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In two recent cases, the Competition Tribunal has, for the first time, granted leave to private parties to bring an application under the "refusal to deal" provision.  These cases indicate that the threshold for obtaining leave to proceed with a private action is relatively low: the Tribunal must simply have reason to believe that the applicant is directly and substantially affected in its business and that the alleged practice could be subject to an order under the relevant provisions of the Competition Act .

In two recent decisions issued since the beginning of 2004,1  the Competition Tribunal has granted leave to private parties to bring an application under the "refusal to deal" provision of the Competition Act.  These decisions are important for Canadian businesses as they represent the first instances in which the Tribunal has granted leave to bring such private applications since the Competition Act was amended in June 2002 to allow private access in connection with certain reviewable practices.

Prior to the 2002 amendments, an application under the reviewable practices provisions could only be initiated by the Commissioner of Competition. Now, under s. 103.1 of the Competition Act, the Tribunal may grant a private party leave to make an application under s. 75 or s. 77 (which cover refusal to deal, tied selling, exclusive dealing and market restrictions) "if it has reason to believe that the applicant is directly and substantially affected in [its] business" by any such practice and if "the alleged practice could be subject to an order under that section."  The refusal to deal provision of the Competition Act authorizes the Tribunal to compel a party to supply a product to a customer on usual trade terms when certain conditions are satisfied.  These conditions are that (i) the customer is substantially affected in its business or precluded from carrying on its business due to its inability to obtain adequate supply of the product on usual trade terms, and (ii) the refusal to deal has an adverse effect on competition in a market.

Despite the initial fear of a deluge of private actions following the introduction of limited private access rights in June 2002, only three applications for leave to pursue private actions have been brought before the Tribunal so far.  While the first application was unsuccessful,2  the Barcode and Morgan decisions now provide clearer guidance as to the evidentiary burden to be met in order to obtain leave.

BARCODE

On January 15, 2004, the Tribunal granted Barcode Systems Inc. leave to bring an application against Symbol Technologies Canada ULC under the refusal to deal provision of the Competition Act. The petition filed by Barcode on November 4, 2003 alleged that Symbol had refused to supply it with barcode scanners by preventing its distributors and resellers from doing so.  Barcode is engaged in the business of selling, servicing, modifying and upgrading barcode equipment and argued that Symbol's refusal directly and substantially affected its business, causing such large losses in revenues that, if continued, Barcode could be forced out of business. In support of these allegations, Barcode submitted that (i) an interim receiver had been appointed following a Royal Bank petition, (ii) 50% of Barcode's workforce had been laid off, and (iii) the ability of Barcode to perform maintenance contracts had been impaired.

Symbol did not deny that it had refused to sell scanner products to Barcode.  However, it argued that it had legitimate business reasons for its refusal to deal (such as the improper use of a trade-mark by Barcode and Barcode's failure to meet standard trade terms) and that the refusal to deal was unlikely to have an adverse effect on competition.

In its ruling, the Tribunal did not accept Symbol's argument that Barcode's financial difficulties were due to other factors relating to general market conditions, exchange rates and competition from other manufacturers and suppliers.  Rather, the Tribunal endorsed the principles set out in National Capital News where it was stated that leave will be granted for a private application when there is reason to believe that the applicant is directly and substantially affected in its business by the alleged practice and the alleged practice could be the subject of an order by the Tribunal.

The Tribunal also specified that, when considering an application for leave, the standard of proof is less than the balance of probabilities but more than mere possibility, and the Tribunal does not have to be persuaded that all the elements of the alleged reviewable practice have been satisfied.  For example, failure to demonstrate that the refusal to deal caused an adverse effect on competition was not considered to be a required element at the petition for leave stage, even though it is essential for purposes of a finding that s. 75 has been breached.

Barcode simply had to advance sufficient credible evidence supported by an affidavit to satisfy the Tribunal that there was a reasonable possibility that its business had been directly and substantially affected because of Symbol's refusal to deal.

MORGAN

The Morgan case was decided on February 5, 2004.  In Morgan, the Tribunal considered the petition of Allan Morgan and Sons Ltd. ("Morgan's Furniture"), a furniture retailer, for leave to bring an application under s. 75 of the Competition Act. Morgan's Furniture alleged that La-Z-Boy Canada Ltd. had terminated its relationship with the company effective December 31, 2002 and that, as a result, Morgan's Furniture had been directly and substantially affected. La-Z-Boy had imposed restrictions on Morgan's Furniture's ability to obtain La-Z-Boy products following the implementation of an exclusive distribution agreement with a competing retail furniture store in St. John's. These restrictions included restricted access to information concerning products from La-Z-Boy sales representatives, restricted access to La-Z-Boy products, such as certain styles of sofas, love seats and recliners as well as restrictions on advertising and promotional campaigns.

La-Z-Boy argued that it had justifiably terminated its relationship with Morgan's Furniture because Morgan's Furniture failed to adequately represent La-Z-Boy and promote its products (for which it offered evidence of Morgan's Furniture's low sales volumes in recent years).

In applying the s. 103.1 test set forth in the Competition Act and based on the affidavit evidence presented, Justice Lemieux once again concluded that the data provided by Morgan's Furniture was "sufficient to convince" the Tribunal that the applicant "may have been directly and substantially affected by the actions of La-Z-Boy". According to Justice Lemieux, "Morgan's Furniture, at the leave stage, was not required to meet any higher standard of proof threshold". Morgan's Furniture had provided some historical and statistical evidence (in its affidavit) showing that sales of La Z Boy furniture accounted for a significant portion of Morgan's Furniture's gross sales and profit, as well as sales data comparing sales by product category, and that was enough.

TEST

In both Barcode and Morgan, the Tribunal has thus established a relatively low threshold for granting leave.  The Tribunal will assess the evidence supporting an application for leave against a modest standard which is less than the balance of probabilities but more than mere possibility.  Furthermore, it will not consider the merits of an underlying application: in Barcode, the Tribunal specified that it does not need to have reason to believe that the alleged practice will have an adverse effect on competition prior to granting leave.  The elements that need to be established to meet the requirement that the alleged practice "could be subject to an order" were not explicitly addressed by the Tribunal either.  Finally, the Tribunal stated that it is not its function at the leave stage to make credibility findings based on affidavits which have not been subject to cross-examination. Therefore, the Tribunal will not require the applicant to make a prima facie case under the relevant provision or to show a serious issue for trial.

It remains to be seen what will be the ultimate outcome of these cases on the merits, but now that the first private applications have been allowed to proceed beyond the leave stage, the likelihood that additional private applications might be initiated in Canada has increased somewhat.  It is an indication that exposure to strategic private antitrust litigation might increase for companies operating in Canada.

Although the 2002 amendments have not translated into the torrent of cases envisioned by some commentators, these two recent cases may give rise to concerns regarding the sufficiency of the safeguards in place (e.g., the petition for leave requirements) to deter frivolous private claims under ss. 75 and 77 of the Competition Act , despite the fact that the Tribunal can now award costs to address this issue.  Only time will tell, but Canadian businesses should be mindful of such possible litigation when terminating long-standing relationships which may have a significant effect on a party's bottom line.

1.  Barcode Systems Inc v. Symbol Technologies Canada ULC (CT-2003/008), available at http://www.ct-tc.gc.ca/english/cases/ct-2003-008/0011.pdf and Allan Morgan and Sons Ltd. v. La-Z Boy Canada Limited (CT-2003/009), available at http://www.ct-tc.gc.ca/english/cases/ct-2003-009/0005a.pdf.  Both cases were decided by Mr. Justice Lemieux.

2.  In Robert Gilles Gauthier v. The Honourable Peter Milliken, Member of Parliament, (CT 2002/005), available at http://www.ct-tc.gc.ca/english/cases/ct-2002-005/gauthier.html, the Tribunal dismissed the petition for leave of Robert Gilles Gauthier, owner of National Capital News. Mr. Gauthier was seeking to obtain an order against Peter Milliken in order to be granted access to the Parliamentary press gallery, but the Tribunal concluded that the evidence presented did not meet the test set out in s. 103.1.  Mr. Gauthier filed a notice of appeal with the Federal Court of Appeal for leave to appeal the Tribunal's decision, but it was denied on January 21, 2004 (see 2004 F.C.A. 27). In light of the unusual factual circumstances surrounding this case, it was not representative of cases one would expect to encounter in refusal to deal situations.

The purpose of this document is to provide information as to developments in the law.  It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault or any member of the Firm on the points of law discussed.

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