Competition class actions: an evaluation of deterrence and corrective justice rationales
| Author | Margaret Sanderson and Michael Trebilcock |
| Profession | Vice President with Charles River Associates/Professor of Law and Economics at the University of Toronto as well as a Senior Consultant to Charles River Associates |
| Pages | 15-46 |
COMPETITION
CLASS
ACTIONS:
AN
EVALUATION
OF
DETERRENCE
AND
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.
15
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.
16
LITIGATING
CONSPIRACY:
AN
ANALYSIS
OF
COMPETITION
CLASS
ACTIONS
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.
COMPETITION
CLASS
ACTIONS:
AN
EVALUATION
OF
RATIONALES
17
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