The supply of airline food might not be the first image that springs to mind when one considers potential competition issues facing Canada’s economy. Yet that market fell squarely into the sights of the federal Commissioner of Competition (Commissioner) when, starting in 2016, he brought proceedings against the Vancouver Airport Authority (VAA) under the civil “abuse of dominance” provisions in section 79 of the Competition Act. The Commissioner alleged that the not-for-profit VAA had harmed competition by limiting the number of in-flight caterers authorized to operate at its complex.
In an October 17, 2019 decision, however, the Competition Tribunal judged the challenge to be less than airworthy—accepting the VAA’s business reasons for its decision and dismissing the case. As one of only two fully-litigated section 79 cases in the last decade, VAA provides important guidance for businesses seeking to manage their competition law risks in this evolving and increasingly important area.
1. Section 79 and the Commissioner’s challenge
As detailed in the Competition Bureau’s recently amended Abuse of Dominance Guidelines,1 section 79 of the Competition Act (Act) is a broadly-drafted provision allowing the Commissioner to seek relief before the Tribunal where: (1) a person or entity “substantially or completely controls” a market, alone or with others (i.e., has market power); (2) engages in a practice of anti-competitive acts affecting a competitor in a market; and (3) this practice prevents or lessens, or is likely to prevent or lessen, competition substantially in that market. Depending on the circumstances, the Tribunal can order parties to cease conduct, divest assets and pay penalties as high as $10 million, among other remedies.
When the Commissioner filed its VAA application, only two firms had access to the area beyond the airport security perimeter of the Vancouver International Airport (YVR), or its “airside,” to load and unload meals and related items on planes (known as “Galley Handling”). These incumbents had served the airport since 1992. Starting in 2014, however, two additional catering companies requested—but were refused—airside access from the VAA. VAA expressed concern that the catering market at YVR could not economically accommodate new competitors.2
Fresh from a victory in similar proceedings involving the Toronto Real Estate Board (on which we commented here), the Commissioner characterized airside access as a “critical input” in the downstream Galley Handling market, and the VAA’s decision as the “total and complete exclusion” of new entrants from the airport. The Commissioner described his goals to the Tribunal as follows:
Ultimately, what the Commissioner seeks in this case is to maintain and encourage competition, by allowing airlines and In-flight Catering firms that wish to do business with each other to do so, such that all In-flight Catering firms – both incumbents and new-entrants – are afforded an opportunity to succeed or fail on the basis of their respective ability to compete.3
2. The evidentiary battle: “Exclusionary” or pro-competitive conduct?
Any section 79 case must be premised on “anti-competitive acts,” which courts have interpreted as acts intended to have a “predatory, exclusionary or disciplinary” effect on a competitor. Conversely, courts have recognized the ability of a respondent to justify its decision-making based on “a credible efficiency or pro-competitive rationale for the conduct in question, attributable to the respondent, which relates to and counterbalances the anti-competitive effects and/or subjective intent of the acts.”4 This issue was a focal point in the VAA proceeding, with the litigants adducing dueling economic expert evidence on point.
In particular, representatives of the VAA opined that any new entrants would be at risk of business failure, noting the failure of a previous incumbent in 2003. The VAA’s experts also emphasized the importance of stable in-flight catering to YVR’s overall operations, stating that in-flight catering was effectively mandatory for most international flights and flights with first-class passengers.
In the Toronto Real Estate Board (TREB) case, the Tribunal added a further evidentiary requirement applicable to the scenario, present in both TREB and VAA, where the firm allegedly dominant over a market does not itself compete in it. The Tribunal indicated that the Commissioner must show a “plausible competitive interest” of such a firm in the market.5 In VAA, the Commissioner pointed to the airport rent payments and percentage-based concession fees the VAA received from in-flight caterers as the upside to its alleged exclusion of would-be new entrants.
3. The legal battle: How exempt are “regulated” activities from competition law?
Before the Tribunal, the VAA also presented arguments based on the common-law “regulated conduct doctrine” (RCD). While the precise scope of the RCD is uncertain, the doctrine addresses conflicts between the Act and other laws. As recognized by the Supreme Court of Canada, the RCD interprets conduct authorized or directed by provincial law to be outside the scope of criminal provisions of the Act featuring so-called “leeway language,” such as the element of “unduly” restricting competition in the former price-fixing provision.6 Courts have also justified the RCD based on the heightened intent (or mens rea) standards of criminal law. Given the few cases applying the RCD to the Act’s civilly reviewable provisions, the Competition Bureau previously indicated that it would consider the doctrine, but not consider it dispositive, in such cases.7
In relying on the RCD before the Tribunal, the VAA pointed to a federal cabinet order and associated ground lease assigning it the task of managing YVR.
4. The Tribunal’s findings: The VAA’s conduct was not an abuse of its dominant position over airside access
In dismissing the Commissioner’s application, the Tribunal found as follows:
(1) The RCD is inapplicable to section 79. The Tribunal concluded that the RCD could not shield conduct subject to a proceeding under section 79 of the Act. In line with the Commissioner’s arguments, the Tribunal found that: section 79 lacked “leeway language”; applying the RCD to it would not flow from the rationales above; and no provision of the cabinet order or any other legal instrument authorized or directed the impugned conduct. Albeit in obiter, the Tribunal also stated that the RCD’s rationales would not apply to other civilly reviewable provisions of the Act.8 The Tribunal did, however, conclude that the RCD was not limited to being applied to conduct under provincial law, but could also be assessed in a case (like VAA) involving only federal laws.
(2) The VAA had market power (section 79(1)(a) of the Act). The Tribunal concluded that VAA “substantially or completely” controlled the supply of both the market for airside access and, by virtue of its control over that access, the market for Galley Handling at YVR.
(3) The bar for a “plausible competitive interest” is low, and was met (section 79(1)(b) of the Act; TREB). The Tribunal was divided on the issue of whether VAA had a “plausible competitive interest” in the Galley Handling market. This standard was first established in TREB as a precondition to applying section 79 to a party that does not compete in the market in which competitive impacts are alleged. While the Tribunal’s lay member found the Commissioner’s alleged interest too speculative, its two judicial members concluded that the test had been met at “very close to the lower limit” of what was required. The judicial members found that “plausible” should be construed to mean “reasonably believable,” or having “some credible, objectively ascertainable basis in fact,” but need not imply a “compelling” factual basis. They emphasized the test’s role as a screen to weed out cases “very unlikely to warrant the time, effort and resources” required for a section 79 assessment.
(4) The VAA did not engage in a “practice of anti-competitive acts” (section 79(1)(b) of the Act). After opening the door to the Commissioner’s allegations of exclusionary intent, the Tribunal proceeded to hear VAA’s business justifications. In considering evidence of the meetings and email exchanges that occurred at the time of VAA’s decision, the Tribunal concluded that VAA was motivated to preserve the Galley Handling competition that existed at the airport (and to guard against one of the two suppliers exiting), to prevent the loss of YVR’s reputation, airlines and routes, and to avoid planes departing without sufficient or high-quality meals.
(5) In any event, the VAA’s impugned conduct did not give rise to a substantial lessening or prevention of competition (section 79(1)(c) of the Act). While the Tribunal decided the case on the basis of the “anti-competitive acts” element of section 79, it went further to assess anti-competitive effects. The Tribunal found that while the Commissioner was able to point to “some fairly limited” price or non-price benefits from new entry, including airlines switching suppliers and one airline paying “somewhat” lower prices, it concluded that the alleged adverse effects failed to meet the Act’s substantiality threshold and were “far less than what the Commissioner alleged.”
5. Implications of VAA for competition risk and enforcement in Canada
The Tribunal’s decision in VAA provides important guidance to market actors on at least two fronts. First, the decision clarifies that organizations will need to consider competition law risk under the Act’s civilly reviewable provisions even when they are acting under—or being directed by—other valid laws. While the Tribunal held that it was only deciding the RCD’s application to section 79, its reasoning, if followed, would virtually eliminate the doctrine except as a shield to criminal allegations. While the Tribunal affirmed the Bureau’s position in its revised Abuse of Dominance Guidelines that “compliance with a statutory or regulatory requirement,” such as a privacy law obligation, can constitute a business justification,9 parties will need to support these justifications with sufficient evidence.
Second, the VAA decision provides further elaboration on the concept of a “plausible competitive interest” first introduced as a threshold test in TREB. As with TREB, the VAA case saw the Commissioner continuing its focus on market “gatekeepers”—actors that exercise control over, or “set the rules of,” a market without competing in it. As VAA demonstrates, there is some risk that these actors’ decisions will be “second-guessed” by the Commissioner even when they can be supported by business rationales. VAA sets a low bar for the “interest” required for the Commissioner to pursue these decision-makers, reducing the efficacy of the test’s screening function. However, the Tribunal’s identification of VAA as a case near the “lower limit” suggests that some may still be able to escape a section 79 challenge on this basis.
VAA may also have implications for the Commissioner’s recent focus on the digital economy. Specifically, VAA and TREB establish an analytical framework that could have relevance for future section 79 cases involving digital platforms, which were described in a recent European Commission report as playing “a form of regulatory role as they determine the rules according to which their users … interact, and, when they are dominant, have a responsibility to ensure that competition on their platforms is fair, unbiased, and pro-users.”10
Questions remain, however, about the efficacy of Canada’s section 79 enforcement regime in the fast-changing digital context. That regime, which grants the Commissioner a monopoly on commencing Tribunal proceedings and omits the private access rights available for other civilly reviewable provisions, has seen only two cases fully litigated in a decade. Despite this, there was, in fact, significant private interest in VAA: two would-be new entrants and seven airlines contributed their evidence to the Commissioner’s case. VAA may cause policymakers to consider whether a better allocation of scarce Bureau resources (for example, to digital or consumer cases) could be made possible—without reducing section 79’s deterrence value—by allowing private parties the right to press for section 79 remedies at their own cost and risk. In this respect, VAA left the Commissioner with a Tribunal-ordered costs bill of some $1.32 million.11
Finally, the VAA decision relates to five-year-old conduct that, once a Tribunal application had been filed in 2016, took three years to litigate to a conclusion. This timeline calls into question whether enforcement proceedings before the Tribunal can effectively address anticompetitive conduct when it does arise. The Commissioner has suggested making greater use of interim injunctions in carrying out competition enforcement. However, such action may also risk chilling legitimate business activity—not least in a case like VAA itself, where impugned conduct is later found to be pro-competitive in its design.
For more information, please contact the authors of this article, Simon Kupi and Sandy Walker, or another member of Dentons’ Canadian Competition and Foreign Investment Review group.
- For discussion of the March 2019 changes to these Guidelines, see our comment here.
- In 2017, the VAA conducted a market study of in-flight catering at YVR and concluded that the airport’s growth could justify at least one new caterer. It subsequently issued an RFP that resulted in a third caterer being granted airside access.
- Commissioner of Competition, Notice of Application (29 September 2016), Ex. 2 to CT-2015-015 at para 6.
- Canada (Commissioner of Competition) v Canada Pipe Co, 2006 FCA 233 at para 73.
- The Commissioner of Competition v The Toronto Real Estate Board, 2016 Comp Trib 7 at para 279.
- See Canada (Attorney General) v Law Society (British Columbia), [1982] 2 SCR 307; Garland v Consumers’ Gas Co, 2004 SCC 25.
- See Competition Bureau, “‘Regulated’ Conduct” (27 September 2010).
- Namely, refusal to deal, exclusive dealing, tied selling and market restriction under ss 75 and 77 of the Act and the competitor collaborations provision under section 90.1. See paras 228 and 239 of the decision.
- Competition Bureau, Abuse of Dominance Enforcement Guidelines (7 March 2019) at para 80.
- Jacques Crémer, Yves-Alexandre de Montjoye and Heike Schweitzer, Competition Policy for the Digital Era (2019) at 5.
- Owing to a prior agreement between the parties on legal costs, the bulk of the Tribunal’s cost award ($1.25 million) was attributable to disbursements.
