Documentation

File No: CT-2013-007 COMPETITION TRIBUNAL IN THE MATTER of the Competition Act, R.S.C. 1985, c. C-34, as amended AND IN THE MATTER of an Application by Safa Enterprises Inc. doing business as My Convenience Store for an Order pursuant to Section 103 .1 granting leave to make application under section 76 of the Competition Act.

BETWEEN: SAFA ENTERPRISES INC. Applicant and IMPERIAL TOBACCO COMP ANY LIMITED Respondent

REPRESENTATIONS OF IMPERIAL TOBACCO COMPANY LIMITED IN RESPONSE TO APPLICATION FOR LEAV E PURSUANT TO SECTION 103.1 OF THE COMPETITION ACT

October 8, 2013 OSLER, HOSKIN & HARCOURT LLP Box 50, 1 First Canadian Place Toronto, Ontario, Canada M5X 1B8

. Michelle Lally LSUC No. 33337B Tel: 416.862.5925

Adam Hirsh LSUC No. 55239Q Tel: 416.862.6635

Fax: 416.862.6666 Lawyers for the Respondent, Imperial Tobacco Company Limited

- 2 -TO: THE REGISTRAR Competition Tribunal The Thomas D' Arey McGee Building 90 Sparks Street, Suite 600 Ottawa, ON KIP 5B4

Tel: 6I3-956-785I Fax: 6I3-952-II23

AND JOHNPECMAN TO: Commissioner of Competition Competition Bureau 50 Victoria Street Gatineau, QC KIA OC9

Tel: 8I9-997-330I Fax: 8 I 9 - 953-5013

AND Adnan Mustafa TO: Safa Enterprises Inc. 450 West Hastings Street Vancouver BC V 6B IL 1

Tel: 604-566-9161 Fax: 604-566-9836

- 3 -Part I - Introduction 1. Imperial Tobacco Company Limited ("ITCL") opposes Safa Enterprises Inc.'s ("SEI") application for leave to apply for an order under section 76 of the Competition Act, R.S.C., 1985, c. C-34 (the "Act"). SEI falls well short of satisfying the grounds upon which leave may be granted under subsection 103 .1 (7 .1) of the Act. SEI has failed to file any, let alone sufficient, credible evidence to establish that it is directly affected by a practice referred to in section 76 of the Act and that such conduct could be subject to an order of the Competition Tribunal (the "Tribunal") under section 76 of the Act. 2. In a nutshell, SEI is alleging and complaining about price discrimination. SEI alleges that the Act prohibits ITCL from selling its products to SEI at one price and selling its products to another customer (SEI's competitor) at another, lower price. SEI alleges ITCL must offer its products to all customers at the same price, subject to volume discounts, or at least must offer its products to all competing customers at the same price, subject to volume discounts. This is exclusively an allegation of price discrimination. SEI makes no allegations that ITCL is discriminating against SEI because of SEI' s low pricing policy or even that SEI has a low pricing policy. 3. Prior to March 2009, the Act contained specific price discrimination provisions which, subject to certain exceptions, required a supplier to treat its competing customers purchasing like quality of products in like quantities equally in terms of price (the "Former Price Discrimination Provisions"). The Former Price Discrimination Provisions were repealed from the Act as of March 2009. They were repealed in light of the fact that such price discrimination can often be pro-competitive, and in any event, falls outside of the object and purpose of the Act, which is to protect the process of competition, not to protect competitors from competing with

- 4 ­each other. Thus, there is no longer a legal requirement for suppliers to treat competing customers purchasing like products in like quantities equally in term of price. 4. The price discrimination alleged in this case is not conduct that could be subject to an order under the price maintenance provisions of section 76. Section 76 is exclusively focussed on an upstream firm controlling or attempting to control the price at which a downstream firm chooses to resell its product or controlling the downstream price by refusing to supply or otherwise discriminating against a customer who engages in a low pricing policy. 5. As the Tribunal recently affirmed in clear and unequivocal terms in The Commissioner of Competition v. Visa Canada Corporation and MasterCard International Incorporated, 1 section 76 applies only to conduct relating to the resale price of a product purchased from a supplier. Section 76 does not apply to conduct relating to the input price (being the price at which the supplier sells the product to the retailer for resale by the retailer to the downstream market). As the Tribunal held, to interpret otherwise: ... would mean that Canada has embarked on a form of price control where any increase in a price - an increased input - would be subject to section 76 consideration. If Parliament had intended to extend the reach of section 7 6 so far beyond what had been the traditional area of competition policy and law, clear language would be required.2

6. SEI has not alleged that ITCL sells products to SEI on the basis that SEI must resell such products at or above a specified price level. SEI has not suggested that ITCL is controlling or attempting to control the price at which SEI chooses to resell its products. SEI' s allegations relate solely to ITCL's input price. Thus, SEI has not even alleged that ITCL is engaged in resale price maintenance, which is the only conduct covered by section 76 of the Act. The Commissioner of Competition v. Visa Canada Corporation and MasterCard International Incorporated, 2013 Comp. Trib. 10 ("Visa").

Ibid, at paras. 135-136.

- 5 -7. Moreover, the relief sought by SEI from the Tribunal falls well outside the scope of the Tribunal's jurisdiction under section 76. Under section 76, the Tribunal may make an order prohibiting a person engaged in resale price maintenance from continuing to engage in that conduct, or requiring that person to accept another person as a customer within a specific time on usual trade terms. 3 There is therefore no basis, as SEI pleads, for the Tribunal to award it compensation for lost business, lost profits, and emotional distress. 8. For all of these reasons, and as set out below, SEI's application for leave under section 76 should be dismissed, with costs. Part II - Concise Statement of Facts 9. SEI commenced this application by notice of application dated September 6, 2013. In support of its application, SEI filed an affidavit of Adnan Mustafa, sworn September 6, 2013 ("Mustafa Affidavit"). Mustafa is the Manager of SEI and has also brought a motion seeking to represent the corporation in this application, pursuant to Rule 120 of the Federal Court Rules. The Mustafa Affidavit alleges the following facts: A. The Parties 10. SEI is a corporation incorporated under the laws of British Columbia. Its head office is in Surrey, BC, and it carries on business as My Convenience Store, located at 450 West Hasting St., Vancouver BC. 4 11. ITCL is a corporation incorporated under the laws of Canada, with its head office in Montreal, QC. It manufactures and distributes a wide variety of tobacco products, including

The Act at section 76(2). 4 Mustafa Affidavit, para. 3; Mustafa Affidavit, Exhibit "K".

- 6 ­brands such as Avanti, du Maurier, Medallion, Pall Mall, Peter Jackson, Player's and John Player Standard. 5 B. The Conduct at Issue 12. SEI purchases tobacco products directly from ITCL. SEI alleges that beginning in June, 2011, ITCL sold tobacco products to SEI's competitor, New Hasty Market ("NHM"), at lower prices than were offered to SEI, and that NHM in-tum was able to offer tobacco products to customers at lower prices than SEI. 6 SEI alleges that ITCL selected NHM to participate in ITCL' s "preferred pricing program" (also referred to as the "PPP"), which afforded NHM lower wholesale prices from ITCL. 7 In order to compete, SEI alleges that it had to lower the prices at which it sold ITCL products, at times at or below its cost. 8 SEI alleges it suffered harm in the form of lost sales to NHM and sales to customers at lower prices than it would otherwise have charged. 9 SEI asserts that it should have a right to participate in the PPP, and that ITCL's failure to select it for the PPP was discriminatory. 10 Part III - Statement of the Points in Issue 13. The points in issue in this application are as follows: (a) whether the Tribunal should grant leave under section 103.1(7.l) of the Act for SEI to apply for an order under section 76.

Mustafa Affidavit, para. 4. Mustafa Affidavit, paras. 5, 6, 9. Mustafa Affidavit, para. 11. Mustafa Affidavit, paras. 18, 37. Mustafa Affidavit, paras. 38-39. 10 Mustafa Affidavit, paras. 27-31, 34.

- 7 -Part IV - Concise Statement of Submissions A. The Standard of Proof on an Application for Leave Under section 103.1(7.1) 14. The test for leave to bring an application under section 76 of the Act is found in subsection 103.1(7.1), which provides as follows: The Tribunal may grant leave to make an application under section 76 if it has reason to believe that the applicant is directly affected by any conduct referred to in that section that could be subject to an order under that section.

15. Section 76 sets out the prohibition on price maintenance, and provides in relevant part: Price Maintenance 76. (1) On application by the Commissioner or a person granted leave under section 103.1, the Tribunal may make an order under subsection (2) if the Tribunal finds that

(a) a person referred to in subsection (3) directly or indirectly (i) by agreement, threat, promise or any like means, has influenced upward, or has discouraged the reduction of, the price at which the person's customer or any other person to whom the product comes for resale supplies or offers to supply or advertises a product within Canada, or

(ii) has refused to supply a product to or has otherwise discriminated against any person or class of persons engaged in business in Canada because of the low pricing policy of that other person or class of persons; and

(b) the conduct has had, is having or is likely to have an adverse effect on competition in a market.

Order (2) The Tribunal may make an order prohibiting the person referred to in subsection (3) from continuing to engage in the conduct referred to in paragraph (l)(a) or requiring them to accept another person as a customer within a specified time on usual trade terms.

Persons subject to order (3) An order may be made under subsection (2) against a person who (a) is engaged in the business of producing or supplying a product; ....

- 8 -16. This is only the second case in which a private party has sought leave to the Tribunal to commence an application under section 76. In the first case, Used Car Dealers, 11 the applicant also sought leave to commence an application pursuant to section 75 of the Act for refusal to deal, and the majority of the Tribunal's analysis in that case addressed the test for leave to commence an application under section 75, which is set out in subsection 103.1(7). As such, there is limited case law on the standard of proof that must be met under subsection 103.1(7.1). 17. In contrast, there is a considerable body of case law on the test for leave under section 103 .1 (7). Subsection 103 .1 (7) contains language that is nearly identical to subsection 103 .1 (7 .1) and provides that, The Tribunal may grant leave to make an application under section 75 or 77 ifit has reason to believe that the applicant is directly and substantially affected in the applicants' business by any practice referred to in one of those sections [sections 75 or 77] that could be subject to an order under that section.

18. The standard of proof that must be satisfied to meet the requirements of subsection 103.1(7) was first set out by Dawson J. in National Capital News Canada v. Milliken: 12 I accept that the requirement that the Tribunal has "reason to believe" does not require that it be satisfied that an applicant be directly and substantially affected, but rather that there are reasonable grounds to believe the applicant's allegation that he has been so affected.

As to the nature of the evidence required to establish reasonable grounds upon which to believe that the Applicant has been directly and substantially affected

I conclude that the appropriate standard under subsection 103. I (7) is whether the leave application is supported by sufficient credible evidence to give rise to a bona fide belief that the applicant may have been directly and substantially affected in the applicant's business by a reviewable practice, and that the practice in question could be subject to an order. (Emphasis added)

II The Used Car Dealers Association of Ontario v. Insurance Bureau of Canada, 2011 Comp. Trib. 10 ("Used Car Dealers").

2 I National Capital News Canada v. Milliken, 2002 Comp. Trib. 41, at paras. 10, 11 and 14 (Emphasis added).

- 9 -19. This standard was subsequently affirmed by the Federal Court of Appeal in Symbol Technologies Canada ULC v. Barcode Systems Jnc., 13 and has been applied by the Tribunal in over a dozen cases where leave has been sought to commence an application under section 75 or 77. 20. In Used Car Dealers, Simpson J. applied the "sufficient credible evidence" test to both her analysis under subsection 103.1(7) and her analysis under subsection 103.1(7.1). For example, at paragraph 48, in considering the application for an order under section 76, she held: While I accept that circumstantial evidence and reasonable inferences may be relied on, the question is whether the circumstantial evidence in this case meets the requirement that there be sufficient credible evidence to give rise to a bona fide belief that the conduct could be subject to an order. (Emphasis added). 14 21. This approach is eminently sensible. Given that the words of subsection 103 .1 (7) and subsection 103 .1 (7 .1) are identical in requiring that the Tribunal must have "reason to believe ... ", it follows that those words should be understood as having the same meaning and mandating the same standard of proof under each subsection. As Justice Sopink:a wrote in R. v. Zeolkowski, "Giving the same words the same meaning throughout a statute is a basic principle of statutory interpretation." 15 This point was reinforced by Justice Cory in Thomson v. Canada (Deputy Minister of Agriculture), who held: "Unless the contrary is clearly indicated by the context, a word should be given the same interpretation or meaning whenever it appears in

13 Symbol Technologies Canada ULC v. Barcode Systems Inc. (2004), 34 C.P.R. (4 ("Barcode").

14 Use d Car Dealers, supra, at para. 48. 15 R. v. Zeolkowski, [1989] 1 S.C.R. 1378 (S.C.C.), at 1387 (Emphasis added).

1 h) 481 (F.C.A.), at para. 16

- 10 ­an Act." 16 This presumption applies with particular force where the provisions in which the repeated words appear are close together or otherwise related. 17 22. ITCL therefore submits that the Tribunal must answer the following questions in determining whether to grant leave: (a) Has the applicant put forward sufficient credible evidence to give rise to a bona fide belief that it is directly affected by conduct referred to in section 76? (b) Has the applicant put forward sufficient credible evidence to give rise to a bona fide belief that the practice in question could be subject to an order under section 76? 23. Importantly, with respect to the second question, the Tribunal must also be satisfied that there is sufficient credible evidence with respect to each of the conjunctive elements under section 76. As the Federal Court of Appeal cautioned in Barcode: ... it is important not to conflate the law standard of proof on a leave application with what evidence must be before the Tribunal and what the Tribunal must consider on that application. For purposes of obtaining an order under subsection 75(1), a refusal to deal is not simply the refusal by a supplier to sell a product to a willing customer. The elements of the reviewable trade practice of refusal to deal that must be shown before the Tribunal may make an order are those set out in subsection 75(1). These elements are conjunctive and must all be addressed by the Tribunal, not only when it considers the merits of the application, but also on an application for leave under subsection 103.1(7). That is because, unless the Tribunal considers all of the elements of the practice set out in subsection 75(1) on the leave application, it could not conclude, as required by subparagraph I 03. I (7), that there was reason to believe that an alleged practice could be subject to an order under subsection 75(1). 18 16 Thomson v. Canada (Deputy Minister of Agriculture), [1992] 1 S.C.R. 385 (S.C.C.), at 400-401 (Emphasis added).

17 Ibid. 18 Barcode, supra, at para. 18 (Emphasis added).

- 11 -24. For the reasons that follow, ITCL submits that the applicant has not put forward any evidence, let alone sufficiently credible evidence, that it is directly affected by conduct referred to in section 76, or that the practice in question could be the subject of an order under section 76. ITCL addresses these points in reverse order below. (B) The Applicant Has Not Alleged Price Maintenance 25. The Tribunal may only grant leave if ITCL's impugned practice could be subject to an order under section 76. There are two distinct elements to section 76, both of which must be satisfied for an order to issue. First, the respondent's conduct must constitute pnce maintenance (subsection 76(l)(a)). Second, that conduct must have an adverse effect on competition in the market (subsection 76(1)(b)). SEI's application for leave must fail if the Tribunal finds that SEI has not provided sufficient credible evidence with respect to any one of these conditions. 26. In considering whether sufficient credible evidence has been adduced to support any of the elements of section 76, it is critical to have consideration to the purpose and intent of the law. As the Tribunal recently held in the Visa case, "The ill which Parliament sought to address is the adverse effects in the price of products for resale not the control of adverse effects of price per se." 19 In other words, the conduct at issue is conduct by suppliers to restrict a reseller's ability to set their own prices and compete through low-pricing policies, not the input price of the supplier. 20 27. Visa was the first, and thus far the only, case to consider the new pnce maintenance provisions in section 76. However, the Tribunal's findings were consistent with the 19 Visa, supra, at para. 130 (Emphasis added). 20 Ibid, at paras. 127-131.

- 12 ­existing jurisprudence considering the predecessor price maintenance provisions. That jurisprudence confirms that pnce maintenance involves circumstances where an upstream supplier either controls the price at which a downstream customer chooses to resell the supplier's product or controls the downstream price by refusing to supply a customer who engages in a low-pricing policy. For example, the predecessor sections to section 76 were used to prosecute a manufacturer of jeans who induced retailers to sell the jeans at not less than a minimum price, 21 a gasoline supplier who threatened that low prices by retail gas stations would cause a price war and told retail gas stations to increase the price of gas "or else Shell would be ticked off," 22 and a beer company that maintained the price at which discount beer was sold by convenience stores. 23 28. In R. v. Kita Canada Ltd., the Manitoba Court of Appeal described a predecessor section to section 76 as follows: In my opinion, the mischief aimed at by section 3 8 of the Combines Investigation Act was the practice of large corporations, with monopolistic or near monopolistic powers, artificially keeping retail prices high by coercing independent retailers into fixing prices and by refusing to supply such independent retailers if they did not maintain the suggested list price of products. Before 1951, for instance, a retail gasoline station which undercut the suggested list price of gasoline was in danger of having its supply cut off as a punishment. I believe that Parliament wanted to protect the small retailer from undue pressure from large wholesalers, distributors and manufacturers. Parliament wanted to protect the weak against the strong, though it enacted words which catch the weak as well as the strong. 24 29. More recently, in Fairview Donut Inc. v. The TDL Group Corp., Justice Strathy (as he then was) described the predecessor provision to section 76, as follows: Section 61 does not prohibit a manufacturer or supplier from increasing the price at which it sells the product. As I have said earlier, it does not prohibit a supplier from making a large profit on a product it sells to someone downstream. It prohibits a person who produces or supplies a product from attempting, by

21 R. v. H.D. Lee ofC anada (1980), 57 C.P.R. (2d) 186 (QCSSP). 22 R. v. Shell Canada Products Ltd. (1990), 63 Man. R. (2d) 1 (C.A.). 23 R. v. Labatt Brewing Company, Cour du Quebec, Court File No. #500-73-02495-055 (unreported). 24 (1976), 30 C.C.C. (2d) 531 (Man. C.A.), at para. 22.

- 13 ­means of agreement, to influence upward or discourage the reduction of the price at which another person sells the product. The provision is designed to protect the public by prohibiting an upstream supplier from preventing competition among retailers, thereby increasing the price paid by the ultimate consumer. It does not prohibit the upstream supplier from increasing the price at which it supplies the product to a downstream purchaser. 25 30. Thus, section 76 is not intended to, and does not, restrict a manufacturer or supplier from setting, increasing, or decreasing the prices at which it offers its products for sale. As the Tribunal clearly and unequivocally affirmed in Visa, section 76 is not concerned with the input price that a supplier charges to its customer. 26 Rather, section 76 is specifically intended to prohibit a supplier or manufacturer from constraining its customer from charging a lower price to consumers, either through agreement, threat, promise or other like means, or by refusing to supply or discriminating against a customer that engages in a low-pricing policy. 31. Section 76 also does not cover and is not intended to cover conduct which, prior to March 2009, was prohibited by the Former Price Discrimination Provisions. The Former Price Discrimination provisions were contained in subsections 50(1)(a) and 50(2) of the Act, which stated: 50(1) Everyone engaged in a business who ... (a) is a party or privy to, or assists, in any sale that discriminates to his knowledge, directly or indirectly, against competitors of a purchaser or articles from him in that any discount, rebate, allowance, price concession or other advantage is granted to the purchaser over and above any discount, rebate, allowance, price concession or other advantage that, at the time the articles are sold to the purchaser, is available to the competitors in respect of a sale of articles oflike quality and quantity ....