Case Documents

Competition Tribunal Tribunal de la Concurrence Reference: Commissioner of Competition v. Sears Canada Inc., 2003 Comp. Trib. 19 File no.: CT2002004 Registry document no.: 0085

IN THE MATTER OF the Competition Act, R.S.C. 1985, c. C-34; AND IN THE MATTER OF an inquiry pursuant to subparagraph 10(1)(b)(ii) of the Competition Act relating to certain marketing practices of Sears Canada Inc.;

AND IN THE MATTER OF an application by the Commissioner of Competition for an order pursuant to section 74.01 of the Competition Act.

B E T W E E N: The Commissioner of Competition (applicant)

and Sears Canada Inc. (respondent)

Date of hearing: 20030926 and 20031003 Member: Dawson J. (presiding) Date of Order: 20031006 Date of Reasons: 20031017 Order signed by: Dawson J.

REASONS FOR ORDER REGARDING RESPONDENT’S MOTION FOR LEAVE TO AMEND RESPONSE AND DIRECTING THE COMMISSIONER TO PRODUCE DOCUMENTS

[1] The respondent Sears Canada Inc. (“Sears”) filed a notice of motion, dated September 8, 2003, seeking an order granting leave to amend the responding statement of grounds and material facts filed on its behalf, as well as an order directing the Commissioner of Competition (“Commissioner”) to produce the following documents which Sears deems necessary to respond to the Commissioner’s application: Exhibit C to the affidavit of Mr. Jim King, Director, National Consumer Sales, Bridgestone/Firestone Canada Inc. (“Bridgestone”), sworn April 24, 2001, and Schedule B-4 to the affidavit of production of records and responses by Michelin North America (Canada) Inc. (“Michelin”) dated November 30, 2000, and also any records completing Schedule B-4 which may have been attached to the letter dated April 20, 2001, from Michelin. The motion was heard on September 26 and October 3, 2003. These are my reasons for issuing an order on October 6, 2003 dismissing the request to amend Sears’ responding statement of grounds and material fact and allowing, on a condition of confidentiality, the request for production of the two documents.

[2] This motion arises in the context of an application brought by the Commissioner under the ordinary selling price provisions of subsection 74.01(3) of the Competition Act, R.S.C. 1985, c. C-34 (“Act”) against Sears. The Commissioner alleges that Sears employed deceptive marketing practices which constituted reviewable conduct in connection with the promotion and sales of five lines of tires during three sales events in 1999.

[3] With respect to Sears’ motion to amend its response, Sears argues that it has condensed the response from its original 114 pages to a document approximately 45 pages in length in order to promote an expeditious and efficient hearing of this matter. Sears further argues that the Commissioner will not be prejudiced by the proposed amendments, which Sears describes to be largely stylistic in nature and not substantive. Sears submits on the motion to compel production of documents that the Commissioner has disclosed the existence, but refused to produce the requested documents; that Sears is unable to obtain these documents through other sources; that the production of the documents is required in the interests of natural justice and fairness in order for Sears to respond to the allegations levied against it in these proceedings; that the production of documents will not delay or increase the expense of the proceedings; and that no prejudice arises from the production of the necessary documents that cannot be addressed through sealing orders or such other orders as the Tribunal may find appropriate in the circumstances.

[4] The Commissioner argues that the motion should be denied, because granting Sears leave to amend its responding statement of grounds and material facts would result in prejudice to the Commissioner that could not be compensated by costs; would result in the withdrawal of certain admissions; would result in a delay in the proceedings; and would violate the common law principle of procedural fairness. The Commissioner further argues that, contrary to Sears’ arguments, the amendments would not expedite the hearing of this matter and Sears would not suffer any prejudice if the amendments were not allowed. The Commissioner opposes disclosure of the two exhibits. He argues that he does not intend to rely upon the documents and that Sears has not met the standard for discovery of the documents. Further, the Commissioner submits that the documents are protected by public interest privilege.

(i) The motion as it relates to leave to amend Sears’ response [5] No affidavit evidence was filed by Sears in support of its request for leave to file a fresh as amended response, although an affidavit in reply was filed, sworn by a law clerk employed by counsel for Sears. The reply affidavit dealt with the advice given by counsel for Sears to counsel for the Commissioner as to when the draft amended response would be available and exchanges between counsel in July and August of 2003. In its written submissions in support of the motion Sears simply submitted that “the draft Fresh As Amended Response proposed by Sears will assist in expediting the fair hearing of the matter, and will not prejudice the Commissioner”.

[6] In oral argument counsel for Sears characterized the nature of the amendments as follows:

In terms of the amendment which I will perhaps like to deal with first, let me just say by way of overview that basically what happened was that as we got into the preparation for the hearing in the spring and particularly the summer of this year, we, and by we I mean primarily I, I think, came to the conclusion that it might be useful and beneficial and indeed necessary to amend our response such that the document which was ultimately before the court was not only shorter because our initial response was 120-odd pages, but clearer with respect to the framing of the issues.

I say those things carefully because I was certainly conscious of not wanting to raise at the last minute new substantive arguments. Having said that, however, my submission to Your Honour is that it would be perfectly within my right to do that. It would be perfectly within the right of any counsel to do that, no matter how late the hour.

[...] I didn't want to set off a hornet's nest and it may or may not be relevant to your assessment of our motion to your ruling, but I can say to you that we were not trying to fundamentally change the nature of the arguments raised by Sears, but we were trying to make them better and clearer.

[7] As to the impact upon Sears if the amendment was not granted, counsel argued: If leave were to not be granted, the prejudice to Sears would really be quite significant and I think I can perhaps say irreparable insofar as Sears would have been deprived of an opportunity to put its best foot forward and put it forward in the best manner possible, as it deems it possible.

Your Honour, I stand by what I have said to Mr. Syme throughout, that we were not trying to substantively change the legal framework, but we definitely were trying to present Sears [’] arguments in a better manner. Where that is particularly so, as I say, is in respect of the arguments raised on interpretation of section 74.01. That is the prejudice that will result to Sears if leave were not granted.

THE CHAIRPERSON: Why is it not possible for Sears to make its argument as persuasively as undoubtedly you will on the basis of the pleadings? I mean the pleadings are not your legal argument. The pleadings define relevance, issues of relevance.

Why do they have to be changed for you to present a cogent opening statement and a

cogent closing statement and cogent examination and cross-examination of witnesses? MR. McNAMARA: Well, there would always be the possibility that my friend might say "That wasn't pleaded. That interpretation of section 74.01 is not in the response and this is something new. We are taken by surprise. It's too late to raise that argument."

THE CHAIRPERSON: But you are telling me that you are not changing any substantive legal position.

MR. McNAMARA: That's correct, Your Honour. I realize it's a fine line to tread, but the reality is that while we are not changing it in a fundamental way, we are making it -- we are presenting it in a much better way.

I think because this is an area that is nouveau -- it's not new in terms of time, but this is, as I understand, the first time that section 74.01 will have been actually litigated as opposed to dealt with on a plea basis or a settlement basis.

I think it important and I thought it important to present those arguments as best I possibly can and in my judgment, the initial response didn't achieve that objective all the way. It was a good effort and I don't mean to be critical of work that I and others did at the time, but it is not as good as the proposed amended version.

I very much want to be able to proceed at the hearing on the basis of the amended version. [8] There is no specific provision in the rules of the Competition Tribunal that allows for the amendment of pleadings. Rule 72(1) of the Competition Tribunal Rules, SOR/2002-62 (“Rules”) provides that where a question arises as to the practice or procedure to be followed in cases not provided for by the Rules, the practice and procedure set out in the Federal Court Rules should be followed with such modifications as the circumstances require. I therefore turn to the Rules of the Federal Court.

[9] Rule 75(1) of the Federal Court Rules, 1998, SOR/98-106 provides that before a hearing commences the Federal Court may, on motion, at any time allow a party to amend a document on such terms as will protect the rights of all parties.

[10] In Canderel Ltd. v. Canada, [1994] 1 F.C. 3, the Federal Court of Appeal considered the principles to be applied when an amendment is sought. The Court articulated the principles in the following terms at paragraph 9 of its reasons:

[...] that while it is impossible to enumerate all the factors that judge must take into consideration in determining whether it is just, in a given case, to authorize an amendment, the general rule is that an amendment should be allowed at any stage of an action for the purpose of determining the real questions in controversy between the parties, provided, notably, that the allowance would not result in an injustice to the other party not capable of being compensated by an award of costs and that it would serve the interests of justice.

[11] Before turning to the application of these principles to the present motion, it is necessary to consider the nature of the proposed amendments. They reduce the length of Sears’ response by some 70 pages. It is fair to characterize the amended pleading as being a re-written document that transcends the simple deletion or addition of some paragraphs. As noted in the affidavit

filed on behalf of the Commissioner in opposition to the amendment, some paragraphs have been deleted in their entirety, some whole new paragraphs have been added and parts of some paragraphs have been deleted with the remainder being merged with other paragraphs. Detailed factual information has been deleted from the response. For example, Sears has: deleted information as to the geographic regions in which its retail automotive centers were defined for sales and marketing purposes; deleted information with respect to the national uniformity of its advertising and the national nature of the media utilized; deleted a detailed analysis of the time test required by paragraph 74.01(3)(b) of the Act; and deleted details of the volume of each tire line sold at the regular price. In oral argument counsel for Sears did not take the position that admissions were being withdrawn. Instead counsel submitted that Sears was not changing its position with respect to matters of fact and that paragraphs had been removed in order to bring in the pleading to a more manageable length.

[12] Turning to the application of the relevant principles to the facts, Sears failed to satisfy me that the proposed amendments would help determine the real questions in controversy.

[13] The purpose of the pleading is to define the issues between the parties. As the legal and factual issues, I am told, remain the same, the proposed pleading does not, in my view, assist in determining the real questions in controversy. Indeed, to the extent that the pleading no longer contains admissions of a factual nature the effect of the proposed amendment would be to lengthen the duration of the hearing because the Commissioner will have to lead evidence on those matters and the parties advise that they have not entered into an agreed statement of fact.

[14] Moving to consideration of the issue of non-compensable prejudice, factors to be considered include the timeliness of the motion to amend, the extent to which the proposed amendments would delay the expeditious hearing of the matter, the extent to which the position of the opposite party would be undermined, and whether the amendments would facilitate consideration of the true substance of the dispute. See: Yeager v. Canada (Correctional Service), [2000] F.C.J. No. 537 (T.D.); Scanner Industries Inc. (Receiver of) v. Canada (1994), 69 F.T.R. 310 (T.D.) aff’d (1994) 172 N.R. 313 (F.C.A.).

[15] In the present case, the motion to amend was not brought on a timely basis. Sears’ original response was filed on September 18, 2002 and the Commissioner’s reply was filed on October 21, 2002. The motion to amend was filed on September 18, 2003, some six weeks before the hearing of this matter is to commence. Affidavit evidence was not filed as to why the motion was not brought at an earlier time, although I accept counsel’s explanation made in oral argument and set out above.

[16] The Commissioner adduced evidence that his reply, case strategy, case presentation and expert case were developed in contemplation of the original response (and I would expect that to be the case). The Commissioner also adduced evidence that if the amendment was to be allowed the following would result:

1. The Commissioner would have to serve and file an amended reply.

2. The Commissioner’s experts would have to review the amended response and likely revise their reports accordingly.

3. The Commissioner would have to review the amended response to determine the significance of any changes for his case strategy and case preparation generally.

4. The Commissioner would have to determine whether he would seek discovery. 5. The Commissioner has allotted time for his case preparation, including expert affidavits, rebuttal expert affidavits, confidentiality designations and interlocutory litigation based on the schedule set by the Tribunal’s scheduling order. All of the extra work resulting from an amended response would have to take place during this time.

6. Diverting the Commissioner’s resources to address the amended pleading would have a significant impact on the Commissioner’s ability to meet other aspects of the pre-hearing procedures schedule.

7. Because the amended pleading is so substantially different from the original response, the Commissioner “would have to ‘catch’ all the changes, and their significance to all aspects of his case and case preparation, and make changes as a result”. It may not be possible for the Commissioner to “catch” all of the changes and then to make the resulting changes to the reply and to his case strategy in the limited time available.

8. As a result of a significant amount of extra work that would result from the amended pleading, the Commissioner’s ability to properly prepare for the hearing would be prejudiced.

[17] In my view, the nature and the extent of the proposed amendments would be likely to lead to those results.

[18] Together, I am satisfied that the evidence establishes that the Commissioner would be prejudiced if the amendments were allowed. As to whether such prejudice could be remedied, Mr. Justice Rothstein, then a member of the Competition Tribunal, noted in Canada (Director of Investigation and Research, Competition Act) v. D & B Companies, [1994] C.C.T.D. No. 17, that the Commissioner (then the Director of Investigation and Research) has the responsibility to protect the public interest in respect of matters within his jurisdiction under the Act. Mr. Justice Rothstein refused to adjourn a hearing before the Tribunal, in part on the basis that a strong case existed that to adjourn the hearing might well cause irreparable harm to the public interest.

[19] Similarly, in this case I conclude that the public interest in the fair and expeditious hearing of this matter would not be served by allowing the amendment. The Commissioner has satisfied me that the effect of the amendment would be either to prejudice his ability to prepare properly for the hearing or to require that the hearing be adjourned.

[20] Further, and importantly, I have not been satisfied that refusing the amendment would result in any prejudice to Sears. If its response suffers from being prolix, counsel can adequately explain Sears’ case through the opening statement, the direct and cross-examination of witnesses and final argument. Sears does not argue that the present pleading limits its ability to lead evidence or to address argument to the Tribunal.

[21] On balance, therefore, after weighing these factors, in the exercise of my discretion, I concluded that it is more consonant with the interests of justice that the amendment be refused.

(ii) The motion as it relates to disclosure [22] This is Sears’ second request for disclosure. In November of 2002 it sought leave to conduct wide ranging discovery. Specifically, Sears sought:

(i) an order directing all non-expert witnesses who will testify at the hearing of the application at the request of the Commissioner, to attend individually for examination for discovery, or, alternatively, for cross-examination by counsel for the respondent on their will-say statements served by the Commissioner;

(ii) an order directing a Compliance Officer with the Competition Bureau, Industry Canada, who has been involved in gathering and analysing the information relied on by the Commissioner in respect of this application to attend for examination for discovery or, alternatively, for cross-examination on his will-say statement, if any, served by the Commissioner herein; and

(iii) an order directing a representative of Bridgestone, and of Michelin to attend for cross-examination on their affidavits identified in the disclosure statement served by the Commissioner on August 6, 2002 herein, by counsel for the respondent, at Toronto, Ontario.

In the alternative, Sears sought an order requiring the Commissioner to produce to it meaningful written summaries of all relevant information gathered in the context of the inquiry conducted by the Commissioner, to the extent that such information did not come from Sears.

[23] When that earlier motion was brought no specific attack was made on the adequacy of the Commissioner’s disclosure statement as it related to the allegations of reviewable conduct. Further, at that time the Commissioner agreed to provide will-say statements to Sears in respect of the affidavits provided on behalf of Bridgestone and Michelin.

[24] Sears’ earlier motion was dismissed on the ground that Sears had not established on the record then before the Tribunal that the broad discovery it sought was warranted. At paragraph 19 of my reasons dismissing the motion, reported at [2003] C.C.T.D. 1, I wrote that:

19. The disclosure provided by the Commissioner in his pleadings and disclosure statement and in the documents and will-say statements to be provided has not been shown to fall short of disclosing to Sears the case it has to meet. The affidavit filed in support of Sears' motion for

discovery was sworn by a lawyer with the firm of solicitors representing Sears in this matter. It was confined to describing the procedural steps in the investigation which led to this application and in this application. The affidavit did not focus on specific information or documents said to be necessary for the defence of the application, did not state that Sears is unable to obtain this information without discovery, did not allege any actual unfairness if Sears has to proceed to hearing without specific evidence, and did not deal with the delay or expense which would flow from granting the requested discovery. These are things which in my view are relevant considerations when assessing whether discovery is warranted by the circumstances. [25] The production which Sears now seeks is limited to two documents which, as noted above, are each exhibited to affidavits sworn on behalf of Bridgestone and Michelin. Those entities manufacture four of the five relevant tire lines and each was required to provide certain records and information relevant to the Commissioner’s inquiry pursuant to section 11 of the Act. Counsel advise that Mr. King of Bridgestone and a representative of Michelin are expected to testify at the upcoming hearing as part of the Commissioner’s case.

[26] In his disclosure statement the Commissioner, as he was required to do, specified the documents he was relying upon. With respect to the King affidavit, the Commissioner listed the affidavit as a document relied upon and then, after describing the affidavit by deponent and date, wrote “including the following Exhibits”. There followed a list consisting of Exhibits A, B, D and G. With respect to the Michelin affidavit, the disclosure statement again described the affidavit by deponent and date and then specified that it included Schedules A1, A2, A3, A4 and also documents subsequently submitted completing Schedules A1, A2, A3 and B4.

[27] Sears now asserts that, having disclosed the existence of the affidavits, the Commissioner is obliged to disclose each in its entirety. Alternatively, Sears argues that the two omitted exhibits should be available to Sears on the basis that discovery of the documents is warranted within the contemplation of paragraph 21(2)(d.1) of the Rules.

[28] In resisting disclosure or discovery of the documents counsel for the Commissioner observed that Sears’ motion was “on the cutting line or the intersection between the disclosure tract and fairness”. Counsel argued that the Commissioner has not disclosed the exhibits in the disclosure statement because a fair reading of the disclosure statement shows the intent to exclude the exhibits from disclosure. The exhibits in question were said to be severable from the portions of the affidavits relied upon because the affidavits provided pursuant to section 11 of the Act are “a matrix within which information provided by the parties is set out and attached” as opposed to being a narrative affidavit. Discovery of the exhibits was said not to be warranted under the Rules because the primary consideration should be whether the disclosure provided enables a respondent to know the case to be met so as to have a meaningful opportunity to present its case. It was also said that the evidence before the Tribunal on this motion fails to establish that Sears does not know the case it has to meet.

[29] Notwithstanding the submission of counsel for the Commissioner, I am satisfied on the record now before me that discovery of the exhibits in question is warranted. I reach that conclusion on the basis that, in my view, it is not sufficient simply to ask whether the disclosure provided falls short of disclosing to Sears the case it has to meet.

[30] In Commissioner of Competition v. Canada Pipe Company, 2003 Comp. Trib. 15 Mr. Justice Blanchard was required to consider whether the Rules as they relate to disclosure by the Commissioner violate a respondent’s right to a fair hearing. After analysing the content of the duty of fairness in light of the five factors set out by the Supreme Court of Canada in Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817, Mr. Justice Blanchard wrote , at paragraph 53, that a respondent’s “right to a fair hearing [before the Tribunal] would be fulfilled by a process that provides a respondent the right to know the case against it and the right to have a meaningful opportunity to present evidence supporting its own case”. [underlining added]