The Use of Section 11 Orders Under the Competition Act

Peter Humber, Senior Competition Law Officer
Compliance & Operations Branch
Competition Bureau

Canadian Bar Association
Competition Law Section
Annual Conference

September 20-21, 2001

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Introduction

Recently, there has been considerable discussion, primarily between the legal community and the Competition Bureau, about the manner in which the Commissioner of Competition, appointed under the Competition Act, has made use of the investigative power provided under section 11 of the Act, which allows for the compulsory attendance and examination of witnesses, the production of records, and the making of written returns of information in an inquiry being conducted by the Commissioner pursuant to section 10 of the Act.

The Competition Act provides for a general regulatory scheme designed to protect competition in the marketplace. It is commonly referred to as a general law of general application, with limited exceptions, to all businesses in Canada. The Act contains provisions dealing with offences enforced through criminal sanctions and civil reviewable matters. When warranted, the former are subject to prosecution through the criminal courts while the latter may be subject to application by the Commissioner of Competition to the Competition Tribunal for remedial orders.

To ensure the effective enforcement and administration of the law, the Act creates the aforesaid position of Commissioner of Competition, provides three specific scenarios in which the Commissioner shall commence an inquiry and makes available to the Commissioner specific formal information gathering powers that can only be used with the authorization of a judge of a superior or county court or of the Federal Court of Canada.

This paper concerns itself with the use by the Commissioner of the investigative power created by section 11 of the Act and concentrates principally on the use of the power to obtain records and written returns in the context of civil reviewable matters, including mergers. The interaction between the merger notification regime of Part IX of the Act and section 11 is also discussed. While the powers are used in criminal investigation, oral testimony, records or written returns are sought using section 11 most often as follow up to the initial information gathering utilizing the search powers under section 15. As a result, in these circumstances the orders are normally directed towards obtaining very specific additional information.

Legislative Scheme

Subsection 10(1) defines three circumstances in which the Commissioner shall commence an inquiry, i.e. application by six Canadian residents, when the Commissioner has reason to believe that a person has contravened an order made under specified sections of the Act, that grounds exist for the making of an order by the Tribunal under Part VII.1 or VIII, or an offence under Part VI or VII has been or is about to be committed, and on Ministerial direction. Commencement of an inquiry places the Commissioner in a position to use, in appropriate circumstances, the formal information gathering powers provided for in section 11 and section 15 of the Act.

Essentially, section 11 provides that a judge may, on ex parte application of the Commissioner or an authorized representative of the Commissioner, order a person to attend before a presiding officer and be examined under oath, to produce records specified in the order, or to make and deliver a written return of information. Before granting an order, the issuing judge must be satisfied by information on oath or solemn affirmation that an inquiry is being made by the Commissioner and that the person subject to the order has or is likely to have information that is relevant to the inquiry.

It is worthwhile to note that the standard established for a court to issue an order under section 11 is significantly different from the test for such authorization for the use of the search power of section 15. Under section 11 there is no statutory requirement for the court to review the Commissioner's decision to commence an inquiry. It must be satisfied that an inquiry is being conducted and that the person against whom the order is sought is likely to have information relevant to the inquiry. Section 15, on the other hand, requires that the issuing judge be satisfied that there are reasonable grounds to believe that a person has contravened an order, an offence has been or is about to be committed, or grounds exist for the making of an order by the Competition Tribunal and that there are reasonable grounds to believe that there is, on the premises to be searched, evidence relating to one of the three specified situations. In addition, section 15 sets requirements for who can conduct a search, the contents of the warrant, and the manner in which a warrant can be executed. The statutory regime for search powers of the Commissioner essentially mimics the search warrant provisions of the Criminal Code. Parliament clearly viewed the power created by section 11 as being an equally necessary but less intrusive investigative tool than the search power created in section 15.

Section 11 further provides that where an order for the production of records is made against a corporation and the issuing judge is satisfied by information on oath or solemn affirmation that an affiliate of the corporation has relevant records, the corporation may be required to produce the affiliate's records. This provision extends to records in the possession of an affiliate outside of Canada. In addition, persons subject to orders under subsection 11 shall not be excused from complying with such an order on the ground that such testimony, records or written returns may tend to criminate the person. There is protection against the use of testimony provided by an individual under paragraph 11(1)(a) or returns made by an individual under paragraph 11(1)(c) in any criminal proceeding against that individual except for proceedings under section 132 or 136 of the Criminal Code.

The Act also contains a number of procedural provisions that relate to section 11. The term "record" is defined in subsection 2(1); section 18 provides for the reasonable care, access to, copying, detention and return of records produced pursuant to section 11; section 19 provides a scheme for dealing with claims of solicitor-client privilege; section 29 provides confidentiality protection to information obtained pursuant to section 11; and section 65 creates an offence for failure to comply with an order under section 11 or for the destruction or alteration of any record that is required to be produced under section 11.

The statutory process created by section 11 is designed to give the Commissioner the power to obtain, subject to court authorization, relevant records and information during the inquiry process. There is a critical need for the Commissioner to be able to assemble as complete an information set as possible on which to base the decision of whether to make an application to the Tribunal, refer a criminal matter to the Attorney General of Canada, or discontinue the inquiry. The provisions of section 11 are flexible enough to deal with both criminal and civil matters that may be the subject of section 10 inquiries. The investigative powers of sections 11 and 15 are key to the Commissioner being able to fulfill the obligation under section 10 to "cause an inquiry to be made into all such matters as he considers necessary with the view to determining the facts."

The investigative powers available to the Commissioner are significantly different from those available to the two federal United States antitrust bodies, the Federal Trade Commission and the Antitrust Division of the Department of Justice. For example, in respect of merger both countries have pre-merger notification regimes but they differ significantly. In the U.S, the provisions of the section 7A of the Clayton Act, more commonly known as Hart-Scott-Rodino govern pre-merger notification. Under these provisions parties to prescribed merger transactions must file notice and information (determined by regulation). The law specifies a 30 day waiting period (20 days in the case of stock exchange transactions) during which the transaction cannot be completed. In addition, the law provides that the investigating agency charged with assessing the substantive competitive impact of the transaction may before the expiry of the waiting period issue, on its own authority, a request for information (both records and written returns) needed to complete its assessment. When such a second request is issued by the investigating agency, the law prevents the parties from completing the transaction until such time as the request has been complied with (as determined by the investigating agency, but subject to challenge by the parties both within the agency and through the courts) and a further waiting period of 20 days (10 days for stock exchange takeovers) after such compliance with the second request has expired.

This notification regime differs significantly from that established in Part IX of the Competition Act. The Canadian regime provides for, at the option of the filing parties, both short form and long form notification filings. These differ in the extent of information required and applicable waiting period (14 days for short form and 42 days for long form). While the law does provide that the Commissioner can require parties that choose to file a short form to subsequently provide a long form notification and wait the applicable 42 days after that filing, there is no mechanism comparable to the second request under section 7A of the Clayton Act. To obtain information additional to that required under a long form filing, the Commissioner must either rely on voluntary production or seek information through the use of formal powers.

In addition to the prenotification regime described above, both US agencies have the authority, under the Antitrust Civil Process Act, to issue a civil investigative demand for records or written returns, to persons they have reason to believe may have any information relevant to a civil antitrust investigation.

In summary, the Canadian law prescribes a system where the compelled examination of a witness, production of records, or preparation of a written return is subject to prior authorization by the courts on an ex parte basis. The US system, in the civil law context, provides for the compelled production of records or written returns on the issuance of a second request or civil investigative demand by the investigating agency, such issuance being subject to review by the courts by the parties against whom such requests or demands are made. In respect of merger matters, both have pre-merger notification regimes in place that require the provision of basic information to the investigating agency that allows a preliminary assessment of whether the proposed transaction may raise issues under the substantive merger law and powers to require production of additional information but, as noted above, with different procedures.

Competition Bureau Approach to the Use of Section 11 Orders

The Competition Bureau views section 11 as an essential evidence gathering mechanism in the conduct of formal inquiries by the Commissioner. It affords the opportunity to obtain unbiased, factual information on relevant issues so that decisions with respect to the ultimate disposition of an inquiry are made on the basis of as complete information as possible.

Briefly, the Bureau will seek section 11 orders in all appropriate cases when there is an ongoing section 10 inquiry. The requirement that the Commissioner may only commence an inquiry when reason to believe exists that one of the Act's criminal or civil provisions has been, or is about to be violated (leaving aside the issue of an inquiries commenced by Ministerial direction or as a result of section 9 applications, both rare circumstances) means that orders will only be sought in matters that raise serious competition issues in an economically significant market. Such matters must be fully and appropriately analysed in as timely a manner as possible to determine the competitive impact of the practice with respect to any of the Act's criminal or civil provisions. There is a need for the Bureau to have in hand necessary factual information and evidence of industry participants. In deciding whether to seek section 11 orders, and on the extent of the information sought, the Bureau seeks to balance its role of safe-guarding the public interest in restoring and maintaining competitive markets against the burden that the inquiry process places on targets and industry participants. We take into account factors such as the likelihood that the inquiry will lead to some form of remedial action on either a consent or contested basis and the completeness of available information obtained through other means, including voluntary production. However, this does not mean that the Bureau will seek information and records through the section 11 process only when voluntary methods have been tried and proven to be unsuccessful.

In recent months there has been considerable discussion in the Canadian competition law community regarding what is perceived to be a more frequent use of section 11 orders, especially orders under paragraphs 11(b) and 11(c). Concerns have been expressed which can be summarized as follows:

Some comment on these points follows.

While it may be the case that section 11 orders are obtained more frequently now than in the past, the power is still, like the search power of section 15, used infrequently in relation to the total number of matters investigated by the Bureau. For example, during fiscal year 2000-2001, section 11 orders were obtained in only six merger inquiries, less than half of those which were classified as very complex and representing approximately 2% of the filings received in that period. To date this year, section 11 orders have been sought in only four or five merger inquiries. By way of comparison, approximately 3% of merger transactions notified under Hart-Scott-Rodino are subject to a second request. In addition, section 11 orders for record production and written returns have been used in a small number of non-merger civil matters. The Bureau has also used section 11 orders in a small number of criminal inquiries. In total, the investigative powers of section 11 are probably used in less than 20 inquiries annually.

The Bureau makes every effort to construct the requests for both records and written returns as narrowly as possible, having regard to the legitimate need for as complete a set of information as possible on which to make decisions regarding the ultimate disposition of an inquiry. As indicated earlier, the size and scope of an orders appears to be less of an issue in criminal matters, where section 11 orders are usually sought after searches have been conducted and are used to gather very specific information. Search powers are rarely used in civil matters; accordingly, section 11 orders for records and written returns will normally be broader in scope than in criminal inquiries.

Timing for the use of section 11 orders has been a particular point of concern, particularly in respect of merger matters, and related to the issue of the size and scope of requests. The Bureau makes every effort to seek orders as early in the inquiry process as possible. However, we feel it is better to take the time necessary to analyse issues and focus the information request on the principal issues. Seeking the orders at a very early stage may result in our needing to make much broader requests. The Bureau has an excellent record of completing its merger reviews within the published service standard time frames and, in our experience, the use of section 11 orders has not been the cause of reviews being delayed beyond the service standards. We are also of the view that the requests are, by and large, considerably less broad and burdensome than the typical second request issued in merger reviews by either the Department of Justice or the Federal Trade Commission in the United States.

The requirement in the Act for court authorization and the fact that the order is made by the court and not the Bureau or the Commissioner, provide inherent logistical problems in the use of section 11 orders that are not present in the Hart-Scott-Rodino and civil investigative demand process in the United States, where the order is issued by, and can be altered by, the investigating agency. However, it is the process we must use and it is in the interest of both the Bureau and those that are subject to orders to make it as efficient as possible. The Bureau strongly supports the ex parte process of section 11. The Bureau may, in appropriate cases, consider consultation with parties against whom it intends to seek orders and is entirely willing discuss, after it has been issued, the contents of an order and the extent and scope of replies necessary to comply with the order. It has been our experience that questions of clarification with respect to specific aspects of information requests can usually be resolved without recourse to court-directed amendments. We remain committed to keeping the lines of communication open should issues such as the expected breadth of response to a particular question remain unclear to the recipient of an order.

It is not the intention of the Bureau to undermine or discourage, through the use of section 11 orders, the voluntary provision of information and records by parties. It will remain an important method in the preliminary stages of investigating matters as well as formal inquiries where appropriate. Parties subject to investigation or inquiry are strongly encourage to bring forward relevant information at any time.

Conclusion

The Bureau continually examines our internal processes to improve them. For section 11, the Commissioner has introduced a challenge function by which all requests are carefully reviewed to ensure consistency in approach and, as much as possible, that questions are clear and focussed on the issues raised in the inquiry.

In closing, the Bureau views section 11 as a critical investigative tool and is committed to its effective use in appropriate cases. We will continue to use all available means to gather evidence and feel that a strong, consistent and reasoned approach to the use of the section 11 power is important to the integrity and control of the evidence gathering process in formal inquiries under the Competition Act.