Court of Appeal Rules Competition Act is not a Complete Code, Discoverability Principle Applies
August 18, 2016
On August 11, 2016, the Ontario Court of Appeal (Court) provided guidance on the limitation period in section 36 of the Competition Act (Act) and whether the Act removes plaintiffs’ ability to seek damages under common law for violations of the Act’s criminal provisions. In Fanshawe College of Applied Arts and Technology v. AU Optronics Corporation (Fanshawe), a class action alleging price-fixing with respect to LCDs, the Court ruled that the limitation period does not begin to run until the conduct forming the basis for the cause of action is discoverable and the common law claim of unlawful means conspiracy, based on a breach of the Act, is not foreclosed by the Act.
Section 36 of the Act provides that any person who has suffered loss or damage as a result of conduct that constitutes a criminal offence under the Act may sue for, and recover, the amount of those damages, plus costs. Price fixing and bid-rigging are both criminal offences under the Act. Thus, allegations that defendants engaged in such conduct trigger the application of section 36.
Class action plaintiffs will also seek relief under certain common law causes of action. For example, it is common for plaintiffs to include the tort of unlawful means conspiracy in their pleadings. In so doing, they point to a breach of the Act as making out one of the requisite elements of the tort.
Paragraph 36(4)(a) of the Act sets out the limitation period for section 36 actions. It provides that an action must be commenced within the later of: (i) two years from the day on which the conduct was engaged in; or (ii) two years from the day on which any criminal proceedings relating to the conduct were finally disposed of.
The discoverability principle is a common law rule that provides that “a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence.” The law was unsettled on whether the discoverability principle applies to paragraph 36(4)(a).
In Fanshawe, the Court ruled that the discoverability principle applies to sub-paragraph 36(4)(a)(i). The Court noted this was a case where the event that triggered the running of the limitation period affected the plaintiff’s cause of action and the plaintiff’s knowledge of the event at issue was relevant to the cause of action. In fact, the “conduct” identified at sub-paragraph 36(4)(a)(i) was the basis for the plaintiff’s claim and a constituent element of the cause of action. The Court found that it would be fundamentally unfair to require a plaintiff to bring an action before the plaintiff could reasonably have discovered that there was a cause of action, “particularly given that secrecy and deception are invariably elements of anti-competition agreements.”
With respect to sub-paragraph 36(4)(a)(ii), the Court found it was “probably not subject to discoverability” given that it is “not connected to a plaintiff’s cause of action or knowledge.” While the Court noted this sub-paragraph provides an alternative date for the limitation period to commence, it did not consider this to be a problem, finding there was “no rule that suggests that both limitation periods in s. 36(4)(a) must operate in the same way.”
A question that a number of Canadian courts have recently been asked to consider in the context of competition class actions is whether the Act is a “complete code”, such that it precludes common law claims, either in tort or in equity, that are based on a breach of the statute. There was conflicting case law on this issue.
In Fanshawe, the defendant argued that a breach of the criminal conspiracy provisions of the Act could not serve as the unlawful means in an unlawful means conspiracy claim because the Act is a complete code, eliminating any such cause of action. The Court disagreed. The Court noted that the Act did not initially include a provision like section 36. Nevertheless, the common law filled that void by allowing a breach of the statute to serve as the unlawful element in an unlawful means conspiracy tort. Given that the statutory remedy came after, when the Act was subsequently amended, “the correct analysis is whether Parliament intended to take away this established remedy with the enactment of the statutory cause of action.” The Court found there is nothing in section 36 (or the debates surrounding its enactment) that suggests it was Parliament’s intention to eliminate the use of a breach of the Act as the unlawful means in a conspiracy claim. Rather, it noted that it “would appear to be incongruous with the purpose of the Act, being the elimination of anti-competitive behaviour, that Parliament would eliminate a common law cause of action that serves to punish such behaviour.”
If you have any questions regarding these developments, please do not hesitate to contact your usual Blakes contact or any member of the Blakes Competition & Antitrust group.
Posted in: Competition & Antitrust
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