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Some lawyers say the ruling could dissuade companies from agreeing to co-operate in future price-fixing probes. (christine balderas/iStockphoto)
Some lawyers say the ruling could dissuade companies from agreeing to co-operate in future price-fixing probes. (christine balderas/iStockphoto)

COMPETITION

Price-fixing ruling could mean more prison sentences Add to ...

Executives at companies caught fixing prices – even those who co-operate with investigators – could be more likely to face prison time in the wake of a decision from the Chief Justice of the Federal Court.

In an unusually critical ruling, Chief Justice Paul Crampton takes issue with the way the federal Competition Bureau uses its so-called “leniency program” for companies that co-operate with investigators in price-fixing cases and receive reduced fines.

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Chief Justice Crampton said that courts asked to approve these agreed-upon sentences should be given much more than “cursory” information, including whether the company in question was a “ringleader” and how it covered up its activity. And he said that prosecutors should have to show why those facing charges should be allowed to avoid prison time.

“Price-fixing agreements, like other forms of hard-core cartel agreements, are analogous to fraud and theft,” Chief Justice Crampton wrote in his decision. “They represent nothing less than an assault on our open market economy.”

Lawyers say the decision is not a precedent that binds other courts, but warn that it will still be influential. Some say it could dissuade companies from agreeing to co-operate in future price-fixing probes, potentially making investigations much more difficult. It could also impose costly new burdens on the Competition Bureau to present more evidence before it can get a leniency program penalty approved.

In an e-mailed statement, the bureau argued that the ruling will help, rather than hurt, its leniency program, adding that cracking down on price-fixing cartels remains a top priority: “The Bureau has reviewed Chief Justice Crampton’s decision and we do not anticipate that this decision will adversely affect the Leniency Program and the significant benefits it offers to co-operating parties.”

Despite the comments, Chief Justice Crampton’s decision, issued late last month, still approved a discounted $1.5-million fine for Maxzone Auto Parts (Canada) Corp., the Canadian division of a Taiwanese company affiliated with a U.S. one that sells replacement automotive headlights and tail lights.

Maxzone agreed to plead guilty to one charge of price-fixing in Canada in May, for a four-year scheme involving two other Taiwanese-based companies and their U.S. affiliates. A lawyer for Maxzone said his client would not comment.

The Canadian fine, under the leniency program, was 10 per cent of the company’s Canadian business during the affected period of $15-million, half of the usual 20-per-cent fine.

Punishment has certainly been tougher south of the border. In the United States, the ex-chairman of Maxzone’s Taiwanese parent and Maxzone’s former president and chief executive officer who pleaded guilty faced prison sentences of 180 days and nine months. The company was also fined $43-million (U.S.).

Brian Facey, co-chair of the competition practice at Blake Cassels & Graydon LLP and a lawyer who acts for companies clashing with the bureau, said the ruling could introduce a “chill effect” for the leniency program: “People, normally, rarely go to jail in Canada for this kind of conduct. … It definitely changes the incentives for seeking leniency.”

The bureau has stepped up its enforcement of price-fixing in recent years, launching investigations that often involve wiretaps. But price-fixing probes are usually dependent on insiders who co-operate with investigators. The Competition Bureau typically offers immunity to the first conspirator to switch sides, with the second, third and fourth offered discounted fines for co-operation.

One of Maxzone’s lawyers on the case, Casey Halladay of McMillan LLP, said the ruling is not the only thing moving the goal posts for companies contemplating taking advantage of the leniency program.

He said that under federal legislative changes that take effect in November, people given sentences of any length for crimes that carry a maximum of 14 years or more – which includes price-fixing – will no longer be able to serve those sentences outside a prison.

Even in instances where price-fixers in Canada face prison sentences, such as in the recent spate of prosecutions of gasoline retailers in Ontario and Quebec, violators have been able to serve their sentences in the community.

This new prospect of real prison time, even after co-operating, could threaten the effectiveness of the bureau’s investigations, Mr. Halladay said, stressing that he was not speaking on behalf of his client: “When you talk about having a chilling effect … that’s very serious and significant for the future of cartel enforcement.”

George Addy, a former commissioner of the Competition Bureau now with Davies Ward Phillips & Vineberg LLP, said the decision is a double-edged sword for the regulator, which he said may have to prepare as much evidence for this kind of sentencing hearing as it would have for a trial.

“The bureau will like the fact that he’s saying we need big fines and people should go to jail,” Mr. Addy said. “But the bureau has to recognize that, along with that, he is saying that there is a much larger burden on them.”

But Mr. Addy also said it was unclear to what extent other courts will follow Chief Justice Crampton’s ruling, pointing out that many price-fixing cases end up in provincial courts that are not bound by the decision.

Another wrinkle is the potential effect of the decision on the increasing number of price-fixing class-action lawsuits. Companies often decide to co-operate in order to avoid a trial where evidence made public could later be used by class-action plaintiffs seeking compensation in civil courts.

Chief Justice Crampton, recognized as an authority on competition law, suggests in his ruling that companies should seek to settle potential civil cases before pleading guilty to the criminal price-fixing charges. But competition lawyers say this scenario is impractical, since class actions are usually filed in the wake of criminal price-fixing cases.

Follow on Twitter: @jeffreybgray

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