PUBLIC VERSION

Reference: The Commissioner of Competition v Hudson’s Bay Company, 2019 Comp. Trib. 2

File No.: CT-2017-008

Registry Document No.: 178

IN THE MATTER OF the Competition Act, RSC, 1985, c C-34 as amended;

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)

Date of hearing: March 12, 2019

Before Judicial Member: J. Gagné

Date of Order and Reasons: March 28, 2019

ORDER AND REASONS FOR ORDER REGARDING MOTIONS FILED BY THE COMMISSIONER OF COMPETITION AND THE HUDSON’S BAY COMPANY

[1]  On February 22, 2017, the Commissioner of Competition (“Commissioner”) brought a Notice of Application pursuant to section 74.1 of the Competition Act, RSC 1985, c C-34 (“Act”), alleging that the Hudson’s Bay Company (“HBC”) has previously engaged in and continues to engage in two types of reviewable conduct contrary to paragraph 74.01(1)(a) and subsection 74.01(3) of the Act.

[2]  First, in contravention of subsection 74.01(3) of the Act, the Commissioner alleges that HBC has engaged in deceptive marketing practices by offering sleep sets at grossly inflated regular prices, and then advertising deep discounts off these deceptive regular prices in order to promote the sale of the sleep sets to the public.

[3]  Second, in contravention of paragraph 74.01(1)(a) of the Act, the Commissioner alleges that HBC engages in deceptive marketing practices by offering its sleep sets as part of inventory “clearance” or “end of line” promotions. The Commissioner contends that a “clearance” or “end of line” sale implies that the price has been permanently lowered, with the object of selling any remaining on-hand inventory. Despite such advertisements, the Commissioner alleges that HBC continues to replenish from manufacturers by ordering new sleep sets during these sales.

[4]  On March 28, 2018, the Tribunal issued its Amended Scheduling Order which provides for all the remaining procedural steps to be accomplished by the parties prior to the commencement of the hearing on May 6, 2019.

[5]  According to the Amended Scheduling Order, the Commissioner had until December 19, 2018, to serve the documents he intends to rely upon at the hearing, along with his witness statements and expert reports. He had until January 4, 2019, to serve the list of documents proposed to be admitted in accordance with Rule 72 of the Competition Tribunal Rules, SOR/2008-141 (“Tribunal’s Rules”) and section 69 of the Act.

[6]  The Tribunal is now seized with a Motion on behalf of HBC for orders:

• Striking out the report of the proposed expert, Theodore L. Banks, dated December 18, 2018 (“Banks Report”), or sections thereof;
• Striking out the witness statement of Adam Zimmerman affirmed December 19, 2018 (“Zimmerman Statement”);
• Striking out Schedules B and C of the Commissioner’s letter to counsel for HBC dated January 4, 2019 (“Rule 72 Notice”);
• Granting costs on its Motion.

[7]  The Tribunal is also seized with a Motion from the Commissioner for orders:

• Allowing the Commissioner to serve on HBC and file the supplemental witness statement of Adam Zimmerman (“Supplemental Zimmerman Statement”), outside of the time period provided for in the Amended Scheduling Order;
• Removing certain confidentiality claims made by HBC on documents and statements contained in the Zimmerman Statement, the Banks Report and the report of Dr. Joel Urbany, along with other ancillary orders regarding the confidentiality of the parties’ Motion Records and materials.

[8]  Those motions were heard together on March 12, 2019, and at the end of the hearing, the Tribunal instructed the parties to further discuss and try to agree on the contents of a public version for the parties’ Motions Records. Failing an agreement before April 5, 2019, counsel for the Commissioner is to contact the Tribunal to seek a new date for the hearing of his Motion for orders regarding confidentiality.

I.  Should the Banks Report be struck out in part or in whole?

[9]  Theodore L. Banks is a partner in the law firm of Scharf Banks Marmor LLC located in Chicago. He is also an adjunct professor at the Loyola University School of Law in Chicago where he teaches Compliance, Risk Management and Global Competition. He serves as a compliance monitor for the Federal Trade Commission and the Competition Bureau and is the president of Compliance & Competition Consultants, LLC, a compliance consulting firm.

[10]  Mr. Banks is presented by the Commissioner as a corporate compliance expert. In his report, he gives evidence on corporate practices and procedures relating to compliance programs, and on what he calls the “consensus” standards adopted by different countries as to what constitutes an effective compliance program. He then moves to compare HBC’s Advertising Compliance Manuals and Code of Business Conduct with those standards. He mainly concludes that HBC’s program contains substantive weaknesses and that many of the consensus compliance elements are missing.

[11]  In my view, these parts of the Banks Report are admissible expert opinion evidence tendered in Canadian proceedings. It is not clear and obvious that they will not assist the Tribunal in assessing HBC’s defence of due diligence. They appear to be logically relevant and they are not subject to any other exclusionary rule (White Burgess Langille Inman v Abbott and Haliburton Co., 2015 SCC 23).

[12]  However, in a few places in the Banks Report, Mr. Banks goes further and states that HBC did not meet the “good faith” requirement of the Ordinary Sales Price provisions of the Act, and that the deficiencies observed in its compliance program prevented HBC to argue that it exercised “due diligence”. On one occasion, he concludes that “the reviewable conduct in the sale of mattresses occurred based on the deficient compliance practices of HBC” (para 15).

[13]  These comments and any inference Mr. Banks makes that HBC did not comply with the Act have to be struck out of the Banks Report as they are different forms of usurpation of the Tribunal’s role as the trier of fact. Paragraphs 14, 15 (first sentence), 67 (comment contained in parentheses), 77 (last sentence), 95 (last sentence), 123 (last sentence), 135, 137 (only: “particularly with regard to establishment of good faith.”), 138 (last sentence), 139, 142 (second to last sentence) and 143 will be struck out.

[14]  As for HBC’s arguments i) that the Banks Report enunciates false premises of facts and law, and ii) that Mr. Banks is not an impartial, independent and unbiased expert witness because he merely advocates the Commissioner’s theory of the case, those are, in my view, premature. HBC will have ample occasion to raise those arguments at the hearing, after the Tribunal has heard all the evidence and after HBC’s counsel has had the opportunity to cross-examine Mr. Banks. The Tribunal can then fully act in its gatekeeper role and assess Mr. Banks’ impartiality and independence.

II.  Should the Zimmerman Statement be struck out?

[15]  Adam Zimmerman is a Senior Competition Law Officer with the Competition Bureau. He swore to the Zimmerman Statement, per Rule 68(2), as “fact evidence that could be given orally by the witness”. The Zimmerman Statement is a 328 page document containing 480 paragraphs. HBC argues that the Zimmerman Statement should be struck in its entirety as it is replete with arguments, opinion, factual findings, speculation and hearsay. HBC further takes offence with the fact that the Zimmerman Statement references discovery evidence (it contains 142 paragraphs of direct quotes from the HBC’s discovery transcripts) to draw legal or factual conclusions on every issue in this proceeding.

[16]  In advance of the hearing of these motions, the Commissioner proposed some amendments to the Zimmerman Statement in an attempt to attenuate HBC’s concerns.

[17]  I heard the parties’ oral submissions and at the end of the hearing, counsel for HBC proposed to revisit the proposed amendments and provide counsel for the Commissioner with the amendments he would find sufficient to validate the Zimmerman Statement.

[18]  The parties have had further discussions and on March 15, 2019, counsel for HBC informed the Tribunal that although HBC maintains its position that the Zimmerman Statement should be struck in its entirety, the parties have agreed on a blue-lined version of the Zimmerman Statement.

[19]  The Tribunal is not convinced at this stage that the blue-lined version of the Zimmerman Statement contains inadmissible evidence. The Tribunal will exercise its discretion to defer ruling on the admissibility of the Zimmerman Statement until the witness has been examined and cross-examined (The Commissioner of Competition v Vancouver Airport Authority, 2018 Comp Trib 15 at paras 12-23).

[20]  The Zimmerman Statement will therefore be struck with leave granted in favour of the Commissioner to serve on HBC and re-file the witness statement of Mr. Zimmerman before April 5, 2019, in conformity with the blue-lined version provided to the Tribunal on March 15, 2019.

III.  Should Appendices B and C to the Rule 72 Notice be struck out?

[21]  On January 4, 2019, the Commissioner delivered his notice pursuant to Rule 72, containing the list of documents to be admitted as evidence without further proof in accordance with section 69 of the Act, therefore benefitting from the rebuttable presumption created therein. The Commissioner’s Rule 72 Notice consists of some 98,752 documents listed in three Appendices:

1. Appendix A lists documents attached to the Zimmerman Statement, Banks Report and Urbany report, which HBC does not take issue with;
2. Appendix B lists HBC’s complete documentary disclosure materials (94,576 documents) including those submitted under section 11 orders; and
3. Appendix C lists 4,176 documents described as “representations and court documents” which appears to contain all documents listed in the affidavits of documents submitted by the Commissioner.

[22]  On February 22, 2019, after receipt of HBC’s Notice of Motion to strike, the Commissioner delivered an Amended Rule 72 Notice, whereby he states that while he intends to proceed at trial on the basis of documents listed in Appendix A, he “reserves the right to admit without further proof additional documents in responding to HBC’s case such as those which may be included with the Commissioner’s Reply and for purposes of cross examination at the hearing.”

[23]  Rule 72 must not be applied in a manner that would result in procedural unfairness to either party.

[24]  HBC argues that procedural fairness requires the Commissioner to disclose to HBC evidence that is relevant to issues in the proceedings, and adds that this is necessary for HBC to know the case it has to meet and to fairly defend itself against the Commissioner’s allegations (Vancouver Airport Authority v Commissioner of Competition, 2018 FCA 24, at para 30).

[25]  HBC argues that the Commissioner makes a disproportionate use of the rebuttable presumption created by section 69 of the Act by seeking its application to all of HBC’s productions on discovery. I agree.

[26]  In my view, it would be procedurally unfair to HBC to have to prepare for the hearing of this case not knowing ultimately which of the 98,000 plus documents listed in Appendices B and C will benefit from the presumption and could require that rebuttal evidence be presented at trial. Notices given under Rule 72 should only concern documents that the Commissioner actually intends to tender and rely upon as part of that party’s case at the hearing.

[27]  In addition, the Commissioner argues that the Amended Scheduling Order is unfair to him because it forced him to serve his Rule 72 Notice (January 4, 2019) before he had to serve his reply material (March 22, 2019). This argument has no merit. It could be that the Amended Scheduling Order provides for a timeline that is different from that provided for by the Tribunal’s Rules, but the sequence of pre-hearing disclosure is the same. Under the Amended Scheduling Order, the Commissioner still had to serve his Rule 72 Notice before HBC served its response (March 1, 2019) and before the Commissioner served its reply (March 22, 2019). As it is the sequence of pre-hearing disclosure provided for by the Tribunal’s Rules, the Amended Scheduling Order cannot be said to result in procedural unfairness to the Commissioner.

[28]  Appendices B and C will therefore be struck out of the Commissioner’s Rule 72 Notice and his reservation of rights will be declared invalid.

IV.  Should the Commissioner be permitted to serve and file the Supplemental Zimmerman Statement?

[29]  On February 7, 2019, the Commissioner served the Supplemental Zimmerman Statement on HBC. The content of this statement relates to previous criminal charges and convictions of HBC and its affiliates for misleading advertising and deceptive marketing practices.

[30]  HBC takes issue with the delivery of the Supplemental Zimmerman Statement i) in so far as it fell outside of the time period provided for in the Amended Scheduling Order, and ii) it states that it contains irrelevant and inadmissible hearsay evidence.

[31]  The documents attached to the Supplemental Zimmerman Statement are: (a) a 30 year old internal HBC Memorandum; (b) Annual Reports prepared and published by a department of the Government of Canada; (c) Misleading Advertising Bulletins prepared and published by the Competition Bureau and its predecessors; (d) Government of Canada News Releases; and (e) transcripts of Court proceedings before the Ontario Superior Court and an Agreed Statement of Facts forming part of a Court record. Apart from the document listed in (a), all those documents are public documents.

[32]  Exercising my discretion, I allow the service and filing of the Supplemental Zimmerman Statement and attached documents, with the exception of HBC’s internal Memorandum. I am of the view that those documents appear prima facie relevant to assess the proper remedy to be ordered, should I find in favour of the Commissioner. Of course it will be open for HBC’s counsel to argue at trial that they are not, considering that they concern convictions against third parties or that they occurred under previous legislation. Those arguments are better left to the merits of this case. In addition, since all the documents allowed to be filed late are public documents, HBC will suffer no prejudice resulting from this late filing.

[33]  As for the 30-yearold internal HBC Memorandum, I am of the opinion that it would be prejudicial to HBC to allow production without the opportunity for discovery on the document. This document is several decades old and was apparently taken from another investigation which is itself several decades old. It would be unfair to HBC to have to rebut the presumption created by section 69 of the Act and provide evidence that anything recorded in or by the document as having been done, said or agreed on by HBC or by any agent of HBC, was indeed done, said or agreed on.

FOR THE ABOVE REASONS, THE TRIBUNAL ORDERS THAT:

[34]  Hudson’s Bay Company’s motion is granted in part;

[35]  Paragraphs 14, 15 (first sentence), 67 (comment contained in parentheses), 77 (last sentence), 95 (last sentence), 123 (last sentence), 135, 137 (only: “particularly with regard to establishment of good faith.”), 138 (last sentence), 139, 142 (second to last sentence) and 143 are struck out of the Banks Report and the Commissioner of Competition is to serve Theodore L. Banks’ amended report on or before April 5, 2019;

[36]  The Zimmerman Statement is struck with leave to re-file, on or before April 5, 2019, a new witness statement of Mr. Adam Zimmerman in accordance with the blue-lined version provided to the Tribunal by counsel for the Commissioner on March 15, 2019;

[37]  Appendices B and C are struck out of the Commissioner’s Rule 72 Notice and his reservation of rights is declared invalid;

[38]  The Commissioner of Competition’s motion is granted in part;

[39]  The Commissioner is granted permission to serve and file the Supplemental witness statement of Adam Zimmerman, with the exception of the internal Hudson’s Bay Company’s Memorandum;

[40]  Costs on this motion to follow the event.

DATED at Ottawa, this 28th day of March 2019.

SIGNED on behalf of the Tribunal by the presiding judicial member.

(s) Jocelyne Gagné

COUNSEL OF RECORD:

For the applicant:

The Commissioner of Competition

Derek Leschinsky Alexander Gay Katherine Rydel

For the respondent:

Hudson’s Bay Company

Eliot Kolers Mark Walli Patricia Joseph