Competition Class Actions: An Evaluation of Deterrence and Corrective Justice Rationales

• Author: Margaret Sanderson and Michael Trebilcock
• Pages: 15-46

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COMPETITION CLASS ACTIONS:

AN E VALUAT IO N OF DETERRENCE A ND

CORRECTIVE JUSTICE RATIONALES

Margaret Sanderson and Michael Trebilcock*

A. INTRODUCTION

In contrast to American antitrust laws, for most of their history Canadian

competition laws have been characterized by exclusive public enforce-

ment. While early renditions of competition law in Canada provided for

private initiation of public action against violations (through complaints

made by six citizens), it was not until 1975 that private parties could seek

damages stemming from violations of the criminal prohibitions in com-

petition laws. Private parties now also have been permitted to seek direct

relief from the Competition Tribunal for many reviewable practices, but

not damages. In 1975, the predecessor to section 36 of the Competition

Act was enacted.1 Section 36 allows any person who has suffered loss or

damage as a result of conduct that is contrary to the criminal provisions

of the Competition Act to sue for and recover an amount equal to the

loss or damage proved to have been suffered by him, together with any

additional amount that the court may allow, not exceeding the full cost

to him, for any investigation in connection with the matter.2 While on

the books since 1975, over the twenty years that followed very few cases

were brought under section 36.3 Recently, however, the level of activity

* Margaret Sanderson is a Vice President with Charles River Associates. Michael

Trebilcock is Professor of Law and Economics at the University of Toronto as

well as a Senior Consultant to Charles River Associates. The authors wish to

thank Vijiti Dixit for her research assistance. Any errors or omissions are the

sole responsibility of the authors.

1 See s. 31.1 of the Combines Investigation Act, R.S.C. 1970, c. C-23, as am. by

S.C. 1974–75–76, c. 76, s. 12.

2 Competition Act, R.S.C. 1985, c. C-34.

3 For a review and discussion of the few section 36 cases that were advanced

in its early years, see Glen Leslie & Stephen Bodley, “The Record of Private

Actions under Section 36 of the Competition Act” (1993) 14 Can. Comp. Rec.

50.

16 LITIGATING CONSPIRACY: AN ANALYSIS OF COMPETITION CLASS ACTIONS

has increased markedly with the enactment of class proceedings statutes

in Ontario, Quebec, and British Columbia.

Of course, class actions were not created to further private enforce-

ment of competition laws, although they have had this effect. Instead,

they are a more general procedural mechanism aimed at providing an

efficient means of redressing widespread harm or mass injury by allow-

ing one or more persons to bring an action on behalf of many.4 Similarly

injured persons may join together in a class action, which provides a

more effective and efficient means of litigating mass claims.5 Three goals

are advanced for class proceedings: judicial economy, access to justice,

and behaviour modification.6

Private parties who have suffered a competition violation may have

stronger incentives and better information to enforce competition laws

than public officials. Private enforcement is also generally superior to

public enforcement in compensating those aggrieved by violations, and

hence in achieving corrective justice. Corrective justice entails a legal

obligation to correct for the consequences of one party’s wrongdoing by

allowing innocent parties to secure compensation from those who have

wronged them. In combination with section 36, class actions allow par-

ties to obtain compensation when the harm to any individual member

from the conspiracy is modest and hence unlikely to provide sufficient

incentive for that class member to launch legal action alone.

In the context of competition law enforcement, enhanced private

enforcement through class actions has the potential to augment limited

public resources, impose additional accountability on the Commissioner

for her decisions not to take a case, and allow plaintiffs the ability to seek

remedies for both past and future harms.7 With these factors in mind, in

this article we examine the record of competition class actions in Canada.

4 Ontario, Report of the Attorney General’s Advisory Committee on Class Action

Reform (Toronto: The Committee, 1990) at 15.

5 Ibid. at 16.

6 Ibid. at 17–18. These goals were articulated as follows: “(i) class actions may

lead to more efficient judicial handling of potentially complex cases of mass

wrong; (ii) class actions may provide improved access to justice for those

whose actions might not otherwise be asserted; and (iii) class actions may

inhibit misconduct by those who might be tempted to ignore their obligations

to the public because claims by the injured were too small or too difficult to

assert.”

7 For a discussion of the arguments for and against private enforcement of

competition laws in Canada, see Kent Roach & Michael Trebilcock, “Private

Enforcement of Competition Law” (1996) 34 Osgoode Hall L.J. 461.

COMP ETITIO N CLA SS A CTIONS : AN EVALUATI ON OF ration ales 17

We begin with a discussion of optimal deterrence and how class action

litigation fits into that rubric. We then discuss corrective justice and the

complications arising in conspiracy cases when one is trying to get the

right damages to the right parties. In the final section we examine the

types of conspiracy class actions undertaken to date in Canada.

B. DETERRENCE

As Gary Becker’s seminal article shows, the optimal amount of enforce-

ment depends on the cost of detecting and convicting offenders, the

nature of punishments imposed, and the responses of offenders to

changes in enforcement.8 The public’s decision variables are its expendi-

tures on enforcement,9 which determine the probability that an offence is

discovered and that the offender is apprehended and convicted; the size

of the penalty imposed for those convicted; and the form of the penalty.

These values can be chosen in a way that minimizes the social costs from

offences, while taking into account the costs that society bears in uncov-

ering and punishing offenders.10

In determining the size and form of punishment to be exacted,

price-fixing conspiracies will be deterred when the expected costs from

committing a price-fixing conspiracy exceed the expected benefits. The

expected benefits are the higher profits earned through the conspiracy.

For individuals within corporations committing price-fixing conspiracies,

these higher profits may entail monetary rewards, in the form of higher

salaries or bonuses, or they may encompass non-monetary benefits such

as reduced effort in meeting specific performance targets. The expected

costs are a function of the penalty and the probability that the penalty

will be successfully imposed. Because the probability that a price-fixing

conspiracy will be uncovered, successfully prosecuted, and a penalty

imposed is less than one, the “optimal” penalty should exceed the gains

earned from the price-fixing conspiracy. Thus, if a violator could antici-

pate a gain of $100 from a price-fixing conspiracy and faces a 10 percent

probability of apprehension and conviction, the optimal penalty, applying

this calculus, would be $1,000 (reflecting the reciprocal of the probability

8 Gary S. Becker, “Crime and Punishment: An Economic Approach” (1968) 76

Journal of Political Economy 169.

9 In the case of price-fixing conspiracies, these would include the budget devoted

to investigating and prosecuting conspiracies at the Competition Bureau, the

Department of Justice, various relevant provincial ministries, and the courts.

10 In this discussion, we abstract from attitudes to risk, which are also relevant.