A recent Competition Tribunal decision has given lawyers some important clarification on s. 75 of the Competition Act’s refusal-to-deal provision.
The tribunal dismissed an application by Nadeau Poultry Farm Ltd. that called on dominant New Brunswick chicken producer Groupe Westco Inc. and two other producers to continue selling their product to Nadeau, even though they were not contractually bound to do so.
Martha Healey, who was on Ogilvy Renault LLP’s team of lawyers representing Groupe Westco, says the decision confirms how to apply the refusal-to-deal provision in the context of a product in limited supply - in this case chickens, which are controlled by a supply-management system.
She says while s. 75 of the Competition Act is premised on the notion that the product at issue is in ample supply, the tribunal confirmed in a case where a product is in limited supply, a claim will not meet the test required under the act.
The decision, says Healey, also deals with the final requirement of the s. 75 test. It says the order-seeking party must establish that the refusal to deal is likely to have an adverse effect on competition in the overall market.
“So there has to be a market-competition dimension to the issue, and it’s not going to be sufficient if there’s a limited impact on one individual or one specific entity,” says Healey.
“That’s quite important because it says you’ve got to look at this refusal to supply within a broader competition market.”
William Vanveen, who practises competition law with Gowling Lafleur Henderson LLP, says the tribunal also offered some significant clarification on “ample supply” in the decision.
“It indicates that supply has to be available to the point where there’s almost excess; where nobody needs to worry about having supply to expand their business,” he says. “If that’s not the situation, then there isn’t ample supply, so someone who is refused supply would not succeed under the section.”
Vanveen also says the tribunal has expanded on the requirement that, in order to receive a favourable decision, a party must show that its business has been “substantially affected.”
That, he notes, means “something that is of importance and significance.”
This requirement must be in the context of an inability to get the product in the “usual trade terms,” says Vanveen. The tribunal shed some light on what is meant by “usual trade terms.”
“There was some question whether ‘usual trade terms’ meant those that are just common in the industry, or specific to the situation of the parties,” he says. The tribunal made it clear that it means “usual in the industry or the market as a whole.”
The next area of clarification, he says, was on the pricing aspect of usual trade terms. The question was whether “price” referred to the actual price charged, or terms of payment, such as a 30-day payment grace period, he says.
“This is something that has never been decided before,” says Vanveen. “The tribunal concludes that no, it means the actual price that is paid in the market for the goods.”
Healey suggests the decision will have a broader impact on competition law in general and in commercial markets. Specifically, it highlights the importance of expert economic evidence, she says.
“The tribunal spent quite a lot of time analyzing the economic evidence, and I think there’s a real lesson out there to litigation counsel to say, ‘You’ve got to spend a significant amount of time developing and honing the economic evidence to be of assistance to the tribunal,’” she says.
Turning to the impact on the commercial market, Healey suggests lawyers are going to have to look more carefully at refusal-to-supply provisions. They must make clear that once the contract of supply is over, there’s no expectation that the supply will continue, she says.
“Lawyers drafting contracts should keep an eye open to these provisions of the act, because they could be used by someone going forward who does not wish a supply contract to end in the course of its normal term,” she says. “So I think for commercial lawyers this decision makes important reading also.”
The case was also Healey’s first experience with a “chess clock” proceeding. The system, first used by the tribunal in the 2005 B-Filer Inc. v. The Bank of Nova Scotia case, gives parties a limited amount of time to present their case to the tribunal. In Nadeau Poultry Farm Limited v. Groupe Westco Inc., each side had 54 hours.
“It brings its own challenges, and for counsel who are new to the tribunal, this will be something, if the tribunal is going to use this chess-clock proceeding, they will need to hone up on very early in the process, to make sure that the steps and the timing are reasonable and are commensurate with the complexity of the case,” she says.
Neil Campbell, a partner and competition lawyer at McMillan LLP, views the decision as a “positive development.”
He says, “This strong reaffirmation and more detailed application of these principles about general impact on competition and ability to exercise market power in the downstream market so that the adverse affect on competition element is really given a quite meaningful treatment.”
The decision is available on the tribunal’s web site, at www.ct-tc.gc.ca.