S5 EP1 | Keeping up with the Competition Act
Transformative changes to the Competition Act are here. How will they affect the competition disputes landscape?
To kick off season 5 of Disputed, hosts Ted Brook and Erin Brown sit down to discuss the changes with guests Chris Hersh, Partner and Canadian Head of Antitrust and Competition based in Toronto, and Eric Lefebvre, Partner and litigator based in Montreal.
In addition to the changes to the Competition Act, this episode covers the current status of bills C-59 and C-56 and their compounding effects on the potential for expanded competition litigation; environmental performance claims; and why there’s still so much uncertainty in this area. Ted, Erin, Chris and Eric discuss why the changes could result in a significant uptick in litigation on competition issues, particularly where NGOs are eager to bring complaints.
This episode is accredited 0.75 substantive hours in Ontario and 0.75 substantive hours in British Columbia.
Note: This podcast was recorded on June 5, 2024. Bill C-59 has received Royal Assent and has now been passed into law.
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Transcript
[00:00:02] Ted Brook Hello and welcome back. This is Disputed, and this is our first episode in the regular series. We've finished up our special mini series on the Litigation Trends survey. Today we are joined by Chris Hersh and Eric Lefebvre to talk about changes to the Competition Act that are contained in the still pending Bill C-59.
[00:00:27] Erin Brown So Chris Hersh is a partner based in our Toronto office and the Canadian head of our antitrust and competition practice. Chris provides strategic counsel to clients on all aspects of competition law, including mergers and acquisitions, criminal matters, abuse of dominance, marketing and advertising, as well as pricing and distribution issues. Eric Lefebvre is a partner and litigator based in Montreal and the former head of our Montreal Litigation group. Eric's practice involves a broad range of commercial litigation matters, including competition law and class actions, and he has defended parties facing cartel and bid rigging accusations before criminal courts. Chris, Eric, welcome.
[00:01:05] Éric Lefebvre Thank you, Erin. Thanks, Ted.
[00:01:06] Ted Brook We're lucky to be joined by Chris and Eric. So thank you guys for being on. Eric, why don't we start with you? Tell us, just like a little bit about your practice on a day to day basis. We know the high level points and what everything says on the website. But tell us, what do you do on a day to day basis and tell us how you got there?
[00:01:23] Éric Lefebvre All right. Ted, well, I defend on a daily basis. That's what I do. A lot of class action work and a lot of competition class action work before the federal court for our provincial courts. And I got there because I was interested in competition law and had the opportunity to work with Justice Denis Gascon for many years before he was appointed to the Federal Court and fell in love with the subject matter. Loved the competition litigation bar across Canada, and very thankful to have had the opportunity to be involved in many of the cartel investigation cases that were led out of the province of Quebec flowing from and leading up to the Charbonneau Commission and and ever since.
[00:02:06] Erin Brown I think Eric has a unique ability to use the word love several times in close connection with cartels and bid rigging.
[00:02:14] Ted Brook Fair. Well, Chris, tell us about your passion for competition law, and then tell us what you do on a day to day basis.
[00:02:20] Chris Hersh So on a day to day basis, I work with clients on a broad range of matters, everything from mergers and acquisitions that require Competition Act approval, multi-jurisdictional competition or antitrust approvals, but also deal with clients on a day to day basis with regard to how the competition laws affect them from an operational perspective. So that's what I bring to bear is that in dealing with clients every day who are trying to figure out how competition law and in particular, some of the new provisions set out in this Bill C-59 are going to affect and get insight about what this means from an operational perspective in terms of their ability to compete in terms of the compliance burdens. So it's how this law goes from this abstract legal document to actions that businesses are required to take. How I got here is a bit of an unusual route. I'm a recovering litigator. I started out my career as a pure litigator and fairly early on switched firms and happened to get hired by some folks in another firm who had a mixed litigation and competition practice. And to everyone's surprise, including my own, despite having no obvious qualifications to be a competition lawyer, I seemed to have a flair for it and really enjoyed it, and in particular, the ability to understand businesses. And I think the litigation background helps because what I do is advocacy most of the time. And what I like about the competition work is that it blends knowledge of the law, but application of the law on a day to day basis for businesses. And I spend a lot of time dealing with business people who help keep me balanced, more so than if I spent all day talking to lawyers.
[00:04:09] Erin Brown So, Ted, this is interesting because last week we spoke to Evelyn and Fahad about the special situations practice and how sort of the business teams and who we think of as more typically corporate lawyers work really hand in hand with the litigation team. And it's the sort of the same in this competition space where competition lawyers are really in the middle of that gap between mergers and acquisitions, which brings them into the corporate law transactional world. And then Eric's practice, for example, which is much more of the litigation focus for competition. So, Chris, maybe starting with you, can you just walk us through at a high level what this sort of new competition landscape is? What these changes in Bill C-56 and C-59 together compounded due to the competition litigation landscape?
[00:04:56] Chris Hersh So, I think I understate the impact of these amendments to the Competition Act is it's just isn't possible. It's the first major rewrite of Canadian competition law for well over a decade, closer to 15 years. And it's a fundamental change to virtually all aspects of competition law in Canada and in terms from a litigation perspective or disputes perspective. I think there's a couple of cumulative effects of Bill C-56 plus Bill C-59. I call it the Trinity, if you will. And basically it's a combination of significant changes to many provisions from a substantive level. That was what the test that needs to be proven, what conduct may be covered. So it creates a bit of uncertainty combined with truly massive for financial consequences for conduct that is not criminal. This is civil conduct. And the fines can be as high as 3 percent of gross worldwide revenues. That's unprecedented in Canada, at least under Competition Act. They do have that sort of fining power in other jurisdictions. But the takeaway is significant increase in the potential financial consequences. And then thirdly, what Bill C-59 in particular proposes is to really broaden the scope of private right of enforcement. We did have some limited private right of enforcement previously for certain provisions of the act. But the key here is to incentivize private enforcement. They have lowered the test for leave. Private parties need to get leave from the Competition Tribunal before they can proceed to the marriage. They've lowered the test for that. And then also, under many of the provisions to have allowed private parties to seek some sort of financial compensation, whether it be disgorgement, which is, you know, fancy way of saying, you know, return of profits or wrongful gains or in some cases, remedies more akin to damages. But I think the key here is both to expand the scope of private rights, make it easier for private parties to bring cases, and also to increase the incentives by providing some sort of compensation mechanism.
[00:07:14] Ted Brook So, Chris, I'm hearing from you three kind of main categories of changes. Substantive changes to the act, increased penalties and a change to the scope of private rights. Now, if let's say I'm the GC of a business and I don't think about the Competition Act every day, right, Eric? Why do I care about the change to private right access? Just taking the third and last point that Chris mentioned.
[00:07:42] Éric Lefebvre Well, private right access is synonymous with increased risk of litigation. If you're the GC, one of our clients, that's what you're concerned with. At least that's on your screen. And the increased risk is real. The proposed amendments under 59 open the door to private litigation in areas where there was no such opportunity in the past. And more so, the proposed amendments open the door to a class action regime before the tribunal. And they've introduced the regime. There's no doubt there, but they've not yet proposed any statutory guidelines for it. So we don't have a test, we don't have any notice provisions. And as it stands, you as a GC would not know exactly how to manage that increased litigation risk.
[00:08:38] Ted Brook Before these private rights of access. It's going to be the government, the Competition Bureau taking steps or commencing proceedings with respect to violations under the act. Is that right? And it's slightly more predictable how they're going to behave. Whereas with private rights of access, you have unknown guests at the Competition Act party. Like, is that what's happening here?
[00:09:01] Éric Lefebvre So yes, you're absolutely right. Prior to the proposed amendments coming into force, only the Competition Bureau could initiate action with respect to various sections we're going to be discussing today. And further to the amendments we're going to have applicants could be one could be multiple applicants coming to the Competition Tribunal and asking for leave to move their cases forward. That will certainly cause increased litigation before the tribunal.
[00:09:33] Erin Brown So, Eric, what I'm hearing from you is there's this sort of ability now for private parties to bring things directly to the tribunal, where before they would have to go through the bureau, or the bureau would have to be the one to bring these. So if we take the example of deceptive marketing, so in the current regime, there's no private right of application for deceptive marketing. So that has to be brought by the bureau. Now private parties will be able to bring applications directly before the tribunal for deceptive marketing on a public interest basis, is my understanding. So maybe going back to you, Chris, how do you think that leave test will be applied? Do you think the private interest test will be a high bar, a low bar? What do we know about?
[00:10:16] Chris Hersh I think just to step back a little bit, there has been some limited private right to free existed before these new amendments. They were very limited and it was a much higher test. It was a party had to be substantially affected in its business before you get leave. And there was no sort of compensatory regime which did limit the number of a private applications made. And many of them were rejected the leave stage. I think with this going back to your example Erin, I think that's a very good example, one of the changes that was slipped into the act very late in the process, which June 2024, this change was slipped in in May of 2024 despite the legislation having been introduced, I believe, in December 2023. It's a misleading advertising provision that would impact the ability of companies to make broad environmental claims unless they are substantiated using a, quote, internationally recognized methodology where the party making the representation had to bear the burden of proof that they had met the substantiation standard. The only problem is nobody knows what the heck internationally recognized methodology means. This area is particularly concerning because there are several environmental activist groups who have brought complaints to the bureau. It's called the Six Resident Application Process, where you can get six people to swear an affidavit. The bureau has to investigate. The bureau hasn't really done very much with most of these largely because this isn't necessarily the sort of thing they want to spend the resources on. Or some of these cases may be hard to bring forward under the current regime. But you can certainly see activist groups using this private right of action strategically, because to name and shame to get publicity to force companies to incur costs in defending these applications. And I think, Erin, to the question you asked about what how does how is this public interest test going to apply? We don't know because we don't have a public interest test under the Competition Act today. But my thinking is that may prove, at least initially, to be quite a low bar, because I think it's a not unsympathetic argument for an activist group, to me, that addressing potentially misleading environmental representations is always in the public interest. I think, at least initially, the benefit of the doubt may go to the private parties, perhaps undeservedly so, but that certainly opens up a a real Wild West or real prospect that this could be used very strategically and cause a lot of expense for companies, to the point where it may actually disincentivize companies from engaging in certain types of activities if they can't reap the public benefits or the relationship benefits associated with telling people what they're trying to do as they move towards attempting to enhance the environment or take steps to enhance the environment.
[00:13:15] Ted Brook Eric, I wanted to ask you, Chris has made a good point about environmental claims, and we're going to talk about those, I think, in detail in a minute. But what are your thoughts on the sort of leave test and what if I'm I'm a business and I see a competitor engaged in deceptive marketing that has nothing to do with environmental matters? Does is this going to make it easier for me to take action against someone who I think is acting inappropriately in my market, or is this really not intended to cover those sorts of situations?
[00:13:42] Éric Lefebvre Thanks, Ted. I think it will give more opportunity to those competitors in the market who want to avail themselves of the Competition Tribunal in a maybe a strategic perspective in that it opens the door to those seeking leave and on the leave test, I mean, if it's only a question of alleging judicial economy access to justice or collective redress, that kind of stuff, that's a very low bar. And if that's the way the Competition Tribunal is going to apply the test, and I think we should see, we will see increased litigation initiated by competitors who want to take it up directly before the tribunal and want to avoid having to go through the six person complaint route.
[00:14:26] Erin Brown We talk specifically about the public interest test for deceptive marketing. But Eric, let me ask you about other types of civilly reviewable conduct. That's not deceptive marketing, where I think the test right now is generally that you have to be directly and substantially affected. But moving forward, I think that there will be a shift through through these bills that you can bring an application in Ted's scenario where only part of your business is affected. Can you tell us about specifically whether that might open the door to more of kind of Ted's competitors in the market trying to bring actions for different types of civilly reviewable conduct?
[00:15:06] Éric Lefebvre So maybe just a walk back in the past, as I understand it, there are about 30 such applications that were brought in the past where you did have to meet the test that the whole business needed to be substantially affected. Of those 33rd approximately were granted and they weren't very successful on the merits. Now that the test is moving from whole business being substantially affected to part of the business being substantially affected, or it being in the public interest to grant leave, we've got to assume there will be a greater number of cases brought to the tribunal for leave and a greater number of leave applications granted. So I certainly do think that there will be more litigation before the tribunal and more leave granted, that will lead to a situation where there are five judges full time at the at the Competition Tribunal. They deal on average with about eight cases a year. So let's keep that in mind. There is a huge risk that these five judicial members overnight go from applying the Competition Act in exercising their expertise in the Competition Act to managing cases and case flow of cases and litigation timetables relating to class actions or private remedies so that leave test is important and it cannot become a rubber stamp based on public interest.
[00:16:35] Ted Brook And Chris, now do the increased finds the administrative monetary penalties do that due to those apply to potential private rights of actions?
[00:16:45] Chris Hersh Yes they do because somebody can go to the tribunal on private access basis and seek to have the tribunal impose the remedies that are imposible under that provision. And these provisions don't distinguish between cases brought by the Bureau versus cases brought by private applicants in terms of the available remedies, which do include these significant monetary penalties. I just want to pick up on something that Eric mentioned about the importance of the leave test outside of the misleading advertising provisions, many of the private right, or all of the other private rights of action apply to provisions of the Competition Act that require to ultimately prove that there's been a contravention, prove a harm, whether it's substantial testing or prevention or an adverse effect, depending on the standard in the provision. But ultimately, a private party is going to have to prove a harm to competition. And the concern with this leave test, there's a gap between somebody who's affected in part of their business and whether that conduct may also result in a the required negative effect on competition. So I think this leave test, it may not have the reading effect is basically going to permit cases where maybe somebody needs a leave test, but the cases incapable of meeting the substantive effect on competition required to be proven. And I think that's a huge problem because the leave test is meant to be a filter, and that filters to broad. The impact of getting leave is very similar to the impact of getting certification in a class action, because with a leave process is costly, having to bring a case or defend a case on the merits where you have to prove negative effect a competition is a very expensive case. Go ahead, Ted.
[00:18:40] Ted Brook And what we know, Chris, from other leave requirements like under the Securities Acts in the various provinces, is it takes time for that jurisprudence to evolve so that we can fully understand what is going to be the elements of a case, reasonable possibility of success, higher or lower, that's not necessarily set out in the statute, is it? And I don't know, Eric, if you think the tribunal is going to look elsewhere for guidance or question mark, how they're going to develop their own jurisprudence.
[00:19:05] Éric Lefebvre Well, it certainly remains a question mark. The tribunal may be tempted to to rely on its practice directives or trying to develop the test through practice directives, but I, I truly don't think that they have the power to do that. Practice directives or directions are designed to help them deal with procedural issues, not develop substantive legal tests. And then the tribunal may turn to a gap provision rules that allows them to go to the federal court rules to complement procedural aspects when needed. But then again, it's on procedural aspect. So if the tribunal may be tempted to import the Federal Court class action certification test, but I'm not sure they can do that on the basis of of rule 34. That's the gap filling provision. So ideally we don't just let common law fill the void. We have legislators rule give itself a time out, reflect on what it's doing, canvass the stakeholders as they probably should have in the first step, and develop a legislated test that really provides clarity to to the stakeholders and to the private litigants and to our clients as to what the test is going to be. And that test should require some cogent evidence to begin with. There should be a preferable to be component to it that requires superiority and predominance threshold. It needs to be a real test. We cannot flood the tribunal with cases. There not hundreds of judges as there are in superior courts in federal court. There five.
[00:20:49] Erin Brown So, Ted, that was a really interesting sort of general discussion that we had to kick off the episode on the changes to Bill C-56 and C-59, and I think Chris set us off in terms of how we think about this with his trifecta or his Trinity, where we have these three overlapping changes that have happened not only in Bill C-59, but compounding with recent changes as well, where we have substantive changes that increase the scope of the act. One thing I don't think we got to talking about was, for example, with with civilly reviewable conduct or conduct under civil agreements between competitors. That provision has been expanded to include non competitor agreements for example. So there's a ton of sort of substantive changes that increase the scope of what is now reviewable conduct. That's one prong of sort of our trifecta. Then we have increased penalties, which is in part brought by previous changes to the Act recently to go, for example, to 3 percent of worldwide gross revenues, which is a huge potential penalty. And we've seen, by the way, the Competition Bureau go after foreign parent companies, for example. So that raises questions as to whether are we talking about potentially 3 percent of worldwide gross revenues for subsidiaries and parents? And then this third group, which I think is really where we're focusing today, is this increased rate of private action. So private parties, whether it be to your question, a competitor who's unhappy with conduct that somebody else in the market is engaging in, or whether it's a, you know, an NGO group or an activist litigant group can now go directly to the Competition Tribunal and bring their own applications to the tribunal, which is Eric points out, may not be staffed well enough to hear all of these potential floodgates.
[00:22:27] Ted Brook For me, what I find really interesting is the set of substantive changes relating to greenwashing and environmental claims. And I know that Chris and Eric both have a lot to say on that.
[00:22:39] Erin Brown Yeah. Let's dive into those.
[00:22:40] Ted Brook Let's dive back in.
[00:22:44] Erin Brown So Ted just tried diving back in. One of the things that, in terms of our case studies of what this may mean potentially, I think greenwashing, as Chris alluded to earlier, with this sort of late in the day change that would introduce this reverse onus provision targeted at general net zero or environmental type claims that are not related to a specific product. That would require companies to substantiate, you know, to have adequate and proper substantiation based on internationally recognized methodology, that their claims can be substantiated. So, Chris, can you walk us through this new greenwashing provision, how this amendment came about and what some of the issues on the horizon are?
[00:23:24] Chris Hersh So when the bill was introduced in December 2023, it did have a greenwashing provision, but it was only with respect to product specific claims. For example, is your product recyclable? Does it use x percent post-consumer waste in the packaging? And so they added a specific provision relating to product specific claims that where the those claims had to be based on adequate and proper testing. And again a reverse onus, which means that it's up to the party making the representation to in the first instance, demonstrate the validity of their claim and that their claim is based on adequate and proper testing, that a testing was done before the claim was made. That from my perspective, that provision was entirely unnecessary. There's a existing product specific claim provision that has been effectively used in connection with misleading or inaccurate claims made regarding environmental matters that are made with respect to a product. So I think this was a bit of a political amendment to allow the government to say we're tackling greenwashing head on. And again, I don't think that was terribly controversial.
[00:24:37] Erin Brown So how do we now see this B.2? What happened?
[00:24:39] Chris Hersh So what happened is, as the legislation was making its way through the process, both environmental groups and the commissioner indicated that product specific greenwashing provision didn't necessarily address broader environmental improvement or environmental mitigation type claims, whether it be reduced emissions, improved water purification or use. Like anything that any measure related to the environment or mitigating environmental impact.
[00:25:07] Ted Brook So so, Chris, if a company, for example, said not about a product specifically, but about their business, we are committed to reducing emissions or we are on track to hitting net zero. Something like that is now getting included?
[00:25:22] Chris Hersh Exactly. Basically any broad claim that a company makes, whether it be a net zero emissions reduction environmental mitigation claim, can be subject to this new provision. We call it B.2 because that's what it's numbered in under the relevant provision in the act. So if you hear us B.2 we're talking about this new broad environmental claims provision. And what happened was, as I said, just as the legislation was wending its way through the legislative process, both environmental groups and the commissioner indicated that while the product specific greenwashing provision was helpful, it did not address these types of broader, more general environmental mitigation claims. The commissioner actually recommended that such a provision be studied. The commissioner didn't actually say, please throw something into the amendments at this late stage. And whereas environmental groups, I think we're a bit more aggressive in terms of wanting something. And I think he understood that this was a potentially complicated type of provision to draft to make sure that it was both enforceable, but also so that it balanced the desire to prohibit making untrue or unsubstantiated broad environmental claims, with the need to provide some certainty to companies, especially given the current environment as to what type of claims they can make. You have the Bureau's position, correct? I don't think it's a valid position. I think it's a position of a regulator who would like to have an easier way of enforcing laws. And also it is consistent with a desire to encourage private litigation by changing the burden of proof. It would be up to the party challenging the representation to demonstrate that it wasn't adequate being properly substantiated. This shifts it because it doesn't alleviate the requirement of somebody to understand this, because just means who has to prove what win. So let's play out the Bureau's argument to its what I think it's a logical conclusion is that I as a company, if I'm challenged, I have to demonstrate why my methodology is accurate or why my claim is properly supported. Based on whatever standards required. The party challenging at will still have to attack my methodology. It's not a situation where I substantiate my claim or give my justification, and then the party challenging the representation is going to say, okay, we're satisfied.
[00:27:58] Ted Brook Chris, what are your what are your thoughts on that?
[00:28:01] Chris Hersh So this language know, I don't profess to know exactly what's going on in every single jurisdiction, but certainly this internationally recognized methodology standard that's not a standard that is commonly used in other jurisdictions or other legislation requiring disclosures or governing disclosures of environmental mitigation efforts. Most of those talk about appropriate substantiation. Substantiation in methodology are very different and the risk of getting into semantics. But is it accurate? Methodology speaks to the manner in which you have to calculate or you should calculate. And that's certainly in the environmental space, a ongoing debate in terms of, for example, net zero. What do you need to include in a net zero claim? What types of emissions through what cycle of the product? What use of that through the use of the product? There is a broad discussion going on right now in the net zero or your carbon neutral space about what companies should have to do, which is very different from making sure that a representation is accurate. And I think that's the problem, a huge problem with this provision. And I think by picking language that isn't commonly used elsewhere. You know, one, I assume that's deliberate, but two, it means to the extent that we have zero guidance and we can't even look to guidance in other jurisdictions in terms of how that has been applied to a really does potentially create a free for all situation. And I think my understanding is the bureau is actually starting a consultation process. And part of that process is how do you define or how do you set an internationally recognized methodology, which is suggests, quite problematically, that legislation includes a standard that even the bureau hasn't got a very good idea about what they want it to be or should be.
[00:29:53] Erin Brown So, Chris, maybe to wrap up our specific discussion here of of greenwashing, you and I recently wrote an article on, on this new provision with one of our other competition colleagues, and how we ended the article was net zero claims are not net zero risk anymore from a from a litigation and competition perspective. Is that an adequate way to to wrap up our discussion?
[00:30:13] Chris Hersh That's absolutely correct. Net zero should be viewed as shorthand for any environmental mitigation claim.
[00:30:20] Erin Brown So, Ted, let's let's move into class actions then. Do you want to kick us off?
[00:30:24] Ted Brook Fantastic. My favorite subject.
[00:30:26] Erin Brown That's what I thought.
[00:30:27] Ted Brook Eric, we work on a number of class actions together. Can you just at a high level. What is the purpose, the point, the idea behind the class action? And is that purpose being achieved with these changes or not?
[00:30:40] Éric Lefebvre You're going to make me sound like a plaintiff's bar class action lawyer. But the purpose of class action is meant to offer access to justice to applicants who wouldn't otherwise initiate individual recourse before the courts. I believe that is the underlying intention of the proposed amendments as they relate to including a new class action regime in the Competition Act to be managed by our Competition Tribunal. The issue is beyond the introductory wording the legislator has not given is yet to provide much guidance with respect to hallmarks of class actions, and that the certification test. What is the gatekeeping mechanism that will allow the proposed class to to move their class action forward, and then other hallmarks, such as noticing provisions? How will consumers know that they are part of the proposed class action? None of that has been developed or proposed or even spoken to in the context of the proposed amendments. And that is left everyone, all stakeholders and everyone involved in the class action bar scratching their heads as to how the Competition Tribunal is going to manage this. And the first question that's on everyone's lips is will there be a certification test? Is the leave application meant to become the certification test in the context of a class action before the Competition Tribunal? And if so, does that mean that there will be more than one leave test? Will the leave test be different when someone is moving forward or wishes to move forward with a class action? And if so, how so? How will the test be approved applied? As is Ted, and as many of our listeners probably know, there are different tests across the Canadian provinces. On the Ontario test is much more stringent than the Quebec test, for instance, and for having sat on a panel with class counsel not so long ago. In the context of a competition forum, the class action bar would like to see a test developed that is akin to the Quebec certification test that we call the authorization test, whereas defense counsel truly hope that the test will be more stringent, more akin to the Ontario test. And that's important because that will have a direct impact on the number of cases moving forward before our Competition Tribunal.
[00:33:19] Erin Brown So, Eric, are you saying that essentially the question of whether a class action is an appropriate forum or an appropriate way to hear a specific application, could that be theoretically woven into the sort of like public interest leave test, for example, as part of that stage to say, is it in the public interest to bring this as a class action? Could that become part of the sort of like public interest leave test?
[00:33:44] Éric Lefebvre It could be, Erin. It's all up in the air right now because no one's provided us with any guidance. But it could be that the leave test, in the context of a proposed class action, speak to the press ability component. Is it the proper procedure, legal procedure, to move forward with the issues with class counsel and the proposed members of the class want to put before the tribunal? It is important that be clear to everyone before we get rolling on the new regime.
[00:34:17] Ted Brook I'm shocked, actually, Eric when I reflect on this and what you're saying, because the class action, it's a tool for access to justice, but it's incredibly powerful tool. Right? And and having procedural safeguards goes without saying from from my experience and working at it in Ontario and other provinces. So the idea that you would introduce a regime but without clear rules or paths, or at least practice directions, makes me a little nervous.
[00:34:47] Éric Lefebvre And unfair to the tribunal if you ask me to leave it up to them to develop this. It's incumbent upon our legislator to provide statutory guidance in that regard, and it's yet to be done. If you're looking at it from potential class counsel's perspective, what is it you're claiming? Right? And with respect to reviewable matters, civil conspiracy, abuse of dominance, there's the opportunity to claim for the value of the benefit derived from the anti-competitive conduct, but in of itself. If there's uncertainty as to what that really means, what is the value of the benefit derived? Is that the profit derived from the anti-competitive conduct, or is that the revenue derived from that conduct and class counsel to whom I've spoken to say. Geez, why not just give us a right to damages something restitutionary, as is the case for deceptive marketing provisions? Because this issue or this suggestion that we can only claim for benefit derived, raises a whole Pandora's box of how we're going to establish that and what is the unlawful purported and competitive conduct didn't yield a profit. Maybe they lost money. The conduct wasn't as profitable as they wanted it to be. Then what then? Class counsel will have initiated proceedings without the opportunity to actually get any money in the pockets of its proposed class members. So there's a lot of uncertainty there that needs to be clarified before we set off on this. Or a lot of judicial resources are going to be spent developing tests and clarifying stuff that should have been dealt with by our legislator out of the gate.
[00:36:32] Erin Brown So, Eric, one of the interesting nuances that you and I were discussing a while ago with respect to deceptive marketing is the sort of nuance in the law that a private party will only be able to claim penalties or in terms of financial rewards for this new B.2 provision, which is the broad environmental claims. They'll only be able to claim administrative monetary penalties, which is can go up to 10 million or 3 percent of the corporation's annual worldwide gross revenues. But that would be payable to to the government, not to the individual members of potentially a class. Whereas for the general misleading advertising provision, you'll be able to claim costs back to be distributed among the persons to whom the products were sold. Do you think that will have an impact on class actions? Could you see class counsel bringing a class action, even if or other potentially private litigants that are not in a class, bringing an application only for administrative monetary penalties payable to the government on a public interest basis? Or do you think that we'd only see class actions under really the misleading advertising, the sort of general misleading advertising where it's false or misleading in a material respect, because then there's the possibility to have damages paid directly to the group?
[00:37:47] Éric Lefebvre Well, Erin, I guess that depends on what you think truly motivates class counsel if doing right in having wrongful conduct remedied, irrespective of what that translates to into in terms of monetary compensation for class counsel, then it wouldn't have much of an impact. But the truth of the matter is that it will. You'll always have your exception where you've got NGOs and public interest groups who are well-funded, by the way, and able to pay for legal fees, who will likely take a run at these things and not think twice about whether their class counsel will ultimately be paid as a function of the compensation received by the members. And then you've got the other cases where class counsel, when they will go through the analysis in their matrix of whether or not this is a case that should be brought before the tribunal as a class count, as a class action will reflect upon the financial wherewithal of the endeavor they're about to initiate. And if it's not a case, they can bring under 74.011A, they may think twice and will likely not move forward with something that won't yield compensation for the class members in themselves.
[00:39:02] Ted Brook Chris, if you had 30s with the GC and they said, what do I have to understand about these changes and how is it going to impact me? What's the one thing that you would want to underscore for them while you're meeting in the elevator on the way to your offices?
[00:39:16] Chris Hersh I think one of the things that needs to be understood here is that the fact that a private party can ask the tribunal both to impose an administrative monetary penalty of a very significant amount, plus seek financial compensation in some way, shape or form for those who may have been affected. That really is going to be a huge impact on settlement discussions. How do you settle a case where somebody maybe the claim damages are, let's say, 1 million dollars, but they can say we want a fine of 3 percent of gross worldwide revenue to be imposed. That gives class counsel a very significant stick and allows them to potentially try and arbitrage the leverage they get with regard to the seeking and administrative penalty of us in a huge number to get some sort of settlement that puts money in their pocket. I think that that's a huge issue in terms of the dynamics of a potential clasp type proceeding given this the fact that the remedies aren't just compensation or financial return to the the class members, but this massive sort of amp or administrative monetary penalty as this sort of the sword of Damocles hanging over the entire proceeding. I think that gives people a lot of leverage. And I think that's a huge complexity. And how do you settle these cases in a principled way, but become, you know, is a really open question mark and probably something that I don't think people may have given a lot of thought to in terms of creating this regime. But going back to your question.
[00:40:56] Ted Brook I want to hold you to it. If about all these changes, not just necessarily the class action or the private right of access, what would you emphasize for someone?
[00:41:04] Chris Hersh So I think to be fair, if you're a smaller company, a lot of this won't matter to you. But if you're a company who's larger, who has a potentially significant market position, I would say you need to rethink everything. Not to be alarmist or Chicken Little. The risk matrix in terms of certain types of behavior, whether it be a loyalty program, exclusivity, most favored nation clauses, the analysis has to be redone with a sharper pencil to make people aware whether they're likely to have substantive risk. Also, some companies may be more attractive targets of opportunity, and people will need to understand that as well. And for many companies, it will change a lot of things. There's a how they go about their business or how they manage compliance while still being aggressive competitors. So I think that's a big thing, is you need to step back and rethink. And I think, you know, you ignore this at your peril because, you know, there's a reason why the expression an ounce of prevention is worth more than a pound of cure has stood the test of time. And I think this is like companies who proactively, you know, address these issues or at least think about these issues. They're going to be in much better position down the road than companies who assume it's status quo. So that's that would be my guidance is spend the time to understand how the new laws apply to you and be proactive in terms of managing managing that risk.
[00:42:33] Erin Brown Yeah. And I think there's I think there's a positive here to end on a good note that companies who are really conducting themselves with a high degree of compliance if if we take, for example, the deceptive marketing, if we have companies that are really being careful about what they say, strong compliance policies, making sure that they're backing up and substantiating their claims, this could be a really good regime for them, because it may weed out their competitors being able to say similar things that aren't as well substantiated potentially.
[00:42:58] Éric Lefebvre I don't think there's ever been a better time than right now to open the drawer, pull out the compliance manual and put it to the test. The substantive changes make it such that you're going to have to update your compliance materials in any case, and in doing so, read them over and bring them up to speed. In light of the business, the current business practices, the current contracts, and do it through the lens of increased litigation risk arising from the new competitor, the new class action regime in private remedies. It's a must. It's not something you should do. It's got to be on your to do list at the top of the to do list, and it's worthwhile. There's never been a better time.
[00:43:42] Ted Brook Fantastic. Well, Chris, Eric, thank you so much for joining us and sharing a lot of this valuable insight and wisdom and experience.
[00:43:51] Éric Lefebvre Thanks so much.
[00:43:52] Chris Hersh Thanks to both of you.
[00:43:56] Ted Brook Well, there we go. Episode one of the 2024 Disputed series. Fantastic work, Erin. I'm very proud of us.
[00:44:05] Erin Brown I strayed a little bit from keeping our host hats on, because I just couldn't help jumping in, because this is an area I find fascinating and I do a lot of work in and same to you in class actions, but I think we did okay. I think our.
[00:44:15] Ted Brook And I thought you had good insights too, and I liked that with the Disputed format we get to go a little deeper into the issues.
[00:44:22] Erin Brown But I think what's really interesting is despite that we had our Undisputed mini series and now we've dropped our on and gone back to Dispute it is we're really seeing a lot of similar trends and themes that are presenting. I mean, we're back to talking about greenwashing here, which we talked about in our ESG episode with Alison and Heidi. And then I'm sort of thinking of a point that Fahad made, Fahad had this great line about litigation being an opportunity. It's not just a defensive tactic. And I think, you know, at the end of the episode, we were mentioning that for businesses who have their compliance in line, this could actually be a really great thing. And and what do you think about Ted? About that Ted, do you think that this is a possibility? And it goes back to your question that you asked about a competitor being able to challenge conduct that they think is unfair in the market. Is there an opportunity here in addition to just this sort of risk of additional litigation?
[00:45:13] Ted Brook Yeah, sounds like it like regulatory change and legislative change is always a moment of uncertainty. And companies who can stay ahead and and have a clear, defined strategy and and are up to date on their compliance policies and in this case have got to have some type of advantage in the market. Awesome. Well, I look forward to gearing up for our second episode of Disputed very soon.
[00:45:39] Erin Brown Yeah. Me too. Thanks, listeners.
[00:45:41] Ted Brook Thanks for joining everyone.
