Case Documents

PUBLIC CT-2017-008 THE COMPETITION TRIBUNAL

IN THE MATTER of the Competition Act, R.S.C. 1985, c. C-34, as amended; and AND IN THE MATTER OF an application for orders pursuant to section 74.1 of the Competition Act for conduct reviewable pursuant to paragraph 74.01(1)(a) and subsection 74.01(3) of the Competition Act.

BETWEEN: THE COMMISSIONER OF COMPETITION Applicant - and - HUDSON’S BAY COMPANY Respondent MEMORANDUM OF FACT AND LAW OF THE RESPONDENT (MOVING PARTY) (Refusals Motion returnable November 20, 2018)

November 9, 2018 STIKEMAN ELLIOTT LLP 5300 Commerce Court West 199 Bay Street Toronto, Ontario M5L 1B9

Eliot N. Kolers LSO# 38304R Phone: (416) 869-5637 Email: ekolers@stikeman.com

Mark E. Walli LSO# 53266L Phone: (416) 869-5577 Email: mwalli@stikeman.com

Patricia Joseph LSO# 75535Q Phone: (416) 869-5642 Email: pjoseph@stikeman.com Fax: (416) 947-0866

Counsel for the Respondent TO: Attorney General of Canada Department of Justice Canada Competition Bureau Legal Services Place du Portage, Phase 1 50 Victoria Street, 22nd Floor Gatineau, QC K1A 0C9

Alexander Gay Phone: (819) 994-3068 Email: alex.gay@canada.ca

Derek Leschinsky Phone: (819) 956-2842 Email: Derek.Leschinsky@canada.ca

Katherine Rydel Phone: (819) 997-2837 Email: katherine.rydel@canada.ca

Counsel for the Commissioner of Competition AND TO: The Registrar Competition Tribunal Thomas D’Arcy McGee Building 1 90 Sparks Street, Suite 600 Ottawa, ON K1P 5A4

THE COMPETITION TRIBUNAL

IN THE MATTER of the Competition Act, R.S.C. 1985, c. C-34, as amended; and AND IN THE MATTER OF an application for orders pursuant to section 74.1 of the Competition Act for conduct reviewable pursuant to paragraph 74.01(1)(a) and subsection 74.01(3) of the Competition Act.

BETWEEN: THE COMMISSIONER OF COMPETITION Applicant - and - HUDSON’S BAY COMPANY Respondent MEMORANDUM OF FACT AND LAW OF THE RESPONDENT (MOVING PARTY) (Refusals motion returnable November 20, 2018)

TABLE OF CONTENTS PAGE OVERVIEW ....................................................................................................................................1 PART I - STATEMENT OF FACTS ..............................................................................................3 A. Statutory Framework for the Commissioner’s Claims ......................................................3 B. The Bureau’s Ordinary Price Guidelines ..........................................................................6 PART II - STATEMENT OF ISSUES ............................................................................................7 PART III - SUBMISSIONS.............................................................................................................7 A. Scope of Examinations for Discovery ...............................................................................7 i. Relevance .................................................................................................................8 ii. Litigation Privilege ..................................................................................................9 B. The Refused Questions should be Answered ..................................................................11 i. The Questions are plainly Relevant to Matters in Issue ........................................11 (1) Refusals 1-2 and 15-18 .......................................... Error! Bookmark not defined. (2) Refusals 4-10, 13-14, 26-27, and 29 ...................... Error! Bookmark not defined. (3) Refusals 11-12, 19-25, 28 and 30 .......................... Error! Bookmark not defined. ii. The Information sought is not Privileged ..............................................................11 - i -

CT-2017-008

PART IV - ORDER SOUGHT ......................................................................................................11 SCHEDULE “A” LIST OF AUTHORITIES ................................................................................12

- ii -

1. The Respondent, Hudson’s Bay Company (“HBC”), submits this factum in support of its motion for an Order requiring the Applicant, the Commissioner of Competition (the “Commissioner”), to answer the questions asked during the Examination for Discovery of the Commissioner’s representative, Adam Zimmerman, held September 6-7, 2018 (the “Zimmerman Examination”) which are set out in the chart at Schedule “A” to HBC’s Notice of Motion (the “Refusals Chart”) forthwith, and directing that Mr. Zimmerman re-attend for follow-up examination by HBC at the Commissioner’s expense.

OVERVIEW 2. In this Application, the Commissioner asserts that HBC has engaged in reviewable conduct under section 74 of the Competition Act, R.S.C. 1985, c. C-34 (“Act”) in advertising sleep sets (mattresses) it has offered for sale in Canada.

3. The Commissioner has impugned HBC’s (former) “high-low” pricing strategy for mattresses, whereby HBC periodically offered promotional prices on mattresses that were deeply discounted from HBC’s regular prices for them, contending that this strategy contravened section 74.01(3) of the Act, because HBC allegedly did not offer the mattresses in good faith at the regular price for a substantial period of time before making the promotional pricing representations.

4. The Commissioner also alleges that HBC’s use of the words “clearance” and (later) “end of line” in certain promotional advertising for mattresses contravened section 74.01(1) of the Act, because those terms purportedly each imply “that the price has been permanently lowered with the object of selling any remaining on-hand inventory” whereas HBC continued “to replenish from manufacturers by ordering new, factory fresh mattresses during these sales” (emphasis added). 1 5. The relief sought by the Commissioner in this proceeding includes a prohibition order and administrative monetary penalties against HBC pursuant to section 74.1 of the Act.

6. In its Response, HBC denies that it has contravened the Act. Among other things, HBC pleads that the Commissioner’s attack on HBC’s (former) high-low marketing strategy for

1 Amended Notice of Application of the Commissioner at para 7.

- 2 - mattresses is based on an inherently flawed interpretation of the meaning of “good faith” in paragraph 74.01(3)(b) of the Act, one which is in conflict with the Ordinary Price Guidelines published by the Competition Bureau (the “Bureau”) on the subject. HBC states that its regular prices for mattresses were real prices offered in good faith, having been set “in relation to and [being] in line with the regular prices of Hudson Bay’s main, and much larger, retail competitors in the sale of mattresses in Canada.” HBC further pleads that its ordinary price representations for mattresses were not “false or misleading in a material respect” when viewed in the context of the “competitive nature of advertising and pricing for mattresses in Canada in which most of Hudson’s Bay’s major competitors follow[ed] similar ‘high-low’ pricing strategies”. 2 7. HBC also denies that its use of the terms “clearance” or “end of line” contravened the Act. It asserts that neither term, when used in respect of mattress sales, creates the general impression of selling only out of existing inventory contended for by the Commissioner, and further pleads that, in any event, those representations were not false or misleading in any material respect, when HBC’s advertising is viewed in its competitive context - that is, in relation to the advertising and marketing strategies adopted by HBC’s significantly larger competitors in the sale of mattresses in Canada.

8. Having defined these issues in their pleadings, the parties made their document productions and conducted their respective examinations for discovery. This motion concerns the Commissioner’s refusal to answer 30 proper questions asked by HBC during the Zimmerman Examination, as set out in the Refusals Chart. 3 9. The lion’s share of these refusals involve HBC’s requests for disclosure of documents, information, and knowledge that the Commissioner has or may have obtained concerning the advertising, pricing, and marketing practices of HBC’s competitors in the sale of mattresses in Canada. All of this information plainly is relevant to the disputed issues in this proceeding, as defined by the pleadings and summarized above.

2 Amended Response of HBC at paras 3-5. 3 The Commissioner refused many more than these 30 questions on the Zimmerman Examination but HBC has limited this motion to just these 30 questions which it considers material to its ability to fully and fairly respond to the Commissioner’s allegations.

- 3 - 10. Indeed, the Commissioner’s refusal to answer these questions on the purported grounds that they are irrelevant: (i) attempts to write HBC’s Response to the Commissioner’s Application out of existence; (ii) conflicts with the position on relevance taken by the Bureau in its own Ordinary Price Guidelines; and (iii) flies in the face of the statutory framework for the Commissioner’s claims and requested relief against HBC in this proceeding under section 74 of the Act, all of which require consideration of the competitive context in which the impugned conduct occurred. The Commissioner’s attempt to have its claims against HBC adjudicated in a competitive vacuum is contrary to the Act, is prejudicial to HBC, denies the Tribunal the factual/contextual framework for the adjudication of the matter, and must be rejected.

11. In addition, the Commissioner has refused a few of the questions on the Refusals Chart on the purported grounds that the information sought is protected by litigation privilege. His position appears to be that, after the date he claims that litigation against HBC was reasonably anticipated (June 17, 2016), litigation privilege applies to prevent disclosure of any factual information [REDACTED].

12. HBC’s motion should be granted, with costs. PART I - STATEMENT OF FACTS 13. A brief review of the provisions of the Act applicable to the claims asserted and relief sought by the Commissioner in this proceeding, and the Bureau’s own Ordinary Price Guidelines in respect of those provisions, confirms that the competitive context in which HBC’s impugned conduct occurred is highly relevant to, and must be considered in determining, the issues raised by the Commissioner in this proceeding.

A. Statutory Framework for the Commissioner’s Claims 14. The Commissioner’s claims in respect of HBC’s use of the terms “clearance” and “end of line” in certain promotions for sleep sets are brought under subsection 74.01 (1) (a) of the Act, which provides, in relevant part, that a “person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever,

- 4 - (a) makes a representation to the public that is false or misleading in a material respect […]. [emphasis added]

15. The Commissioner’s challenge to HBC’s former high-low pricing strategy for mattresses is brought under subsection 74.01(3) of the Act, which provides that:

A person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever, makes a representation to the public as to price that is clearly specified to be the price at which a product or like products have been, are or will be ordinarily supplied by the person making the representation where that person, having regard to the nature of the product and the relevant geographic market,

(a) has not sold a substantial volume of the product at that price or a higher price within a reasonable period of time before or after the making of the representation, as the case may be; and

(b) has not offered the product at that price or a higher price in good faith for a substantial period of time recently before or immediately after the making of the representation, as the case may be. [emphasis added]

16. The Commissioner’s request for relief against HBC in respect of the purported contraventions of subsections 74.01(1)(a) and 74.01(3) is governed by section 74.1 of the Act, which provides that:

Where, on application by the Commissioner, a court determines that a person is engaging in or has engaged in reviewable conduct under this Part, the court may order the person

(a) not to engage in the conduct or substantially similar reviewable conduct;

(b) to publish or otherwise disseminate a notice, in such manner and at such times as the court may specify, to bring to the attention of the class of persons likely to have been reached or affected by the conduct, the name under which the person carries on business and the determination made under this section, including

(i) a description of the reviewable conduct, (ii) the time period and geographical area to which the conduct relates, and

- 5 - (iii) a description of the manner in which any representation or advertisement was disseminated, including, where applicable, the name of the publication or other medium employed;

(c) to pay an administrative monetary penalty, in any manner that the court specifies, in an amount not exceeding

(i) in the case of an individual, $750,000 and, for each subsequent order, $1,000,000, or

(ii) in the case of a corporation, $10,000,000 and, for each subsequent order, $15,000,000; and

(d) in the case of conduct that is reviewable under paragraph 74.01(1)(a), to pay an amount, not exceeding the total of the amounts paid to the person for the products in respect of which the conduct was engaged in, to be distributed among the persons to whom the products were sold — except wholesalers, retailers or other distributors, to the extent that they have resold or distributed the products — in any manner that the court considers appropriate.

17. Moreover, the Commissioner’s request that an administrative monetary penalty (“AMP”) be ordered against HBC engages subsection 74.1 (5) of the Act, which provides that:

Any evidence of the following shall be taken into account in determining the amount of an administrative monetary penalty under paragraph (1)(c):

(a) the reach of the conduct within the relevant geographic market; (b) the frequency and duration of the conduct;

(c) the vulnerability of the class of persons likely to be adversely affected by the conduct;

(d) the materiality of any representation; (e) the likelihood of self-correction in the relevant geographic market; (f) the effect on competition in the relevant market; (g) the gross revenue from sales affected by the conduct; (h) the financial position of the person against whom the order is made; (i) the history of compliance with this Act by the person against whom the order is made;

- 6 - (j) any decision of the court in relation to an application for an order under paragraph (1)(d);

(k) any other amounts paid or ordered to be paid by the person against whom the order is made as a refund or as restitution or other compensation in respect of the conduct; and

(l) any other relevant factor. [emphasis added]. B. The Bureau’s Ordinary Price Guidelines 18. As summarized in the Overview, one of the central disputed issues framed by the parties’ pleadings in this proceeding is whether HBC did or did not offer its sleep sets at the regular price “in good faith” within the meaning of subsection 74.01(3)(b) of the Act.

19. Although they do not have the force of law, the Bureau has published Ordinary Price Guidelines which, among other things, set out the factors it considers to be relevant when assessing whether a seller has offered its products “in good faith” for purposes of subsection 74.01(3)(b), as follows:

4.2.2 Ordinary price claims relating to offered prices (time test) 4.2.2.1 In good faith In assessing if a product was offered for sale in good faith, some of the factors that the Bureau would likely consider include whether: (a) the product was openly available in appropriate volumes;

(b) the reference price was based on sound pricing principles and/or was reasonable in light of competition in the relevant market during the time period in question;

(c) the reference price was a price that the supplier fully expected the market to validate, whether or not the market did validate this price; and/or

(d) the reference price was a price at which genuine sales had occurred, or it 4 was a price comparable to that offered by competitors. 4 Competition Bureau Canada, Enforcement Guidelines – Ordinary Price Claims: Subsections 74.01(2) and 74.01(3) of the Competition Act (Ottawa: Competition Bureau, 2009) at 6-7.

- 7 - 20. The foregoing provisions of the Act and the Bureau’s guidelines on them make it clear that the conduct impugned by the Commissioner in this proceeding cannot be adjudicated in a competitive vacuum. Rather, HBC’s conduct in respect of advertising, pricing, and selling sleep sets must be considered in light of the practices of its competitors in order to assess whether the Act was contravened, including as to the determination of whether any representation by HBC was “false or misleading in a material respect” and whether HBC offered its regular prices for mattresses “in good faith”. In addition, the effect, if any, of HBC’s conduct on competition in the market must be determined before any AMP could be awarded by the Tribunal.

21. As discussed further below, this legal framework for the disputed issues in this proceeding is fatal to the Commissioner’s position that the questions on the Refusals Chart are not relevant.

PART II - STATEMENT OF ISSUES 22. The issue raised on this motion is whether the Commissioner should be ordered to answer the questions on the Refusals Chart, which requires consideration of whether:

(a) the questions are relevant; and (b) answers to some of the questions are not required because the information sought is protected by the litigation privilege

PART III - SUBMISSIONS A. Scope of Examinations for Discovery 23. Section 64 of the Competition Tribunal Rules (SOR/2008-141) (the “Rules”) provides: (1) Examination for discovery shall occur as of right. (2) The Tribunal may, in case management, make rulings to deal with the timing, duration, scope and form of the discovery as well as the appropriate person to be discovered.

- 8 - 24. In an examination for discovery, a witness should answer all questions relevant to the inquiry unless the question is properly objected to on the enumerated grounds noted under Rule 242 (1) of the Federal Courts Rules (SOR/98-106) 5 : A person may object to a question asked in an examination for discovery on the ground that

(a) the answer is privileged; (b) the question is not relevant to any unadmitted allegation of fact in a pleading filed by the party being examined or by the examining party;

(c) the question is unreasonable or unnecessary; or (d) it would be unduly onerous to require the person to make the inquiries referred to in rule 241. 6 i. Relevance 25. In Merck & Co. v Apotex Inc., Strayer J.A., stated that: A person who is a party to a civil action is entitled to ask any question on discovery that is relevant to the issue: that is a matter of justice to him, subject of course to the discretionary power of the prothonotary or a judge to disallow the question where it is abusive[.] 7 26. In Lehigh Cement Ltd. v R, the Federal Court of Appeal noted the broad scope of relevance on examinations for discovery:

The jurisprudence establishes that a question is relevant when there is a reasonable likelihood that it might elicit information which may directly or indirectly enable the party seeking the answer to advance its case or to damage the case of its adversary, or which fairly might lead to a train of inquiry that may either advance the questioning party's case or damage the case of its adversary. Whether this test is met will depend on the allegations the questioning party seeks to establish or refute. 8 27. As discussed below, the Commissioner’s contention that the questions on the Refusals Chart are irrelevant is untenable under these established principles.

5 The Tribunal may have regard to Section 242 (1) of the Federal Courts Rules pursuant to Rule 34(1) of the Competition Tribunal Rules. 6 See also Merck & Co v Apotex Inc, 2003 FCA 438 at para 13. 7 Ibid at para 13. 8 Lehigh Cement Ltd. v R, 2011 FCA 120 at para 34.

- 9 - ii. Litigation Privilege 28. The Commissioner has also invoked litigation privilege as a purported grounds for objecting to certain questions on the Refusals Chart, at least insofar as they relate to facts/information the Commissioner may have learned/obtained after June 17, 2016 – the date on which the Commissioner suggests that this proceeding against HBC became reasonably anticipated (note that it is over 7 months before the date the Notice of Application was issued).

29. It is well settled that litigation privilege creates a “zone of privacy” in pending litigation to ensure the efficacy of the adversarial process 9 . It attaches to documents that are created for the dominant purpose of prosecuting or defending reasonably contemplated litigation and protects such documents from compulsory production for inspection to other parties in litigation.

30. It is also well settled that the zone of privacy created by litigation privilege is limited. Significantly, underlying facts contained or reflected in a privileged document are not themselves privileged. 10 As the Court stated in Susan Hosiery Ltd v Canada (Minister of National Revenue):

…whether we are thinking of a letter to a lawyer for the purpose of obtaining a legal opinion or of a statement of facts in a particular form requested by a lawyer for use in litigation, the letter or statement itself is privileged but the facts contained therein or the documents from which those facts were drawn are not privileged from discovery if, apart from the facts having been reflected in the privileged documents, they would have been subject to discovery. For example, the financial facts of a business would not fall within the privilege merely because they had been set out in a particular way as requested by a solicitor for purposes of litigation, but the statement so prepared would be privileged. 11 [emphasis added]

31. Applying this principle in Pearson v. Inco Ltd., the Ontario Superior Court of Justice ordered the disclosure of relevant facts contained in notes prepared by a summer student

9 Blank v Canada, 2006 SCC 39 at paras 27 and 34. 10 Robert W Hubbard, Susan Magotiaux & Susan Duncan, The Law of Privilege in Canada, vol 1 (Toronto: Thomson Reuters, 2018) at §12.10. 11 Susan Hosiery Ltd v Minister of National Revenue, [1969] CTC 353, 69 DTC 5278 (Ex Ct Can) at para 10, emphasis added.

- 10 - employed by class counsel. The notes themselves were protected by litigation privilege, but the underlying facts within the notes were not. 12 32. In Canada (Director of Investigation & Research) v. Washington, the Tribunal recognized these limits on the scope of litigation privilege:

The law is clear that factual information must be provided and is not protected by privilege even if facts were obtained through an investigation conducted by counsel. 13 33. In Washington, the Tribunal ordered one of the respondents to answer questions which had been asked on examination for discovery for “… factual information relating to the issues arising from the pleadings or for the names and addresses of persons who have provided specific, material factual information [to the respondent] with respect to issues in the case, whether the information be positive or negative [.]” 14 The Tribunal declared that “The Director is entitled to ask factual questions arising from the pleadings.” 15 34. Recently, in Vancouver Airport Authority v. Commissioner of Competition, the Federal Court of Appeal held that “Competition Tribunal proceedings are subject to procedural fairness obligations at the highest level, akin to court proceedings,” which require the Commissioner to disclose “evidence that is relevant to issues in the proceedings”. 16 [REDACTED]. 35. These principles are fatal to the Commissioner’s assertion of litigation privilege over certain questions on the Refusals Chart, as discussed below.