A Canadian company will pay the highest price fixing fine imposed by a Canadian Court to date after admitting it colluded with a competitor to fix wholesale bread prices.
On June 21, 2023, Canada Bread Company, Limited ("Canada Bread") pleaded guilty to four offences involving violations of the Competition Act.
The first two counts of the indictment alleged that on two occasions in 2007, Canada Bread conspired, combined, arranged or agreed with Weston Foods (Canada) Inc. ("Weston Foods") and others to unduly prevent, limit or lessen competition in the sale or supply of fresh commercial bread to certain grocery retailers by agreeing on a price increase in violation of section 45(1)(c) of the Competition Act.
The third and fourth counts alleged that on two occasions in 2010 and 2011, Canada Bread conspired, arranged or agreed with Weston Foods and others to fix, maintain, increase or control the price for the supply of fresh commercial bread to certain retailers in violation of section 45(1)(a) of the Competition Act.
Between 2007 to 2011, there were two price increases for wholesale fresh commercial bread sold to grocery retailers. Canada Bread admitted that it entered into agreements with Weston Foods to increase wholesale fresh commercial bread prices to grocery retailers a total of four times during that period.
Canada Bread and the Director of Public Prosecutions made a joint sentencing submission to the Ontario Superior Court proposing that an appropriate sentence in this matter was the maximum fine available under the Competition Act: $10 million for each of the first two counts and $25 million for each of the third and fourth counts, subject to a leniency reduction of approximately 30% to account for Canada Bread's cooperation in the Competition Bureau's ("the Bureau") Leniency Program, for a total fine of $50 million.
Sentencing decision
Justice Forestell accepted the joint sentence and ordered Canada Bread to pay the $50 million fine within 30 days.
With respect to the proposed 30% discount, Justice Forestell held that the Court would not engage in a mathematical exercise to determine whether the quantum of fine was consistent with the principles of sentencing, including the fundamental principle that that the sentence must be proportionate to the gravity of the offence and the offender's degree of responsibility. He also noted that the Leniency Program provides a benefit to the public by encouraging cooperation with the authorities and serving as a deterrent to other offenders. Further, much of the illegal conduct would go undetected without the cooperation of the participants in the Leniency Program.
Justice Forestell reviewed the aggravating factors of the offence, including:
- The offences were extremely serious and effectively a fraud on the public;
- Bread is a dietary staple for many and the offences affected millions of consumers;
- The offences involved a high degree of planning and coordination by the former senior officer of Canada Bread; and
- Canada Bread realized an advantage, demonstrated in its sales during the relevant time period.
He also reviewed the mitigating factors of the offence including:
- Canada Bread made no effort to conceal assets or avoid consequences for its conduct;
- There is no history of similar conduct; and
- Since its change of ownership, Canada Bread developed and implemented a competition law compliance and training program; and
- Canada Bread cooperated with the investigation and pleaded guilty to the offences.
Justice Forestell noted that Canada Bread's cooperation with the investigation was a "highly mitigating factor" that saved considerable time and cost. Further, he stated the guilty pleas provided relief to the overburdened court system at a time when judicial resources are scarce and represented an acknowledgment of harm.
As a result, Justice Forestell was satisfied the recommended fines were consistent with the principles and objectives of sentencing.
Statement from the Competition Bureau
In the Bureau's June 21, 2023, news release, the Commissioner of Competition stated that "[f]ixing the price of bread— a food staple of Canadian households—was a serious criminal offence." Notwithstanding, the Bureau recommended to the Public Prosecution Service of Canada that Canada Bread receive leniency under the Bureau's Leniency Program in return for its full cooperation with the Bureau's investigation.
Agreements in violation of the Competition Act
There are several types of agreements between competitors that can enhance competition and benefit the economy. However, certain agreements, such as cartel agreements, are "naked restraints" on trade and can significantly harm competition. The sentencing decision is a stark reminder that cartel-type behaviour will be subject to serious sanctions.
A cartel forms when two or more competing businesses make an illegal agreement not to compete with each other. Cartels can be created through a simple verbal agreement or a highly complex and structured arrangement. They can also operate in any industry and can be local, regional, national or international.
Price fixing is one of four common types of illegal agreements between competitors (or potential competitors), alongside market allocation, restricting supply and bid-rigging, all of which violate the Competition Act. Price fixing occurs when two or more competing businesses agree to set the same prices for goods and services. Rather than prices being determined by supply and demand, they are set by an agreement among competitors, which often results in higher prices.
Section 45(1) of the Competition Act sets out the criminal offence provision for price fixing. The consequences of the offence are imprisonment for a term not exceeding 14 years or a fine not exceeding $25 million, or both.
Leniency Program
The Bureau's Leniency Program is a collaborative approach to resolving parties' liability with the dual benefit of reducing a party's sentence while assisting with the Bureau's investigation and facilitating efficient evidence collection.
Generally, the earlier the cooperation, the better. Individuals and organizations are encouraged to come forward and request a leniency marker as soon as they believe they have been implicated in an offence. Once the Bureau has referred the results of its investigation to the Director of Public Prosecutions for the purposes of a prosecution, the Leniency Program will no longer be a viable option. It is not necessary for a party to have assembled a complete record of the information required when contact is first made with the Bureau.
To be eligible for the Leniency Program, a party must satisfy the following requirements:
- It has terminated its participation in the cartel;
- It agrees to cooperate fully and in a timely manner with the Bureau's investigation and any subsequent prosecution of the other cartel participants by the Director of Public Prosecutions;
- It demonstrates that it was a party to the offence; and,
- It agrees to plead guilty.
When determining the recommended fine, the Bureau will consider the following: an estimated base fine determined by the relevant volume of commerce and an estimation of economic harm; aggravating and mitigating factors, including any credit for the existence of an effective corporate compliance program; and the value of the leniency applicant's cooperation to the Bureau's investigation.
This framework takes the form of the following: Recommended fine = Base fine +/- (net effect of aggravating and mitigating factors) – leniency cooperation credit.
Key takeaways
It is of the utmost importance for businesses to understand the risks of entering price fixing arrangements and other types of anti-competition agreements. These agreements may result in criminal liability with significant consequences.
If a business finds itself in a situation that may constitute an offence under the Competition Act, it is important to assess how to best proceed to avoid investigation and potential prosecution. Businesses would be well advised to review the Bureau's Leniency Program and the benefits that may be obtained by participating in it.
This article was prepared with the assistance of summer law student Coral Watson.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
