Canada: Indecisive Canadian Election has Profound Competition Law Implications

Canadians chose the Liberal Party yet again, albeit with a much-reduced parliamentary caucus. Despite achieving less than a majority of the seats in the House of Commons, the Liberals will likely form a minority government supported by the left-leaning New Democrats. A minority government will ring the death knell on Canadian bank mergers for the foreseeable future and the scope of previously surfaced Competition Act reform proposals seems less certain than before the election.

Minority governments have traditionally needed to shelve ambitious reform agendas unless they accord with the objectives of the other parties in Parliament that support the governing party. Not to do so can result in a defeat of the government and another election in short order. Politically controversial action – such as approval of bank mergers in Canada’s highly concentrated banking industry is therefore not likely under a minority government. (Bank mergers require both competition law clearance and the approval of the Minister of Finance.) Although the banks tried mightily to scale up through mega-mergers in 1998 and have pushed since then for clarification of the process for political review, bank mergers during the current government seem a remote possibility.

The less politically contentious (but no less controversial in the Canadian business community) reform package that the previous Liberal government had advanced is likely to proceed (it is seen to be supported by small business, a natural constituency for the New Democrats), although cautiously. As proposed under the previous government, these reforms could include:

• An overhaul of the civil reviewable practices regime (which deals with vertical arrangements), the introduction of damage remedies for private parties suing to enforce these provisions, the creation of "administrative monetary penalties" (i.e. fines) to enforce civil provisions and allowing restitution and "freezing" orders for breach of misleading advertising provisions

• The creation of a two-track model for reviewing competitor agreements: a per se criminal offence for "hard-core" cartels and a civil, reviewable practice for benign agreements as well as removal of the current $10 million cap on fines for conspiracy offences

Each of these proposals is likely to have significant implications for those doing business in Canada. For more information on these proposals and the implications of yesterday’s election for Canada’s competition regime, please contact any member of our Competition Group.

© Copyright 2004 McMillan Binch LLP