated by the Bureau and others for some time. By way of background, the Competition Act's merger review provisions include an efficiencies defence, which allows anti-competitive mergers to proceed if the merging parties can demonstrate that the gains in efficiency from their merger will be greater than, and offset, the anti-competitive effects that are likely to result from the merger. The rationale for the efficiencies defence is that it promotes the efficiency and adaptability of the Canadian economy, as merger efficiencies can generate economies of scale, improve productivity and enhance innovation. However, the efficiencies defence has been subject to significant debate, and the Bureau has been vocal in stating its view that the efficiencies defence is harmful because it allows anti-competitive mergers to proceed, and that it has impeded the Bureau's ability to challenge otherwise anti-competitive mergers. The Bureau contends that the efficiencies defence has resulted in higher prices and harm to consumers.8 That said, the Bureau has just won a major case were the merging parties claimed planned significant efficiencies would easily exceed the anti-competitive effects of the merger. In that case, the Competition Tribunal, as confirmed by the Federal Court of Appeal, significantly circumscribed the availability of the efficiencies defence.9
An additional question is whether the proposed amendment will remove efficiencies from merger review considerations entirely or will treat efficiencies as one factor to be considered in determining whether a merger is anti-competitive.
3. Empower the Bureau to take action against collaborations that stifle competition and consumer choice: Additional detail is necessary to understand the nature of the proposed amendment, which is vague, especially as the Competition Act already has several tools to challenge competitor collaborations that raise competition concerns, including (i) the criminal conspiracy provisions, (ii) the civil anti-competitive agreements provisions, and (ii) the joint abuse of dominance provision. This proposed amendment responds to "particular situations where large grocers prevent smaller competitors from establishing operations nearby" and seems consistent with the recommendation in the Bureau's retail grocery report to limit store lease restrictive covenants in the grocery industry to allow for new retail grocery stores to open.10 The Bureau's report concluded that property controls can limit competition from new grocers and therefore deny consumers from the benefits of lower prices, greater choice, and increased levels of innovation.
Process Matters
The Federal Government is also looking to the major grocery chains to address escalating grocery prices, and, as part of this announcement, is calling on the CEOs of Loblaw, Sobeys, Metro, Costco and Walmart attend meetings in Ottawa to develop a plan "to stabilize grocery prices." The Prime Minister warned the grocery chains that they have until Thanksgiving to share their plans to stabilize grocery prices, failing which the federal government will take action,11 and will consider "all tools at our disposal ... not ruling out the use of tax measures".12 While governments often work with industry participants to address issues, this approach is unusual since competitors are typically barred from discussing pricing. In fact, the criminal conspiracy provisions of the Competition Act expressly prohibit agreements among competitors to fix, maintain, increase or control the price for the supply of a product – with no exceptions.
With regard to the proposed Competition Act amendments, while two of the three announced amendments were the subject of the recent consultation (as indicated above), the timing of their announcement and the manner in which they have been presented is unexpected.
The next step in the Federal Government's broad public consultation process to modernize the Competition Act, which commenced on November 17, 2022, is the production of a report. That report is expected to include comprehensive recommendations to amend the Competition Act.13 It is odd to see specific amendments being put forward while a broad consultation focused on amending the Competition Act is underway.
The Competition Act is legislation of general application, applicable to all business sectors in Canada. Proposed amendments to address competition concerns within a specific industry are highly unusual. In this case, the announced amendments are being described in the Prime Minister's announcement as responsive to grocery concerns, but they will have long-term consequences across the economy.
The proposed amendments raise questions on the future of competition policy in Canada, including the particular nature of the planned amendments, the timing of the implementation of such amendments, and whether these amendments will be consistent with or informed by the Federal Government's broad public consultation process to modernize the Competition Act. Given that the announced legislative reforms are expected to be introduced as the "first set" of amendments to the Competition Act, we anticipate additional amendments at a later date, flowing from the public consultation.
The McMillan Competition Group will continue to provide updates as this law develops.
Footnotes
1. See Fighting for the Middle Class.
2. There is also a measure relating to extending the repayment terms for businesses that made use of the Canada Emergency Business Account program, a pandemic measure to help companies stay in business.
3. See the "Consultation on the future of competition policy in Canada" discussion paper, and also our commentary on some of the proposed changes in our paper "What's It All About Matthew".
4. The Competition Act currently provides that the Bureau may gather information through formal inquiries into potential anti-competitive conduct (under court supervision) and also as part of the merger review process.
5. See the Bureau's March 15, 2023 submission to The Future of Competition Policy in Canada consultation.
6. For example, the Bureau has conducted many investigations into the oil and gas industry, which have not resulted in proceedings or government reform, including an eight year study commenced in 1973 by the Director of Investigation and Research under the Combines Investigation Act (predecessor to the Competition Act) based on a complaint from the Consumers' Association of Canada, which resulted in a referral by the Director to the Restrictive Trade Practices Commission (predecessor to the Competition Bureau) to conduct a general inquiry into the industry, which lasted five years and included hearings across country in 1981 and 1982.
7. See the Bureau's March 15, 2023 submission to The Future of Competition Policy in Canada consultation.
8. See the Competition Bureau recommending: The efficiencies defence should be repealed, and efficiencies gains should instead be incorporated into the list of factors that the [Competition] Tribunal can consider in determining whether a merger substantially lessens or prevents competition." See also the Commissioner's October 20, 2022 remarks, "Seizing the Moment to Build a More Competitive Canada".
9. See our commentary "Federal Court of Appeal Upholds Competition Tribunal's Approach to the Controversial Efficiencies Defense".
10. The Bureau noted in the final grocery report, Canada Needs More Grocery Competition, that: The property controls, often referred to as restrictive covenants: "limit how a person can use a property. They are clauses typically found in a legal agreement like a lease or a deed that transfers title. For example, in the case of a shopping centre, property controls often limit the kind of store that can open there."
12. See Fighting for the middle class. Note also the Bureau completed a retail grocery market study in June 2023 (see Retail Grocery Market Study), in which it recommended federal, provincial and territorial governments, not industry participants, collaborate to enhance competition in the retail grocery industry. These recommendations included providing financial support to new grocers, simplifying the regulatory requirements, implementing policies to support the growth of independent grocers and international grocers, and limiting property controls that restrict the ability for new grocery stores to open
13. See "Consultation on the future of competition policy in Canada" discussion paper.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2021
