Canada v. Maxzone Auto Parts (Canada) Corp.

Canada v. Maxzone Auto Parts (Canada) Corp.
Court (s) Database
Federal Court Decisions
Date
2012-09-24
Neutral citation
2012 FC 1117
File numbers
T-798-12
Notes
Reported Decision
Decision Content
Date: 20120924
Docket: T-798-12
Citation: 2012 FC 1117
BETWEEN:
HER MAJESTY THE QUEEN
and
MAXZONE AUTO PARTS (CANADA) CORP.
Accused
SENTENCING REASONS
CRAMPTON C.J.
[1] On May 3, 2012, Maxzone Auto Parts (Canada) Corp. (“Maxzone Canada”) pleaded guilty to the single count with which it was charged under section 46 of the Competition Act, RSC, 1985, c C-34 (the “Act”).
[2] Upon convicting Maxzone Canada and entering into the Court record a Statement of Admissions and Agreed Facts (“SAAF”) that was executed on behalf of the parties, I proceeded to hear their Joint Submission on Sentencing. After then hearing supplementary submissions on behalf of Maxzone Canada, and having reviewed the written sentencing submissions filed on behalf of the Crown, I imposed on Maxzone Canada a fine of $1.5 million, as jointly recommended by the parties.
[3] However, I expressed certain concerns and stated that I would elaborate upon those concerns in reasons to follow. As explained below, those concerns relate to whether the evidentiary record and submissions were sufficient to permit the Court to become satisfied that acceptance of the jointly recommended sentence would not be both contrary to the public interest and such as to bring the administration of justice into disrepute. Notwithstanding those concerns, I ultimately agreed to impose the jointly proposed fine of $1.5 million. I did so primarily because of the significant weight I gave to the understandable expectations of the Crown and Maxzone Canada that the manner in which the recommended sentence was determined in this case would be endorsed by the Court. As noted by the parties, that approach has typically been endorsed in the past.
[4] The purpose of these reasons is to alter future expectations by noting for the record that, going forward, the Court may very well require a more fulsome evidentiary record, or a modified approach to the determination of a jointly recommended sentence, as well as more detailed submissions, to become satisfied that such a sentence would not be contrary to the public interest and would not bring the administration of justice into disrepute.
I. Background
[5] The following background facts were agreed upon in the SAAF.
[6] Maxzone Canada is an affiliate of (i) Depo Auto Parts Industrial Co., Ltd. (“Depo”), a Taiwan-based manufacturer and supplier of aftermarket automotive replacement lighting parts, and (ii) Maxzone Vehicle Lighting Corp. (“Maxzone”), a corporation incorporated in the United States that is engaged in the distribution, supply, marketing and sale of aftermarket automotive replacement lighting parts.
[7] TYC Brother Industrial Company Ltd. (“TYC”) is a Taiwan-based manufacturer of aftermarket automotive replacement lighting parts and the parent of its distributor and affiliate Genera Corporation (“Genera”), based in the United States.
[8] Eagle Eyes Traffic Ind. Co., Ltd. (“Eagle Eyes”) is a Taiwan-based manufacturer of aftermarket automotive replacement lighting parts and the parent of its distributor and affiliate E-Lite Automotive, Inc., (“E-Lite”), based in the United States.
[9] The products (“Products”) described above as “aftermarket automotive replacement lighting parts” include, predominantly but not exclusively, headlights and tail lights. They encompass the whole lighting unit, including the lens, casing, reflected back, and wiring, but exclude the bulb. The Products are made for the automotive aftermarket, and not for the original assembly of automobiles. They are sold across Canada for replacement on a variety of automobile models.
[10] Between January 1, 2004 and September 1, 2008 (the “Relevant Period”), Depo and Maxzone, through their employees and senior officers, communicated with representatives from TYC, Genera, Eagle Eyes, and E-Lite in a variety of ways, including attendances at meetings, resulting in an agreement (the “Price Fixing Agreement”) to which each of them was a party that, if it had been entered into in Canada, would have been in contravention of section 45 of the Act.
[11] The Price Fixing Agreement included, but was not limited to, a coordinated pricing formula, maintenance of price discipline to avoid a price war, coordination of responses to new market entrants, maintenance of a common discount program, and the sharing of price data. Over the course of the Relevant Period, Depo and Maxzone occasionally did not comply with that agreement.
[12] During the Relevant Period, Maxzone Canada carried out directives, instructions, and other communications from Depo and Maxzone, who had the authority to give directions to Maxzone Canada as to prices and sales of the Products in Canada. The directives, instructions and other communications were for the purpose of giving effect to the Price-Fixing Agreement in Canada.
[13] Total sales of the products by Maxzone Canada during the Relevant Period amounted to approximately $15,000,000.
[14] Subsequent to the Relevant Period, from late 2008 to date, Depo and its affiliates have suffered significant financial difficulty due to a major international market decline.
[15] Maxzone Canada has agreed that, for the purposes of section 655 of the Criminal Code, RSC 1985, c C-46, its admissions set forth at paragraphs 11 and 12 above establish all of the constituent elements of an offence under section 46 of the Act.
[16] During the sentencing hearing, counsel to Maxzone Canada noted that Maxzone, Mr. Polo Shu-Sheng Hsu (“Polo”), Maxzone’s former President and Chief Executive Officer, and Mr. Shiu-Min Hsu (“Shiu”) - the former Chairman of Depo, had each pleaded guilty to an offence under section 1 of the Sherman Act, 15 USC §§1 - 7. Maxzone was fined US$43 million in respect of that offence, Polo was sentenced to serve 180 days in prison and to pay a fine of US$25,000, and Shui, a citizen and resident of Taiwan, voluntarily submitted himself to the jurisdiction of the United States to plead guilty and to serve a sentence of nine months of incarceration in the United States.
II. Relevant Legislation
[17] Pursuant to section 46 of the Act, it is an offence for a corporation that is carrying on a business in Canada to implement a foreign directive intended to give effect to an agreement or arrangement that, if entered into in Canada, would have been in contravention of section 45 of the Act. The full text of section 46 is provided at Appendix “A” hereto.
[18] For the purposes of these proceedings, the relevant provision in section 45 is paragraph 45(1)(c), which, during the Relevant Period, provided as follows:
Conspiracy
45. (1) Everyone who conspires, combines, agrees or arranges with another person
…
(c) to prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, storage, rental, transportation or supply of a product, or in the price of insurance on persons or property,
…
is guilty of an indictable offense and liable to imprisonment for a term not exceeding five years or to a fine not exceeding $10 million or to both.
Complot
45. (1) Quiconque complote, se coalise ou conclut un accord ou arrangement avec une autre personne :
…
(c) soit pour empêcher ou réduire, indûment, la concurrence dans la production, la fabrication, l’achat, le troc, la vente, l’entreposage, la location, le transport ou la fourniture d’un produit, ou dans le prix d’assurances sur les personnes ou les biens;
…
commet un acte criminel et encourt un emprisonnement maximal de cinq ans et une amende maximale de dix millions de dollars, ou l’une de ces peines.
[19] The sentencing provisions in the Criminal Code that are related to these proceedings are discussed in Part IV below, and are reproduced in full at Appendix “A” hereto.
III. Joint Sentencing Submission
[20] The written submissions on sentencing submitted on behalf of the Crown contained two short paragraphs under the heading “Joint Submission,” in which it was submitted that a fine in the amount of $1.5 million would appropriately fit the crime and circumstances of this case and serve the public interest by reflecting the relevant sentencing factors.
[21] In addition, it was jointly submitted that a sentencing judge should only deviate from the recommendations of a joint submission where accepting the recommendation would either be contrary to the public interest or would bring the administration of justice into disrepute. This language has been endorsed by the New Brunswick Court of Appeal (R v Steeves, 2010 NBCA 57, at para 31) and, in a slightly different form, by the Ontario Court of Appeal, which has “repeatedly held that trial judges should not reject joint submissions unless the joint submission is contrary to the public interest and the sentence would bring the administration of justice into disrepute” (R v Cerasuolo (2001), 151 CCC (3d) 445, at para 8 (Ont CA); R v Downey (2006), OJ No 1289, at para 3 (Ont CA); R v Haufe, 2007 ONCA 515, at para 4 (emphasis added)). Although other appellate courts have couched the test for rejecting joint sentencing submissions in somewhat different terms, there appears to be an increasing consensus that the alternative formulations of the test do not differ materially in substance (R v Douglas (2002), 162 CCC (3d) 37, at para 51 (Qc CA); R v Sinclair, 2004 MBCA 48, at para 11).
[22] Accordingly, before accepting a jointly recommended sentence, the Court must be satisfied that the sentence would not be both contrary to the public interest and such as to bring the administration of justice into disrepute.
IV. The Principles of Sentencing
[23] The objectives and principles of sentencing are codified in ss. 718 to 718.21 of the Criminal Code, which have been reproduced in full in Appendix “A” hereto. According to s. 718, the “fundamental purpose of sentencing is to contribute, along with crime prevention initiatives, to respect for the law and the maintenance of a just, peaceful and safe society.” This is to be achieved by imposing “just sanctions” that reflect one or more of what the Supreme Court of Canada has recently characterized as being the traditional sentencing objectives, namely, “denunciation, general and specific deterrence, separation of offenders, rehabilitation, reparation to victims, and promoting a sense of responsibility in offenders and acknowledgment of the harm done to victims and to the community” (R v Ipeelee, 2012 SCC 13, at para 35).
[24] Pursuant to s. 718.1, a central principle of sentencing is that a sentence must be proportionate to the gravity of the offence and the degree of responsibility of the offender. Accordingly, regardless of the “weight a judge may wish to accord to the objectives listed above, the resulting sentence must respect the fundamental principle of proportionality” (R v Nasogaluak, 2010 SCC 6, at para 40; Ipeelee, above, at para 37).
[25] The requirement that a sentence be proportionate to the gravity of the offence “is closely tied to the objective of denunciation. It promotes justice for victims and ensures public confidence in the justice system” (Ipeelee, above, at para 37). However, proportionality also ensures that a sentence does not exceed what is appropriate, given the moral blameworthiness of the offender. In Nasogaluak, above, at para 42, the Supreme Court described these dimensions of proportionality as follows:
[T]he rights-based, protective angle of proportionality is counter-balanced by its alignment with the “just deserts” philosophy of sentencing, which seeks to ensure that offenders are held responsible for their actions and that the sentence properly reflects and condemns their role in the offence and the harm they caused … [reference omitted]. Understood in this latter sense, sentencing is a form of judicial and social censure … [reference omitted]. Whatever the rationale for proportionality, however, the degree of censure required to express society’s condemnation of the offence is always limited by the principle that an offender’s sentence must be equivalent to his or her moral culpability, and not greater than it. The two perspectives on proportionality thus converge in a sentence that both speaks out against the offence and punishes the offender no more than is necessary.
[26] Subject to constraints imposed by the principle of proportionality, ss. 718, 718.2 and 718.21, together with certain other statutory provisions and the jurisprudence, preserve a broad range of discretion for trial judges in the sentencing process (Nasogaluak, above, at paras 43 - 45). For example, paragraph 718.2(a) requires sentencing courts to take account of any relevant aggravating or mitigating circumstances relating to the offence or the offender. In short:
No one sentencing objective trumps the others and it falls to the sentencing judge to determine which objective or objectives merit the greatest weight, given the particulars of the case. The relative importance of any mitigating or aggravating factors will then push the sentence up or down the scale of appropriate sentences for similar offences. The judge’s discretion to decide on the particular blend of sentencing goals and the relevant aggravating or mitigating factors ensures that each case is decided on its facts, subject to the overarching guidelines and principles in the Code and in the case law. (Nasogaluak, above, at para 43.)
[27] That said, paragraphs 718.2(b), (d) and (e) enunciate additional principles that place certain parameters on the discretion of sentencing courts. Specifically, paragraph 718.2(b) requires that a sentence should be similar to sentences imposed on similar offenders for similar offences committed in similar circumstances. Paragraph 718.2(d) requires that an offender should not be deprived of liberty, if less restrictive sanctions may be appropriate in the circumstances. Paragraph 718.2(e) requires courts to consider all available sanctions other than imprisonment that are reasonable in the circumstances, with particular attention required to be paid to the circumstances of aboriginal offenders.
[28] Finally, section 718.21 contains a list of factors to be taken into consideration by a court in imposing a sentence on an organization. Among other things, those factors include:
(a) any advantage realized by the organization as a result of the offence;
(b) the degree of planning involved in carrying out the offence and the duration and complexity of the offence; and
…
(i) any restitution that the organization is ordered to make or any amount that the organization has paid to a victim of the offence.
V. The Basis for the Proposed Sentence
[29] In its written submissions on sentencing, the Crown began by (i) reproducing the text of section 718, (ii) briefly noting that specific and general deterrence are key factors in determining an appropriate sentence, and (iii) briefly addressing each of the specific sentencing factors set forth in section 718.21. It then briefly addressed various additional aggravating and mitigating sentencing factors that have been identified in previous price fixing cases under the Act.
[30] Apart from the objectives of specific and general deterrence, it is not immediately apparent that any of the principles and objectives of sentencing set forth in section 718, the factors set forth in section 718.21, or the aggravating and mitigating factors that were briefly addressed in the Crown’s sentencing submissions, were taken into account in determining the proposed sentence. The same is true with respect to the proportionality principle in section 718.1.
[31] Indeed, it is fairly clear from the concluding paragraphs of those submissions that the jointly recommended sentence was arithmetically determined by reference to the volume of Maxzone Canada’s total sales, or volume of commerce, in Canada during the Relevant Period, i.e., the $15,000,000 mentioned at paragraph 13 above. Specifically, it was observed that, under the Competition Bureau’s 2010 bulletin (“Leniency Bulletin”) entitled Leniency Program, “absent compelling evidence to the contrary, the starting point for a recommended fine is 20 percent of the cartel participant’s affected volume of commerce in Canada throughout the duration of the offence.” It was then noted that, “[a] reduction of 50 percent of the otherwise applicable fine may be recommended by the Bureau for the first party to seek leniency under the Leniency Program (such as Maxzone in this case).” It was subsequently reiterated that the jointly proposed fine of $1,500,000 “reflects approximately 10 percent of Maxzone Canada’s relevant volume of commerce in Canada during the period of the offence”, and “is based on a 50 percent discount of the 20 percent volume of commerce” that typically represents the starting point in the determination of fines that the Bureau will seek under its Leniency Program. In its oral submissions, the Crown confirmed that this is how the jointly proposed fine was calculated.
[32] The link between the 20 percent “starting point” for the determination of a recommended sentence under the Leniency Program and the objectives of ensuring that a sentence will serve as a general and specific deterrent is briefly addressed at paragraph 72 of these reasons below.
VI. The Bureau’s Leniency Program
[33] The Bureau’s Leniency Bulletin sets out the factors and principles that the Bureau considers in making a recommendation to the Public Prosecution Service of Canada (“PPSC”) for lenient treatment in the sentencing of individuals and business organizations accused of criminal cartel offences under the Act. Collectively, these factors and principles constitute the Bureau’s Leniency Program. That Program was designed to complement the Bureau’s Immunity Program, as set forth in its 2010 bulletin entitled Immunity Program under the Competition Act. Under the Immunity Program, the Bureau recommends complete immunity from prosecution only for the first business organization or individual to apply under the Immunity Program. Parties who begin to cooperate subsequent to the point in time at which another party begins to cooperate under the Immunity Program are treated under the Leniency Program.
[34] The Preface to the Leniency Bulletin suggests that the Leniency Program is premised on the view that “[i]ndividuals and business organizations are more likely to come forward, cooperate, and plead guilty (rather than litigate) when they are aware of the relevant leniency considerations and when they are confident that the Bureau will follow them in its leniency recommendations to the PPSC.”
[35] After clarifying that the PPSC has independent discretion to accept or to reject the Bureau's recommendations with respect to sentencing, the Leniency Bulletin states, at paragraph 5, that the Federal Prosecution Service Deskbook provides that the PPSC should consult with the Bureau and give due consideration to its recommendations. At paragraph 6, it is then noted that it “is in the public interest to avoid unnecessary litigation with its attendant costs and uncertainties while, at the same time, ensuring that parties are held responsible for their criminal activities.” That said, the Leniency Bulletin recognizes that the “determination of the sentence to be imposed is at the sole discretion of the court, and a judge is not bound by a joint sentencing submission” (paragraph 7).
[36] After describing the conditions for eligibility under the Leniency Program, the Leniency Bulletin states, at paragraph 12, that the Bureau “generally uses a proxy of 20 percent of the cartel participant’s affected volume of commerce in Canada” as the base level of a fine recommendation. That document proceeds to state that the “first leniency applicant is eligible for a reduction of 50 percent of the fine that would otherwise have been recommended, provided that the applicant meets the requirements of the Leniency Program, including providing full, frank, timely and truthful cooperation.” The Leniency Bulletin then notes that the second leniency applicant is eligible for a reduction of 30% of the fine that would otherwise have been recommended by the Bureau to the PPSC, and that the amount of reduction that a subsequent applicant is eligible to receive will depend on when the applicant sought leniency compared to the “second in” applicant, and on the timeliness of its cooperation.
[37] At paragraph 17, the Leniency Bulletin states that the “20 percent proxy associated with the applicant’s cartel conduct will be increased or reduced based on the presence of aggravating or mitigating factors,” and that the appropriate sentencing reduction will be applied only after the 20 percent proxy has been increased or decreased to reflect those factors.
[38] At paragraph 21, it is stipulated that “[a]t the request of the first-in leniency applicant that is a business organization, the Bureau will recommend that no separate charges be laid against the applicant’s current directors, officers or employees, provided that such individuals cooperate with the Bureau's investigation in a full, frank, timely and truthful fashion.” At paragraph 22, it is noted that the same policy applies with respect to the first applicant who is a natural person applying independently for leniency. However, it is then made clear that current and former directors, officers, employees and agents of subsequent leniency applicants may be charged depending on their role in the offence. In a document entitled “Leniency Program – FAQs” that appears on the Bureau’s website and was reproduced in the Crown’s Book of Authorities, it is stated (at Question #22) that “[t]he Bureau is increasingly recommending imprisonment for cartel violations so as to secure sufficient specific and general deterrence and denunciation of the cartel conduct.”
VII. Analysis
A. Introduction
[39] At the sentencing hearing, counsel to Maxzone Canada observed that it would be “important to the bar and to the business community for the Court to provide an acknowledgment or recognition of the manner in which the Leniency Bulletin suggests that fine calculations should be carried out in these cases” arising under sections 45 and 46 of the Act. More specifically, it was observed that it would be very helpful if the Court were to conclude that the approach to sentencing described Leniency Bulletin is effective, fair and legally sound.
[40] Generally speaking, the framework described in the Leniency Bulletin is consistent with the sentencing principles set out in the Criminal Code and developed in the jurisprudence. If followed in letter and spirit, that framework is sufficiently comprehensive and flexible to permit the Court to satisfy itself that a jointly recommended sentence would not be contrary to the public interest and would not bring the administration of justice into disrepute, having regard to:
i. the fundamental purpose of sentencing and the objectives set forth in section 718 of the Criminal Code;
ii. the principle of proportionality set forth in section 718.1;
iii. the aggravating and mitigating factors set forth in sections 718.2 and 718.21 and in the jurisprudence; and
iv. the other principles set forth in section 718.2 and in the jurisprudence.
[41] However, a jointly proposed fine that is determined exclusively by multiplying an accused corporation’s volume of commerce by a particular percentage is not consistent with the letter or spirit of the Leniency Bulletin, the aforementioned provisions in the Criminal Code or the jurisprudence. The same is true with respect to a jointly proposed fine that was initially calculated in this manner, and then adjusted by further multiplying the amount so reached by a second percentage, to reflect the fact that the offender sought leniency in a particular sequence, relative to the other participants in the prohibited agreement.
[42] I accept that there are very good reasons why the sequence in which co-conspirators have sought leniency and have offered to cooperate with the Competition Bureau’s investigation should be given significant weight in the determination of the appropriate sentence to be imposed. Among other things, and as noted in the Crown’s sentencing submissions, a transparent and predictable approach to the sentencing of those who may wish to cooperate with the Bureau and the Crown supports the effective and efficient enforcement of the Act. This is because, generally speaking, individuals and business organizations are more likely to come forward, cooperate and plead guilty, rather than litigate, when they have a high degree of certainty regarding the quid pro quo for such cooperation.
[43] However, cooperation cannot so dominate the approach to sentencing as to leave virtually no meaningful role for relevant aggravating factors, other mitigating factors, and the principles of sentencing discussed at part IV of these reasons above.
[44] I have serious concerns as to the Court’s ability to become satisfied, on the basis of an evidentiary record such as that which was submitted in these proceedings, and the cursory submissions that were made, that a sentence calculated in the arithmetical manner that was followed in this case would not be contrary to the public interest and would not bring the administration of justice into disrepute.
[45] In brief, such a record does not provide the Court with sufficient information to be satisfied that a fine equivalent to approximately 10 percent of the accused corporation’s volume of affected commerce during the Relevant Period will promote respect for the law, assist in achieving a just society, or constitute a “just sanction,” having regard to the sentencing objectives listed in section 718 of the Criminal Code, the provisions in sections 718.1, 718.2 and 718.21, and the jurisprudence on sentencing. The same would be true even if the offender did not benefit from a 50 percent reduction in the fine that would otherwise be recommended, to reflect the fact that it was the first to seek leniency under the Competition Bureau’s Leniency Program in respect of the illegal conduct in question.
[46] This is primarily because such an evidentiary record and submissions such as those that were made in this case do not provide the Court with any sense, let alone comfort, that a recommended fine determined in this manner would appropriately denounce the conduct in question, achieve general or specific deterrence, be proportionate to the gravity of the offence, or even ensure that crime does not pay. Such a record and such submissions also do not materially assist the Court to understand why the relevant aggravating and mitigating factors have been weighted in a manner such as to effectively cancel each other out.
[47] Without having a general “ballpark” sense of the illegal gains contemplated by, and ultimately derived from, an agreement prohibited by section 45 or 46 of the Act, it is difficult to understand how the Court could become satisfied that a fine determined in this manner would likely lead a would-be cartel participant to refrain from becoming a party to such an agreement, having regard to the low combined risk of detection, investigation and successful prosecution. Indeed, it is difficult to see how the Court could even be satisfied that a fine so determined would likely disgorge, in an approximate way, the ill-gotten gains from the conduct prohibited by sections 45 and 46 of the Act, and contemplated by section 718.21 of the Criminal Code. In turn, this raises serious questions as to whether such a fine would appropriately denounce the prohibited conduct, promote a sense of responsibility in offenders, or represent an acknowledgement of the harm done to victims and the community, as contemplated by paragraphs 718(a) and (f) of the Criminal Code.
[48] In my view, to enable the Court to make the determination that it needs to make in these types of cases involving jointly recommended sentences for contraventions of sections 45 or 46 of the Act, the evidentiary record and the submissions of counsel ought to be more fulsome than they were in these proceedings. In short, at a minimum, the Court requires either (i) some sense, even if only in general “ballpark” terms, of the illegal profits contemplated by, and ultimately attributable to, the prohibited agreement; or (ii) evidence that the accused has paid restitution to the ultimate victims of that agreement. The Court also requires a good sense of any relevant aggravating and mitigating factors and how they influenced the jointly recommended fine. Where no adjustment to the recommended fine has been made to reflect such factors, it will be necessary for the Court to understand the basis for such an approach.
[49] In addition, the Court will require sufficient information to determine whether the recommended sentence appropriately reflects:
i. the fundamental purpose of sentencing and the objectives set forth in section 718 of the Criminal Code;
ii. the principle of proportionality set forth in section 718.1; and
iii. the principles set forth in section 718.2 and in the jurisprudence.
[50] These things can easily be accommodated within the existing framework of the letter and spirit of the Leniency Bulletin.
B. Denunciation
[51] There are certain offences in respect of which an appropriate degree of denunciation can only be achieved through a sentence that communicates society’s “abhorrence” of the crime in question (R v Sargeant (1974), 60 Cr App R 74, at 77, quoted in R v CAM, [1996] 1 SCR 500, at para 81). The offences set forth in sections 45 and 46 of the Act are clearly among such crimes.
[52] In R v Nova Scotia Pharmaceutical Society, [1992] 2 SCR 606, at 648-649, it was noted that what is now section 45 “is one of the central pillars of the Act” and “remains at the core of the criminal part of the Act.” The Court added that section 45 “definitely rests on a substratum of values.” Lower courts have also recognized the seriousness of the offence created set forth in section 45 (and referred to in section 46). (See, for example, R v Kason Industries Inc, 2011 FC 281, at para 6; Canada v Canada Pipe Co (1995), 101 FTR 211, at para 6; Canada v Kanzaki Specialty Papers Inc (1994), 82 FTR 63, at para 6; R v Albany Felt Co of Canada Ltd et al (No 2) (1980), 52 CPR (2d) 204, at 205-6 (Qc SC); R v Browning Arms of Canada Limited (1974), 18 CCC (2d) 298, at 299 (Ont HC); R v Dominion Steel (1957), 27 CPR 57 at 76 (Ont HC); and R v Firestone Tire & Rubber Co of Canada Ltd (1953), 107 CCC 286 at 293 (Ont CA).)
[53] In 1986, the maximum fine set forth in what is now section 45 of the Act was increased from $1 million to $10 million, to “send a clear signal to the courts that Parliament considers conspiracy to be a very serious criminal offence and that offenders should be dealt with by a firm hand.” (Consumer and Corporate Affairs Canada, Competition Law Amendments, A Guide (Ottawa: December 1985) at 27). In 2009, subsequent to the Relevant Period in these proceedings, Parliament sent a further unambiguous signal in this regard by further increasing the maximum fine set forth in section 45 from $10 million to $25 million, and by increasing the maximum term of imprisonment from five years to fourteen years. As for section 46, during the Relevant Period there was no limit on the maximum fine that could be imposed in respect of that offence. The same remains true today.
[54] Price fixing agreements, like other forms of hard core cartel agreements, are analogous to fraud and theft. They represent nothing less than an assault on our open market economy. Buyers in free market societies are entitled to assume that the prices of the goods and services they purchase have been determined by the forces of competition. When they purchase products that have been the subject of such an agreement, they are effectively defrauded.
[55] Indeed, such agreements have a greater adverse economic impact on society than do theft and fraud. This is because, in addition to leading to a transfer of wealth from victims of the agreement to the participants in the agreement, they also generally result in further detrimental effects on the economy. Such further effects include what is often referred to as the “deadweight loss” to the economy that results when higher prices lead buyers at the margin to switch to less valued substitutes, thereby bringing about a misallocation of resources. This misallocation of resources typically reduces aggregate wealth in the economy by an amount that is equivalent to a significant percentage of the wealth transfer mentioned above.
[56] Price fixing and other hard core cartel agreements therefore ought to be treated at least as severely as fraud and theft, if not even more severely than those offences.
[57] When, as in the case at bar, a price fixing agreement affects a market that comprises sales in the tens of millions, it should be treated as a major fraud, and denounced accordingly. At a minimum, this requires the imposition of a fine that (i) ensures that the accused corporation does not profit from its illegal conduct, and (ii) includes an additional significant amount to communicate the Court’s recognition of the very serious nature of such illegal conduct, its substantial adverse impact on the economy, and society’s abhorrence of the crime.
[58] Unfortunately, an evidentiary record such as that which was before me in these proceedings is not sufficient to enable the Court to be satisfied that a sentence determined in the manner that was embraced in this case would reflect either of these principles. The Court will expect more in the future.
C. Deterrence
[59] Courts in Canada have consistently identified general and specific deterrence as an important objective in sentencing for offences under the Act. (See, for example, Kason, above, at para 8; R v Mitsubishi Corp [2005], OJ No 2394, at para 22 (Ont SC); R v UCAR Inc (1999), 164 FTR 85, at para 21; Kanzaki, above, at para 5; R v McNamara et al (No 2), [1981] OJ No 3260, at para 21 (Ont CA); Albany Felt, above, at 206-7(Qc SC); R v Hoffman-LaRoche Limited (No. 2) (1980), 53 CPR (2d) 189, at 190-91 (Ont HC); R v Canadian General Electric Co Ltd, [1977] OJ No 509, at para 4 (Ont HC) (“Large Lamps”); R v Armco Canada Ltd et al (No. 2) (1975), 19 CPR (2d) 273, at 274 (Ont HC), varied on different grounds (1977) 13 OR (2d) 32 (CA), leave to appeal refused 30 CCC (2d) 183 (SCC); R v Aetna Insurance Company et al (No 2) (1975), 24 CPR (2d) 160, at 162 (NSCA), rev’d on other grounds [1978] 1SCR 731; Browning Arms, above, at 303; and R. v. St. Lawrence Corporation Limited et al. (1967), 51 CPR 170 at 190-91 (Ont HC); aff’d [1969] OJ No 1326 (CA).
[60] As noted in Mitsubishi, above, at para 20, and in the Crown’s sentencing submissions, the courts have also repeatedly emphasized that fines in criminal price-fixing cases must be set sufficiently high to ensure that they are more than a mere license fee or a cost of doing business. (See, for example, Kanzaki, above, at para 5; R v Davis Wire (1992), 47 CPR (3d) 394, at 397; Albany Felt, above, at 206; Armco, above, at 275; Browning Arms, above, at 300-01,303; and R v Ocean Construction Supplies Ltd (1974), 15 CPR (2d) 224, at 229 (BCSC). See also R v Shell Canada Products Limited (1990), 75 CR (3d) 365, at 375 (Man CA); R v Rolex Watch Co of Canada Ltd (1980), 50 CPR (2d) 222, at 228 (Ont CA); R v A & M Records of Canada Ltd (1980), 51 CPR (2d) 225, at 230 (Ont Co Ct); R v Kito Canada Ltd (1976), 25 CPR (2d) 145, at 146 (Man CA); R v Superior Electronics Inc (1979), 45 CPR (2d) 234, at 236 (BCCA); R v Northern Electric Company Limited et al (1957), 26 CPR 73, at 74-5 (Ont HC); R v Goodyear Tire & Rubber, [1956] SCR 303, at 311; and R v Dominion Steel (1957), 27 CPR 57, at 76 (Ont HC)). To be sufficient to achieve effective general deterrence, fines imposed in respect of criminal anti-competitive agreements must be substantial and exemplary, but not crippling or vindictive (McNamara, above, at para 26).
[61] As is increasingly recognized in international competition law circles, fines are unlikely to deter persons contemplating becoming a party to a price fixing or other hard core cartel agreement unless they are set at a level that is likely to render the expected value of such action negative. This means that fines must take account of the low probability of detection, prosecution and conviction. To give a simple example, if the expected additional profits from a cartel overcharge (“Overcharge”) were estimated to be $1 million, and the combined probability of detection, prosecution and conviction was 50%, the fine would need to exceed $2 million to render the expected value of joining the prospective cartel negative. In other words, to be an effective deterrent in this example, the fine would need to be more than double the expected gain from the Overcharge.
[62] As counsel to the Crown observed during the sentencing hearing in this case, and has been recognized in the jurisprudence (see, for example, Mitsubishi, above, at para 9; R c Ciment Québec Inc, [1996] JQ no 2580, at para 22, and McNamara, above, at para 26), “cartels are very hard to detect.” Common sense suggests that the combined probability of detection, prosecution and conviction for participating in a price fixing or other hard core cartel agreement is much less than 50%. If this uncontroversial proposition is accepted, it follows that fines for engaging in such conduct should be a multiple of more than double the expected gain from the Overcharge to be an effective deterrent.
[63] I am not aware of any studies that have estimated the combined probability of detection, prosecution and conviction for price fixing in Canada. Accordingly, it is not possible for me to comment upon the level of the multiple that would achieve the optimal deterrent. The Competition Committee of the Organisation for Economic Co-operation and Development (“OECD”), which is comprised of the heads of the competition enforcement agencies in the OECD’s 34 member countries, has noted that “[s]ome believe that as few as one in six or seven cartels are detected and prosecuted, implying a multiple of at least six” and that a “multiple of three is more commonly cited” (OECD, Hard Core Cartels – Recent Progress and Challenges Ahead (Paris: 2003), at 27). In another report, the Competition Committee noted that studies supporting multiples of larger than three exist (OECD, Fighting Hard-Core Cartels – Harm, Effective Sanctions and Leniency Programmes (Paris: 2002), at 91).
[64] A multiple of three implies that the combined probability of detection, prosecution and conviction is 33.3%. Once again, common sense suggests that the true figure is likely less than this, and that therefore a multiple of three would be a very conservative rule of thumb to adopt in attempting to calculate the level at which a fine would have to be set to be an effective deterrent for those who may be tempted to consider participating in a price fixing or other hard core cartel agreement.
[65] Unfortunately, accurately calculating the true Overcharge, in order to then apply a conservative multiple in an attempt to establish a fine that will serve as an effective deterrent, is notoriously difficult. Among other things, it is generally very difficult to establish what the price of the cartelized product(s) would have been in the absence of an impugned price fixing agreement (OECD 2002, above, at 77; International Competition Network, Cartels Working Group, Setting of Fines for Cartels in ICN Jurisdictions (Kyoto: April 2008), at 7). In addition, cartel agreements often do not work out as well as expected.
[66] That said, in establishing a fine that is likely to serve as an eff