Canada's Federal Court of Appeal Ends Debate on "Buy-Side" Conspiracies

Written By Emrys Davis and Sakina Babwani

On August 17, 2022, Canada's Federal Court of Appeal agreed with a growing consensus of lower courts that section 45 of the Competition Act does not apply to "buy-side" conspiracies, such as agreements between employers with respect to employee wages. The court's decision (Mohr v. National Hockey League, 2022 FCA 145) should end the debate on the proposed application of section 45 to this issue. Businesses can take some comfort that "buy-side" agreements will not attract liability under section 45. However, the comfort may be temporary, at least in part, because employers will face possible liability for no-poach or wage-fixing agreements owing to changes to the Competition Act which come into force on June 23, 2023. Our previous insight, First Round of Competition Act Amendments Now in Force, details those amendments.

The Decision

The appellant commenced a class proceeding alleging that the respondent hockey leagues had conspired to limit the opportunities of hockey players to play in junior and professional hockey leagues, contrary to section 48 of the Competition Act. In response to the respondents' motion to strike, the appellant moved to amend, seeking to add a section 45 conspiracy claim to the proceeding.

The lower court found that it was plain and obvious that the appellant's claims did not disclose a tenable cause of action under section 48. The court dismissed the motion for leave to amend on the grounds that the proposed amended claim did not plead a conspiracy within the scope of section 45, because section 45 did not apply to "buy-side" agreements, such as those related to employers purchasing labour. The Federal Court of Appeal upheld these decisions.

Section 48 Applies Only to Intra-league Agreements

With respect to section 48, the Federal Court of Appeal held that section 48 applied only to anti-competitive agreements within sport leagues (i.e., intra-league conspiracies), not to conspiracies between sport leagues (i.e., inter-league conspiracies) as was alleged in the claim. Accordingly, the appellants' claim did not disclose a reasonable cause of action under section 48. The Federal Court of Appeal looked to each of the subsections of section 48 and found that the subsections repeatedly referred to the "same" league when describing the prohibited conduct (e.g., "members of the same league" and "granting and operation of franchises in the same league").

The Federal Court of Appeal also clarified that the same conduct cannot violate both section 45 and 48. Parliament intended the sections to apply to different conduct. Section 48 applies to agreements among members of the same league, while section 45 may apply to agreements between members of different leagues.

"Buy-Side" Agreements Are Not Covered By Section 45

Consistent with several lower court decisions, the Federal Court of Appeal found that section 45 applies only to agreements relating to the "production or supply" of a product or service. The plain meaning of the term "production or supply" indicates that section 45 applies only to agreements relating to the provision, sale and distribution of goods or services, not to agreements relating to the purchase of goods and services. The legislative history of section 45 supported this interpretation.

Accordingly, the allegations made in the claim, which described a conspiracy relating to the terms and conditions under which the leagues and teams purchased or acquired services of the players, had no hope of success.

Class Action Practice Points

The Federal Court of Appeal also discussed principles applicable on motions to strike class proceedings in the Federal Court. Considering the notable increase in the number of pre-certification motions in class actions, particularly those seeking to strike claims, the Federal Court of Appeal's comments should be bookmarked for future reference:

• Use of evidence on a motion to strike is prohibited as doing so would improperly convert a motion to strike to an early summary judgment motion.
• Where the applicable legislation is capable of more than one interpretation, the motion judge should not conclude that the action has no reasonable cause of action.
• Where the court needs to resort to extrinsic evidence beyond the statute and its legislative history to answer the question of the statute's scope and application, then it is difficult to conclude that the interpretation, which forms the foundation of the claim, has no reasonable prospect of success.
• The no-costs rule under Federal Court rule 334.39 applicable to class actions is only engaged once the defendants are made parties to the certification motion, which occurs when the certification motion is filed – an outcome that may dissuade plaintiffs from advancing dubious cases in the Federal Court.

Conclusion

The Federal Court of Appeal's decision affirms past lower court decisions in which defendants have defeated section 45 conspiracy allegations in relation to "buy-side" agreements. However, amendments to the Competition Act that come into force in June 23, 2023, impose criminal liability for no-poach and wage-fixing agreements. At least as it relates to those two specific types of "buy-side" agreements, businesses need to remain especially vigilant to avoid criminal and potential civil exposure going forward.

If you have any questions about the case decision, please contact a member of the Bennett Jones Class Action Litigation group.

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