R. v. ABITIBI – A RECONSIDERATION OF THE “PER SE”
DOCTRINE UNDER THE COMBINES INVESTIGATION ACT
Joel Bell *
“Monopoly, besides is a great enemy to good management, which can never
be universally established but in consequence of that free and universal
competition which forces everybody to have recourse to it for the sake of
self-defense”.2
The interdependence of the several elements of an economy gives
rise to a need to regulate the activities of each member unit so as to
ensure production of goods and services in accordance with the desires
of the consuming public, to provide efficient resource allocation, and
to achieve a satisfactory distribution of the national product. The
attainment of these goals within Canadian society is set in the frame-
work of individual liberty. This leads us to the selection of the market
system as the regulatory mechanism rather than to the centrally
coordinated planned economy. This general approach is, however,
modified in many sectors resulting in a mixed economy ranging from
authority to competition as the regulatory mechanism.
The first legislative attempt to regulate the sector relying upon
competition came in 1889.2 To date, unanimity in its interpretation
has not been achieved. This was made clear by a recent decision of
Judge Batshaw in R. v. Abitibi Power and Paper Co. 3
Seventeen firms were proceeded against for conspiring during a
period of nearly eight years between April 3, 1947 and December 31,
1954 “to prevent or lessen, unduly, competition in the production,
purchase, barter, sale, transportation or supply, in diverse places
throughout the Provinces of Ontario, Quebec, and New Brunswick…
of an article or commodity which may be a subject of trade or
commerce, to wit… pulpwood…” 4
* Junior Editor, McGill Law Journal; second year law student.
‘Adam Smith: The Wealth of Nations.
2 1889 S.C. ch. 41, s. 1.
8 (1962) 36 C.R. 96.
4 The Combines Investigation Act (R.S.C., 1952, C. 314, as amended 1953-54,
C. 51 and 1960, C. 45) does not include the restriction of competition in service
industries, except insofar as the courts can find some effect upon an “article”.
This limitation in the law made it necessary to expressly mention insurance in
the Act –
the legislature choosing to consider price only with regard to in-
surance [s. 32(1) (C)]. It is likely that the prominence of service industries was
not foreseen by the framers of the original legislation. While R. v. Abitibi was
heard under the Criminal Code s. 411 (1) (d), this section was embodied in the
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The crime has been found to lie in the conspiracy itself. As
Batshaw, J. put it:
“The mere concurrence of intention is not enough. It requires the announce-
ment and acceptance of the intentions. But as soon as the parties come to
such an arrangement, the conspiracy is born, even if they never committed
any overt act towards carrying it out. The offence is complete as sool as
the parties have agreed to the common design.” 5
However, it is the conspiracy “to prevent or lessen unduly” which
violates the legislation. Not all agreements which restrain competition
are illegal. It is not the purpose of this comment to analyse the
interpretation placed upon the evidence introduced. Suffice it to note
the court found that:
“… the accused agreed mutually to prevent or lessen competition between
them by fixing schedules of maximum prices which they undertook to
observe in the purchase of pulpwood.” 0
The question which is to be discussed here is the degree and
nature of the restraint upon competition which must be embodied
in the agreement for it
lessening of
competition, short of which no offence has been committed.
to constitute an “undue”
There are two different approaches to the assessment of ‘un-
dueness’. The first investigates competition regardless of the results
found in the market. If the agreement achieves or aims at a re-
striction upon competition of a certain degree a violation is found
even if profits, prices and other economic variables fail to reflect
harmful effects upon the consumer. This is called the “structural
test”. The second approach seeks to measure the variables in the
market with a view to assessing, in each particular case, whether
the public has actually been harmed. These effects are deemed, in
this approach, to be the genuine purpose of the legislation. This is
called the “behaviourial test”.
It will be suggested that the test selected ought to vary with
the degree of restraint sought or achieved by the combine. It
is
further submitted that the “structural test” has both legal and
economic roots which favour its application only in situations where
Combines Investigation Act as s. 32 (1) (C) without change in 1960, which legisla-
tion is now the only regulatory enactment now covering conspiracy in restraint
of trade.
5 Op. cit. at p. 103. Weidman v. Shragge (1912) 46 S.C.R. 1; see also: Paradis
v. The King (1934) S.C.R. 165; R. v. Eddy Match Company Limited et al. (1951)
13 C.R. 117; R. v. Crown Zellerbach Can. Ltd. (1955) 5 D.L.R. 27; R. v. Howard
Smith Paper Mills Ltd. (1954) 4 D.L.R. 161.
6 at p. 109. At p. 155 Judge Batshaw reveals that he considered export demand
as a competitive factor – but that his evaluation found it meaningless in fact.
“…. the export demand did not constitute such an effective competition as to
relieve the accused from the charge that their conspiracy was “undue”.
No. 4]
CASE AND COMMENT
the conspirators exercise or seek to exercise a “virtual monopoly”
in the industry involved. At lesser degrees of control by the combine
“behavioural” criteria become relevant to the assessment of “undue-
ness”. It is not that actual public harm is unimportant when a
virtual monopoly exists, but that such is reasonably presumed to
exist by virtue of control exercised by the combine. The notion of
public harm underlies any violation, but under monopolistic conditions
it is presumed to have been inflicted without any deeper analysis
since the consumer can no longer directly influence the industry.
Judge Batshaw’s review of the evidence with regard to structure
alone fails to meet this principle in view of his willingness to use
the “structural” approach even where the restraint falls short of
a “virtual monopoly”.7
The “Per Se” Doctrine
“32. (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, rental, transportation or
supply of an article, or in the price of insurance upon persons
or property… “8
In assessing “undueness” of restraint to the forces of competition,
the courts have long held that it is the competition itself which is
to be considered rather than the results which are expected to flow
from this market mechanism. In the earliest combines case of R. v.
Elliott 9 the court did not discuss effects beyond that of resrticting
7 Note that the fact that the offence is in the agreement itself does not mean
that in deciding which agreements “unduly” restrain competition one cannot
employ “behavioural” criteria. The “structural test” is based upon the notion
that the existence or non-existence of competitive forces is all that really matters
i.e. competition per se is merely a test for deciding which agreements are in
–
themselves offensive. The notion of competition per se is readily distinguishable
from cases where the offence is in the act itself independently of any other
measure. Such, for example, is the case in the offence of resale price maintenance
under the Act. We are concerned here with the measure of “undueness” and the
tests used in its determination. In this context the term per se merely indicates
that one looks at the forces of competition independently of any results therefrom.
8 There is no reported decision of a conviction under any other clause of s. 32
without there also being a conviction under clause (c). Since the case of R. V.
Canadian Import Co. (1953) 3 D.L.R. 330, all convictions have been under clause
(c) alone. All charges since that in Container Materials v. R. (1942) S.C.R. 147,
(c) solely, unlike the earlier practice of charges
have been laid under clause
under several clauses.
9 (1905) 9 O.L.R. 648, judgment on appeal reported at 656. Numerous cases
have followed this precedent and considered competition as an end in itself, con-
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competition, excluding details of supply, prices and profits. The
famous dictum stated:
“The right of competition is the right of everyone, and Parliament has shown
-that its intention is to prevent oppressive and unreasonable restrictions upon
the exercise of this right.” Sa
The Supreme Court of Canada had its first opportunity to state
its view of the combines legislation in 1912 in Weidman v. Shragge.10
The discussion of the effects of competition were limited to a
justification for enshrining competition as an end which is itself
to be upheld, rather than as a means of achieving the objective of
sound economic performance. That is, it is not the performance
which is legally required, but the machinery which it is conclusively
presumed will lead to the end desired by economic rationale. However,
the law requires competition because competition ensures the protec-
tion of the public interest thereby avoiding the burden on the courts
of protecting the public interest itself via an assessment of each
case to decide what will best satisfy this objective 11 The underlying
economic rationale to this philosophy is that competition can be
reliably assumed to achieve a result which no modification of this
machinery can ensure (unless, of course, the legislature has replaced
the free market mechanism with some form of public control ranging
anywhere from simple surveillance to absolute authoritarian control
or even ownership).
In fairness to this leading judicial precedent, one must observe
that this simple presumption was held to be valid by most economists
victing or acquitting upon structural findings which affect competition as a
regulatory mechanism rather than upon its behavioural implications. Gibbins v.
Melealfe (1905) 15 M.R. 584; Hatley v. Elliott (1905) 9 O.L.R. 185; R. -v. Master
Plumbers (1905) 19 O.L.R. 307; R. v. Alexander (1932) 2 D.L.R. 109; R. v.
MeGavin Bakeries (1952) 1 D.L.R. 201; R. v. Crown Zellerbach (1955) 5 D.L.R.
27; R. v. Northern Electric (1955) 3 D.L.R. 449; R. v. Lyons Fuel (1961) 36
C.R. 157.
The following found agreements to fix price offensive regardless of the price
actually fixed. R. v. Clarke (1907) 14 C.C.C. 57; Stinson-Reeb V. R. (1929)
S.C.R. 276; R. v. Singer (1931) 3 D.L.R. 715; Container Materials v. R. (1942)
S.C.R. 147; Howard Smith v. R. (1957) S.C.R. 403; Peloquin v. Latraverse
(1920) 54 D.L.R. 181.
9a Ibid, at p. 661.
10 (1912) 46 S.C.R. 1. This case entailed a contract between two junk dealers
in Western Canada which contract fixed the prices for the purchase and sale
of junk. Included, as well, was a profit-sharing agreement out of which this
action arose.
11 Presumably the legislature is to have done this when deciding which sectors
of the economy must be regulated by competitive forces, and which sectors are
to be regulated in a different manner, e.g. labour unions, public utilities, banks
and cooperatives.
N.O.A]
CASE- AND COMMENT!
of that period. 12 Most subsequent cases merely accepted this judgment
without further analysis of what has become known as the per se
doctrine. This test renders public benefits which result from the
combination irrelevant once the forces of competition have been
thwarted to what will be noted to be an “undue” degree. In Container
Materials v. R. 13 although it was argued that beneficial effects result-
ed from the agreement in question, the court held that the term
“unduly” could not import a consideration of economic theories of
what enures to the public good. Public interest was felt to be in
having the market under the control of competitive forces.14 This
is most readily expressed in lay language as a fear of power, whether
abused or not. The most authoritative statement on this point is
found in the case Howard Smith Paper Mills Ltd. v. R.15
“The public is entitled to the benefit of free competition and the prohibitions
of the Act cannot be evaded by good motives.”
The statement 16 went further to note that actual injury to the
it is the influence of competition,
public need not be demonstrated –
rather than its results, which is protected.
“The statute proceeds upon the footing that the preventing or lessening of
competition is in itself an injury to the public. It is not concerned with public
injury or public benefit from any other standpoint.
“That it is the arrogation to the members of the combination of the power
to carry on their activities without competition which is rendered unlawful;
that the question whether the power so obtained is in fact misused is treated
as irrelevant; and that the Court, except I suppose on the question of
sentence, is neither required nor permitted to inquire whether in the par-
ticular case the intended and actual results of the agreement have in fact
benefitted or harmed the public.” 17
12 Competition, as a regulatory force, was felt to ensure:
(i) Innovation and growth of the efficient firms, often necessarily leaving
the inefficient by the wayside. This was observed in answer to those who com-
plained of the wastage created by competition. In fact, competition allows only
the fit to survive –
and fitness is a composite of techniques of production,
methods of finance, calibre of staff and effectiveness of distribution.
(ii) Compulsory conveyance of economic benefits to the market. Thus, while
collusive agreements need not prove inconsistent with high levels of efficiency
in production and distribution (although often, in fact, such agreements do
shelter the inefficient) only competition
imposes the transmission of these
benefits to the public where altruism might fail. Benevolent monopolists, like
benevolent dictators, may not continue to be enlightened.
13 [1942] S.C.R. 147.
14 R. v. Northern Elec ric (op. cit.) recalled that the restraint upon those com-
proof of a conspiracy to do so is
petitive forces need not actually be achieved –
sufficient.
15 (1957) 8 D.L.R. (2nd) 449 at 452.
16 Ibid. at 457.
17 Note that the possession of the power is the best proof of a conspiracy
which seeks to do so, or at least has the effect of so doing.’
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” … once it is established that there is an agreement to carry the prevention
or lessening of competition to the point mentioned, injury to the public
interest is conclusively presumed. The relevant question thus becomes the
extent to which the prevention and limitation of competition are agreed
to be carried and not the economic effect of the carrying out of the
agreement.” 18
While Cartwright, J. expresses some dissatisfaction with a law
which would have to convict upon an agreement that had done no
more than permit the industry to develop and survive in Canada,
and had kept profits and prices at a reasonable level, he feels bound
by the precedents of our courts. While all subsequent decisions have
accepted this structural criterion the statement by Cartwright, J.
does link the per se test to the degree of restraint achieved or con-
tained in the agreement.
“… once it is established that there is an agreement to carry the prevention
or lessening of competition to the point mentioned, injury to the public is
conclusively presumed.”USa
Thus the degree of restraint becomes a very significant factor
for not only must it reach the point of undueness to be in violation
of the Act but also this point is the premise upon which the conclusive
presumption of the per se doctrine is predicated.
The Degree of Restraint which Constitutes “‘Undueness”
Judge Batshaw does, in fact, accept the per se doctrine insofar
as he restricts his consideration to structural factors without regard
to the effects upon the behavioural elements of the industry. He
notes, however, that the same approach may be used for degrees
of restraint which fall short of that sought by Cartwright, J.
The jurisprudence has long held that the degree of “undueness”
which constitutes an offence is that of the virtual elimination of
competition. Thus, to date, the per se rule which has developed has
always been associated with this extreme degree of restraint.19 This
Is Op. cit. at 473. The italics are those of this writer unless otherwise specified.
:Sa Ibid.
19 It is interesting to note that the interpretation of “unduly” has passed
through two schools of thought.
(a) Qualitative –
the use of the word “prevent” in s. 32 (1) c is itself absolute
and does not admit of quantitative variations. Consequently, to prevent or lessen
unduly must refer to the manner in which the competition is lessened or prevented
to this absolute degree. That is, the device must be of an undue nature as con-
trasted, presumably, with ordinary or acceptable business behaviour. This view
was expressed as recently as the decision of the trial court in the case of R. v.
No. 4]
CASE AND COMMENT
quantitative assessment of “undueness” appears to have a qualitative
factor which, until the statement of Judge Batshaw, had automatically
been held to be inherently part of the “undueness” –
that is, the
total elimination of competitive forces by virtue of a horizontal
collusive agreement is conclusively presumed to cause injury to the
public, and “undueness” was. held to be at this point of “virtual
monopoly” as well. If the restraint is not complete, the jurisprudence
does not impose the structural test as the sole determinant of
“undueness”. The approach to “undueness” becomes exclusively
quantitative only because of the qualitative result which accompanies
the total restraint of competitive forces. Once the restraint is less
extreme, the qualitative result ceases to have automatic validity.
It demands further assessment of qualitative or behavioural elements
to establish the existence of public harm upon which the short-hand
statements of the per se doctrine were predicated. This presumption
is apparently regarded as being irrebuttable and has led to a
mechanical application of the per se test, losing sight of this under-
lying premise which was clearly enunciated in the case of Weidman
namely
v. Shragge, and most recently in the Howard Smith case –
that the total elimination of competition justifies a presumption of
public injury without further analysis of the market effects.
In R. V. Elliott 20 the Association embraced a sufficiently extensive
section of the coal trade such that persons in bad standing could only
acquire coal at retail prices. Meredith, J. expresses the degree of
control required where he says:
“….. a dangerous power, unfair, unreasonable and unjust toward those who
might desire to trade in the commodity without joining the association and be-
coming party to the wrong, and towards those who are obliged to buy… “21
(b) Quantitative –
Howard Smith in 1954, op. cit. although it was subsequently overruled. Here, of
course, there would be no dispute as to the degree of restraint required, but
merely a discussion of the manner in which such a degree had been achieved.
the phrase “prevent or lessen” is interpreted as meaning
i.e. to hinder or impede. Accordingly, “undue-
something short of absoluteness –
ness” relates to the degree of hindrance placed upon the competitive forces. The
devices used merely provide evidence of the primary object or effect of the
agreement –
namely, to restrain competition.
The courts have conclusively ruled in favour of this latter, but have always
made a finding of an absolute degree of control of the’industry in question thus
resulting ultimately in the same degree as noted in the Qualitative School –
the difference being that the devices have little revelance in themselves, but
only as evidence of the restraint upon competition, the intention, or likely result
thereof. As well, the question arises as to whether to “lessen” competition to a
point short of virtual monopoly might constitute a violation of the Act.
2 0 0op. cit.
21 Ibid. at p. 652.
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Surely, the curtailment of entry and the fact that consumers
could not buy elsewhere than from a member of the combination
indicates a “domineering and absolute control over the commodity
which the association designed and endeavoured to get.” 22 It is at
this point that the restraint is in itself “oppressive”. 23 That is,
public harm comes via the denial of consumer choice whereby he
makes his desires felt by the producers in an industry. Regardless
of “behavioural” harms in terms of profits, prices or output, the
public is denied an effect of competition – namely, the choice between
alternatives whereby the economy is regulated by the will of the
consumers.
The judgment in Weidman v. Shragge reveals that the conclusive
presumption has the underlying logic of its resulting harm to the
public only when competition is actually destroyed. The short-hand
method thus introduced was not intended to create a divorce between
the simplicity of a presumption in locating an offense and the
substance of the offense –
the law protects competition because
competition protects the public interest.
“Destroy competition and you remove the force by which humanity has
reached so- far. The altruism some people would substitute for it may, when
it has arrived, bring with it a higher sense of justice, but it has not
arrived.” 24
Idington, J. appears concerned for the harm resulting from com-
binations which achieve or seek to achieve sufficient control to shelter
“the stupid, the slothful, the ignorant, the overcapitalized man work-
ing with antiquated machinery, and a mill or warehouse over-
manned”. 25 Such control would have to be fairly complete to rival
“the standard that may be fairly reached by the men of brains, of
energy, of sleepless vigilance, with only adequate capital to earn
dividends for, and all the advantages that the latest improvements,
invention or discovery can furnish.” 25a The fate of the former class
must be left to the market, the failings of such economic units being
a necessary part of growth.
22 at p. 654.
23 Similar degrees of restraint were found in: Hatley ‘v. Elliott (1905) 9 O.L.R.
185; Wampole v. Kam (1906) 11 O.L.R. 619; R. v. McMichaei (1907) 18 C.C.C.
185; R. -. Central Supply Association, 12 C.C.C. 371; R. v. Clarke (1907) 44
C.C. 57.
24 (1912) 46 S.C.R. 1 at p. 28. Idington, J. Law exists to avoid the actions
which some would take in its absence. If full agreement existed, it would be
unnecessary.
25 Ibid. at p. 28-29.
2 a Ibid.
No. 4]
CASE AND COMMENT
It is when these men do not ultimately “go to the wall before
their onward march” (that is the march of the more efficient group)
that concern is expressed.
Idington, J. seeks “to find the vicious purpose aimed at” and he
finds that vicious purpose to be the destruction of all competition:
“His (one of the contracting parties) one thought was, if possible, to destroy
all competition and, if need be, those who ventured to come in competition
with him. His language and conduct portray exactly what this statute strikes
at. Its aim was to put out of business use the methods of men banding them-
selves together to render it difficult if not impossible for others to become
rivals and stop competition in the same field of business.” 2 6
The Chief Justice, Sir Charles Fitzpatrick also recognizes that
the ultimate objective is to avoid harm to the public.
“The mischief aimed at is the undue and abusive lessening of competition
which operates to the oppression of individuals or is injurious to the public
generally.” 27
It has been noted above that the conclusive presumption of such
harm is only intended to apply at absolute 28 degrees of control.29
In fact, the agreement being studied in this case virtually eliminated
competition in the Wesern Canadian junk market. Public interest
could never lie in such an agreement. To avoid assessing the public
interest in each situation, the court conclusively presumes the effects
of competition to be missing under similar situations.30 This alone
is the ratio decidendi of the judgment. To read this into situations
with lesser control is not justified by the language of this and other
judgments.31 This was the finding of the Chief Justice:
26Ibid. at p. 31-32.
27 Ibid. at p. 4.
2
8 The term “absolute” is used to indicate a degree of restraint which eliminates
or “virtually eliminates” all competition in the industry concerned.
light. Namely, in that of the public interest.
29 Itshould be made clear to the reader that the writer does not feel that any
combination short of the absolute degree of control is automatically to be held
permissible. It is, however, contended, that in law the per so doctrine is only
intended to apply at such an extreme point. The legislation might well permit of
convictions short of absolute control, but the developers of the doctrine did not
intend it to be with the help of the conclusive presumption. It will also be sug-
gested later that the underlying logic supports such a conclusion.
30 Those effects were noted in footnote 12.
31 It will be seen that Judge Batshaw acknowledges that all prior decisions had
found an absolute degree of control. He suggests, however, that such a degree is
unnecessary. This writer contends that while it may not be necessary to a con-
viction under the legislation involved it is indeed a necessary element in the
application” of the presumption which accompanies the per se doctrine. Batshaw
J., does apply the per se doctrine, and attempts to suggest its application at
lesser degrees of concentration.
To find a violation at lesser degrees he must assess the evidence in a different
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“… the main object and purpose of the agreement was to eliminate com-
petition… “32
Idington, J. felt that the parties sought control of the entire
market and had, in fact, achieved their aim. Anglin, J. also found
an intention to “destroy” competition. Duff, J. stated:
“I have no hesitation in holding that as a rule an agreement having for one
of its direct and governing objects the establishment of a virtual monopoly
in the trade of an important article of commerce… comes under the ban.”33
While the court did not say that something less than a virtual
monopoly is not offensive, it did apply the per se doctrine within
the confines of this degree of concentration.
As Chief Justice Duff put it in Container Materials Ltd. v. R.:
“.. . the aim of the parties to this agreement was to secure effective control
of the market in Canada; it may be added that in this they were very largely
successful. But the fact that such was the agreement affords in point of law
a sufficient basis for a finding that the agreement was one which, if carried
into effect, would gravely prejudice the public interest in free competition,
and… (result in) …
The conclusive presumption of law is sufficiently justified only
because the degree of restraint of competition was such as to give
the members of the combine effective control of the market.M
a conviction.” 33a
The latest Supreme Court judgment on this point is that of
Howard Smith v. R. Cartwright, J. summarizes the law as follows:
“In essence the decisions.., appear to me to hold that an agreement to
prevent or lessen competition in commercial activities of the sort described
in the section becomes criminal when the prevention or lessening agreed
upon reaches the point at which the participants in the agreement become
free to carry on those activities virtually unaffected by the influence of
competition, which influence Parliament is taken to regard as an indispen-
sable protection of the public interest.”
“… that it is the arrogation to the members of the combination of the
power to carry on their activities without competition which is rendered
unlawful;” 3 5
Batshaw, J. suggests that Cartwright, J. has here gone further
than previous decisions. There is agreement that the earlier cases
3 2
op. cit. at p. 5.
33 Ibid. at p. 37.
33a Op. cit. at p. 153.
34 Similar degrees of restraint were found in Stearns v. Avery
(1915) 33
O.L.R. 251; Peloquin-v. Latraverse (1920) 54 D.L.R. 181; Wampole v. Karn
(1906) O.L.R. 619; Stinson Reeb v. R. (1929) S.C.R. 276; R. v. Alexander (1932)
2 D.L.R. 109; Container Materials Ltd. v. R. (1942) S.C.R. 147; R. v. Belyea
(1932) 2 D.L.R. 88; R. v. Master Plumbers (1905) 14 O.L.R. 307; R. V. Clarke
(1907) 14 C.C.C. 57. In R. v. McGavinr Bakeries (1952) 1 D.L.R. 201 and R. v.
Canadian Imports (1935) 3 D.L.R. 330, absolute control was found to be the
“intention” of the parties.
35 (1957) 8 D.L.R. (2nd) 449 at 473.
No. 4]
CASE AND COMMENT
had found situations of “virtual monopoly” 36 to be offensive. Clearly,
the law permits some restraint but prohibits greater degrees thereof.
The question is what degree of restraint constitutes an offense; is
it necessary to find a virtual monopoly ? Is this what Cartwright, J.
is suggesting?
Batshaw, T. objects:
“… it cannot be accepted as our law that only those conspiracies are illegal
that completely eliminate or virtually eliminate all competition. To say that
the prevention or lessening of competition must be carried to the point where
there remains no competition, or virtually none, is tantamount to con-
sidering the words “prevent” or “lessen” as synonymous with extinguish.
Giving to words their ordinary meaning, it would seem that what the
less than
legislator
extinguish.” 37
While Batshaw, J. is definite about his interpretation of the law
on this point he seems to render the statement less meaningful only
a few paragraphs later where he makes the interpretation unnecessary
to a conviction. He finds an absolute degree of control:
intended by “prevent” or “lessen”
is something
the evidence discloses that for a time at least and in particular areas,
“…..
the accused were able to achieve even the virtual elimination of compe-
tition.” 38
“… the intention of the conspirators to control the purchased pulpwood
market is rather evident.”
“…What these companies set out to achieve by their agreement was
nothing more or less than the control of the pulpwood market by agreeing
mutually as to the maximum prices which they would pay, and if necessary,
distributing available pulpwood amongst members of the group who could
not get sufficient wood by observing the ceiling prices.” 39
However, although the statement is obiter, it merits further
consideration. It is submitted that while Judge Batshaw is interpret-
ing the law correctly in that restraint short of virtual monopoly can
still be undue, there is no justification for the application of the
per se doctrine with its conclusive presumption at points short of the
virtual elimination of competition. The per se doctrine is a product
of judicial interpretation. It enables a court to declare that the public
has been harmed after examining the structure of the industry for
competitive forces and finding none to exist. Thus the agreement
has “unduly” restricted competition. This does not mean that this
absolute degree of control is necessary for a conviction under the
Act. It does, however, mean that such a degree of restraint must be
36 They found such situations even where they stated an absolute degree to
be unnecessary.
37 at p. 148.
38 at p. 150.
39 at p. 151.
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involved in the agreement to justify the use of the per se doctrine
and avoid further scrutiny in search of actual harm to the public.
This is what Cartwright, J. is saying:
“.. . once it is established that there is an agreement to carry the prevention
or lessening of competition to the point mentioned, injury to the public
interest is conclusively presumed.” 40
The agreement to prevent or lessen competition becomes undue
by virtue of a structural test alone when “the participants in the
agreement become free to carry on those activities virtually un-
affected by the influence of competition”. The statute is acknowledg-
ed as resting “upon the footing that the preventing or lessening of
competition is in itself an injury to the public.” In view of this under-
lying policy, the per se doctrine must also be viewed in similar terms
i.e. one must view competition per se as being a conclusive pre-
–
sumption of harm to the public interest resulting from the destruction
of competition. This presumption is only felt to be beyond reproach
“… once it is established that there is” a degree of restraint which
leaves the “activities virtually unaffected by the influence of com-
petition”. Cartwright, J. is clearly linking the requirement of virtual
monopoly to the validity of the conclusive presumption.
In referring to evidence of the absence of public detriment
Cartwright, J. again relates the finding of an offense without
assessment of any effects to the absolute degree of control.
“The conclusion of the learned trial judge in the case at bar, affirmed by
the Court of Appeal appears to me to be that because the purpose and
effect of the agreement of the appellants was the virtual elimination or
prevention of all competition… the object of the agreement is necessarily
“undue” and the making of it is criminal… “41
Thus, it is because of the virtual elimination of competition that
the criminal conviction is justified without looking further. While
at lesser degrees of restraint the activity is not “necessarily undue”,
it may be so if the “footing…
(of) … injury to the public” is
violated. This, however, demands a different assessment of the
evidence. In all cases one must by presumption or by direct evidence
find harm to the public. Members of a combine cannot, thus,
monopolize a substantial part of the market and then seek a defense
in the absence of actual public harm.
Batshaw, J. suggests that Cartwright, J. is making an absolute
degree of restraint a precondition to a conviction. To explain this
4o at p. 473.
41 at p. 472. Taschereau, J. states at p. 452-53 that
… no defense will condone
the undue restraint, which is the elimination of the free domestic markets”. It is
interesting to note that Taschereau restricts his view to the domestic market.
Also, it is possible that defenses might be entertained in other cases.
No. 4″1
CASE AND COMMENT
away, Judge Batshaw notes that Cartwright, J. acknowledges that he
is summarizing the jurisprudence. The jurisprudence cited is ex-
clusively that subscribing to the per se doctrine. Thus, what Cart-
wright, J. is saying is that restraint which leaves the members of the
combine “virtually unaffected by the influence of competition” is,
indeed, a condition precedent to the per se jurisprudence. It is not
necessary that Cartwright, J. had intended- a distinction between
the application of the per se doctrine where “virtual monopoly” is
achieved and those lesser degrees of restraint where offence must
be found without the aid of the conclusive presumption of public
harm. What is significant, however, is that in summarizing his view
of the jurisprudence, having cited cases which had accepted the per se
doctrine, he finds that absolute control is a necessary factor in such
cases. One can sympathize with Judge Batshaw’s attempt to find
an offence at lesser degrees of restraint, but one must avoid the
facility of the per se doctrine’s conclusive presumption in assessing
the evidence.
While the per se jurisprudence does not say that a conviction
it does
cannot be had for an “undue”
explicitly restrict the use of the structural test to the exclusion of
behaviourial factors to cases where competition is eliminated.
lessening of competition,
It is where the virtual elimination of competition is felt to be
lacking in evidence that the courts have considered some of the
effects (or “behaviourial” data) of the agreement in question. One
cannot, however, be sure that the courts were not considering
behaviourial data as proof that the restraint was not absolute. If
the intent was genuinely to ascertain whether or not harm had
actually been effected, the fact that non-members were able to buy
at the same prices as those offered to members of the combine
indicates that the combine lacked absolute control. 42 Consequently,
it is possible that the court anticipated the possibility of finding
a violation by virtue of actual public harm constituting “undueness”.
Subsequent cases have applied the structural test exclusively for
the assessment of “undueness” but have found in each case that
42 R. v. Beckett (1910) 20 O.L.R. 401. R. v. Gage (1907) 13 C.C.C. 428. Attor-
ney-General for Ontario v. Wholesale Grocers’ Association (1923) 53 O.L.R. 627.
Hodgins, J. A. declares that an absolute degree of restraint would satisfy him
in this latest case: “… the result is, to my mind, that a combination does injure
or restrict trade if it coerces a manufacturer by requiring him to refrain from
trading with one class of dealers if he would preserve his trade with those who
can qualify in another and self-constituted class, and if it prevents a jobber from
trading in a commodity the sale of which to him is refused”.
McGILL LAW JOURNAL
[Vol. 10
“… Not only was competition lessened, it was obliterated.. .,”4
Ferguson, J. continues to say that because of this virtual elimination
the object of the agreement is necessarily “undue”.
“It is, of course, plain … that every agreement to prevent or lessen compe-
tition is not an offence… That general statement is recognized as valid,
but with the limitation … that if such an agreement eliminates or prevents
all competition, it is necessarily undue.” 43
If this is intended to mean that only those agreements which
completely eliminate competition are “undue”. he appears to be car-
ried away with the thrust of the jurisprudence which originates a
per se doctrine for situations of “virtual monopoly”. 44 It commits
the error of summarizing the jurisprudence under the guise of
reciting the capacity of the legislation to convict. It seems, rather,
to say that, only if all competition har been eliminated or would
be eliminated by the combination is the agreement “necessarily
undue”. However, an agreement may well prove “undue” at lesser
degrees of restraint, but not without careful consideration of the
public interest, as not “every agreement to prevent or lessen com-
petition is an offense”. This interpretation is supported by a state-
ment which follows closely the above:
“It is idle to argue that the public is receiving the benefit of free competition
when prices were fixed and unalterable.” 45
A lesser degree of restraint might render the claim that the
public is receiving the benefits of competition possible. Having such
extreme control renders it safe to conclude without further scrutiny
that at least some of the “benefits of competition” are being denied.
The confusion seems to be in the viewing of the jurisprudence
as revealing all the potential of the Combines Investigation Act
for the finding of offenses. By objecting to this interpretation of
the cases and holding that the Act has scope for convictions in areas
as yet untried by the jurisprudence (namely, a simple lessening of
431R. v. Lyons Fuel (1962) 36 C.R. 157 at 166. Note the distinction between
lessening and preventing (obliterating) competition.
44 The cases cited all support the per se doctrine, and enunciate a test of
“undueness” within that context. e.g. Weidman v. Shragge (1912) 46 S.C.R. 1;
Howard Smith v. R. (1957) 8 D.L.R. (2nd) 449; R. v. Ash-Temple (1949) 93
C.C.C. 267.
45 p. 169. While all the effects of measurable values may be achieved –
i.e.
the element of consumer control and consequent
prices, profits, growth, etc. –
market enforcement of the transmission of gains to the consumer is lacking. The
simple fixing of price is a sufficient index of the elimination of competition here
because the item involved (coal) is a standardized product sold by weight. Con-
sequently, the court felt that price competition was the “only real competition”.
No. 4]
CASE AND COMMENT
399
competition which does not actually destroy it)
the statement of
Judge Batshaw has great merit. To “prevent, or lessen, unduly…”
includes two different degrees of restraint –
“to lessen, unduly”.
appears intended to imply less restraint than “to prevent, unduly”.
Certainly, “to lessen” permits of convictions even where competition
has not been destroyed, regardless of its meaning relative to preven-
tion of competition.
The judgment in R. v. Abitibi may well open the way to this sec-
ond line of offense –
“to lessen, unduly”. In this area, however, the
defences commonly rejected by the jurisprudence in the per se line
of the prevention or destruction of competition must be heard and eva-
luated.40 While Judge Batshaw points out that the jurisprudence deals
only with the absolute degree of restraint (and consequently limits it
in view of the broader wording of the Act) he fails to limit the judicial
interpretation developed within that realm to the same boundaries.
At least a re-examination of the tools used under those different
circumstances is called for. If it is felt that the per se doctrine has
legal and economic justification for its application to areas where the
initial expression doeg not anticipate its use, some a priori rationale
is required in this new application.4 7
To apply the per se doctrine to this new area, that is to judge
every “lessening” of competition to be “undue” (for without beha-
vioural criteria one could not differentiate between one degree of les-
sening and another, except by a subjective and arbitrary decision) is,
it is submitted, to misinterpret the spirit, if not the actual language,
of the jurisprudence. The Supreme Court left it open to find a viola-
tion short of complete destruction of competition.48 The. decision in
Howard Smith v. R., however, clarified the view of this court –
that
in applying the per se doctrine the restraint must be absolute.4 9
To interpret this judgment in any other way is to confuse Cartwright,
40 That is, the defence that no harm has actually been brought upon the public.
It will be noted later that the defence which claims advantages in terms of the
broader economic policy objectives is beyond the purview of legislation geared
to deal with the control of the market. Certainly, advantages in keeping with
namely, consumer control and welfare must be considered.
the area involved –
47 Judge Batshaw is not alone in his mechanical application of the per se
doctrine to this “new” area. The same thing is done in R. v. Electrical Contrac-
tors Association (1963) 36 C.R. 1.
48 Weidman v. Shragge; Stinson-Reeb Builders Supply Co. ‘V. R.; Container
Materials Ltd. v. R. Supra.
49 Locke, J., concurs with Cartwright, J., Taschereau, J. also appears
to
accept this attitude.
McGILL LAW JOURNAL
(Vol. 10
J’s summary of the jurisprudence with the legislation itself.50 Only
the former has required absolute restraint and has in that context
elucidated a per se doctrine. To convict for conspiracies which fail to
control the market, the court must look further and implement the
purpose of the statute which the per se doctrine has done in cases
of “virtual monopoly” –
that is, preserve the public interest in compe-
tition. That interest was enunciated as early as Weidman v. Shragge
to be innovation and growth via efficiency rather than by less econo-
mical procedures, and the compulsory conveyance of such benefits to
the consumers. It is this evidence which must be sought.
The “Public Interest”
The social policy underlying the Combines Investigation Act is the
preservation of the public interest in that area of the economy in
which competition is relied upon as a regulatory mechanism. The
public interest in competition lies in the supremacy of the consumer
in the market –
the market must serve the consumer.rl Accordingly,
the objective economic concepts of growth, innovation and efficiency
do not alone suffice. The gains thus achieved must be conveyed to the
consumer under the compulsion of the market forces. Just as politi-
cally we place a great deal of emphasis upon the means by which we
achieve the “effects” of a well ordered society which best serves the
populace, so we apply the same notion to the market place. This basic
philosophy does not require specific structures in the market; it merely
demands that the forces which ensure its fulfillment be preserved.
Competition has no value for its own sake, but merely for the results
it brings. This is where judicial opinion began:
“…. its intention is to prevent oppressive and unreasonable restrictions … ” 52
In the “competitive” areas of our economy, the presumption is
that only the individual himself can decide what satisfies him best.
50 Some cases have interpreted this precedent to mean that only the “virtual
elimination” of competition constitutes a violation under the Act, thus obviously
failing to recognize a distinction between the criteria to be used in assessing
evidence. It has been suggested that the test may vary with the degree of restraint.
The assumption that Cartwright, J. was summarizing the law is at the root of
the requirement of conditions of absolute control by McRuer, C.J., H.C., in R. V.
Canadian Breweries Ltd. (1960) O.R. 601 and by Williams, C.J., Q.B., in R. v.
B. C. Sugar (1962) 36 C.R. 32. These were both merger cases. While the law
differs slightly from that of loose combinations, in that it includes the term
“public detriment”, suffice it to note that the courts have equated this with
the term “unduly” in section 32 of the Act.
51 The end object of all production is, clearly, consumption.
52 R. v. Elliott (1905) 9 O.L.R. 656.
No. 4]
CASE AND COMMENT
Consequently, he must be confronted with a choice between at least
two alternative ways of satisfying a particular need.5 3 The selection
of one in preference to another causes it to survive. This might be
called a “retrospective principle of consumer satisfaction” only after
he has chosen, and only if he remains free to change his selection, is
he to be deemed satisfied. Such a choice might be rendered impossible
or seriously uneconomical (perhaps due to the smallness of the domes-
tic market). If domestic competition is not adequate to regulate the
industry, external forces such as importation might effectively secure
consumer sovereignty. Failing all such forces some other means of
regulating the economy must be found to reconcile the unwillingness
to permit the power enabling dictation to the market to reside in
private hands with the need for economic efficiency which also forms
part of the public interest.5
Public policy dwells upon the result. But since one of the results
desired is consumer sovereignty the mechanism acquires significance
as it is there that this objective lies. It is legal interpretation, however,
which has translated this into a presumption that where competition
has been destroyed, in those areas of the economy where it has been
relied upon by the legislature, the public ceases to derive the benefits
to which it is entitled. This legal tool ought not to cause us to lose
sight of its purpose – which is to ensure the benefits of consumer
sovereignty and satisfaction. To apply a per se rule at degrees short
that is, to presume that the public
of the elimination of competition –
interest is no longer being served once competition has merely been
partially impeded (without considering the values of consumer sove-
reignty and satisfaction which may not have been ‘uhduly’ affected)
is to overlook this purpose. Structural appraisal is inconclusive if the
structure permits of some competitive influence for it might be suf-
ficient to secure the objectives. Only by considering those objectives
themselves can one be sure. The degree of competition which suffices
is that which produces both consumer welfare and consumer control in
the market.55 One can confidently state that at least control by the
53 The alternative must be with regard to satisfying a “need” rather than in
term of the same product. It is possible that aluminum, for example, can be an
alternative to a copper product –
or that widely divergent items satisfy a
“need” at the level of the spending of the discretionary consumer dollar.
54 As noted earlier, such regulation can vary in form from surveillance to
government ownership.
G5 In fact, it often takes very slight structural indications of competition to
effectively regulate the market. For example, note how the fringe of the retailing
market influenced all outlets by introducing the “discount house”. Some econo-
mists appear to be disillusioned with structural tests and claim them inconclusive
even at degrees of absolute control. With this the writer does not agree –
for
McGILL LAW JOURNAL
[Vol. 10
consumer is lacking should the combine possess absolute control of
the industry. This is so even if the monopolists (either a group of
conspiring firms or an individual firm which controls the industry) ri
act benevolently or for other motives so as to provide satisfactory
consumer welfare. Once, however, the combine has a lesser grip (or
the agreement envisages or would result in some lesser degree of res-
traint) one cannot glibly conclude that it violates the concepts of
welfare and/or consumer control to an “undue” degree.
Furthermore, the very vital question of how much restraint is
tolerable cannot be answered in structural terms. Since some restrict-
ive agreements are permissible (that is, if they are not “undue”) how
can the line be drawn? The total elimination of competition is an
offense. If there are to be convictions for restraint which merely
lessens competition, against what measure can we assess those which
are “undue”? At the extreme point of complete destruction of com-
petition no other yardstick is required. At intermediary points, how-
ever, competition can no longer be measured against itself but must
be assessed for “undueness” of restraint against the effects desired
from it.5 7 Bitshaw, J. appears to sense this difficulty. While he fails to
provide any alternative criteria, he does suggest that the criteria for
“undueness” is more than “the manner, extent and degree to which
competition has been lessened”, although these are definitely factors
if nothing else can be found which harms the public by virtue of absolute restraint
of competition, certainly the market enforcement of the transmission of con-
sumer gains is missing. While the difference might be semantical, it is suggested
that the place to consider the non-structural factors as mitigating the effects of
a “virtual monopoly” is in the assessment of whether that “virtual monopoly”
does, in fact, exist. In other words, if these elements are genuinely competitive,
then absolute control is lacking. Once, however, absolute control is found (in
what is to be noted as the broadest economic framework) no such mitigating
factors exist to alter the conclusion.
5G The logic would apply to any industrial concentration which removes the
power of regulation from the market –
be it the result of merger, honest growth,
or combination. The path of development may, however, indicate the best cor-
rective measure. This applies, also, to concentration of power of either sellers
or buyers –
that is, if the buyers do not represent the ultimate consuming public
to whose service the market is dedicated. The ‘middlemen buyers’ may be effective
not only in securing benefits for themselves but also in avoiding their conveyance
to the ultimate consumer. J. K. Galbraith’s concept of “Countervailing Powers”
merely explains a redistribution of the surplus created by the productive
process –
it does not
satisfactorily replace the competitive environment.
if such redistribution does not favour the consumer,
57 It is possible that this fact has compelled those who think exclusively in
terms of structural tests to contend that only the destruction of competition is
a violation of the existing legislation. I1 is against this view that Judge Batshaw
reacts on the basis of the legislation itself.
No. 4]
CASE AND COMMENT
to be considered. Where the presumption of harm cannot be used,
each of the values aimed at must be assessed on its own to decide if
it has been denied to an extent which constitutes an infliction of harm.
It is not being suggested that a consideration of behaviour alone
would suffice. The situation must first pass the structural test. Results
achieved by means of dictatorial or monopolistic benevolence rather
than genuine market control have already been noted as objectionable
to public policy objectives. Nor is any new measure of economic per-
formance being suggested here. In reality no adequate measure of
these dynamics has yet been devised. However, while an assessment
in this area remains an “imprecise science” it is submitted that struc-
ture alone is not the only relevant factor in assessing a “lessening of
competition”. Thus, the application of the per se doctrine to such
cases of a mere “lessening” of competition is the source of much dis-
satisfaction with the doctrine.
There are however, those who criticize this doctrine even when
used under conditions of so-called “virtual monopoly”. The point urged
is that structural tests fail to account for the dynamics of a market
which often achieve the effects desired. Such a contention either over-
looks the policy objective of consumer control, or is really a reaction to
the judicial definition of “competition”. That is, they point out factors
in the industry which are manifestations of a competitive environment,
but which the court refuses to consider as such. The Canadian Courts
have been very narrow with regard to those facets of a market to
which they are prepared to attribute competitive content. Many eco-
nomists would cease to object to the judicial use of the per se doc-
trine in cases of “virtual monopoly” if they were to agree with the
lawyers as to those situations which are “virtually unaffected” by
competitive influences.
Most Canadian cases on combinations have involved price-fixing
arrangements of one sort or another. 5s The defence has frequently
claimed the existence of non-price competitive elements. While non-
price competition has not been denied by the courts, they have felt
that competition in price is one of the main elements in a truly com-
petitive industry.59 In all fairness, this is largely true in industries pro-
58 Tendering schemes is one of these forms.
59 Such claimants quickly cite the oligopolistic market (a market with a few
producers) where price uniformity is a classic attribute. However, under col-
lusive agreement, the price set is not determined by the market forces however
rigid the result. Furthermore, the survivor is more likely picked for qualities
other than efficiency under collusive agreements on price –
perhaps for his
“power of purse” which enables him to introduce frills or auxiliary benefits
which outdo his “competitor” who may be equally or more efficient, but some-
McGILL LAW JOURNAL
[Vol. 10
ducing a relatively homogeneous product which is the sort of industry
which lends itself best to, and most stimulates, horizontal collusive
agreements on price.60 Once price alternatives are eliminated in such
markets, little competition can be said to exist.01
In assessing whether competitive forces do exist one is looking for
market discipline of the producers and distributors in the industry.
So long as there is rivalry between these producers or distributors to
win the consumers’ dollar in the market, these suppliers are compelled
to extend advantages to the consumer. 6 2 The source of this disciplinary
force is irrelevant provided that it is automatic and impersonal. It may
come from other producers in the same industry, from producers of
substitute products, from foreign producers, government boards, or
even in competition for the capital needed to produce the item. Even
large scale industry may be self-regulating in the long run. However,
the social cost of waiting for such internal adjustments to occur (e.g.
a new entrant, or a new and better product for the satisfaction of the
given need) may be too great –
thus motivating a substitute form of
regulation. Innovations or “poised competition” might also prove
effective. 63 In other words there are sound reasons for assessing each
situation on its own merits and locating the regulatory forces which
what poorer. As well, under the protection of a fixed price, producers are perhaps
more likely to be satisfied with their lot and avoid technical innovation which
might upset a comfortable position. Oligopoly, on the other hand, presupposes
a temporary incentive of innovation profits which are ultimately reduced to the
benefit of the consumer by the competitors.
60 Most Canadian cases have involved such homogeneous products –
to wit:
coal, plumbing supplies, lumber, electrical contracting, gypsum products, paper
products, bread, groceries, beer and sugar.
61 Many defense counsels have suggested that the combine in question might
be justified in that it serves other objectives of Canadian economic policy. For
example, the survival of the industry, reduction of unemployment, enhancement
of stability in the industry, etc. The cDurts have always held these to be irrele-
vant. The Combines Investigation Act directs the courts to enforce competition
of a sufficient degree to regulate the industry in question (or rather, perhaps
due to the constitutional justification as criminal legislation –
to penalize those
who violate this standard). The only results the court is directed to contemplate
are those resulting from or expected to result from competition. If competition
appears inadequate for other motives, it is up to Parliament to replace it with
a separate regulatory mechanism –
rather than to permit private parties to
administer national policy. Parliament may well choose other steps such as
transfer payments, investment projects, etc.
62 Clearly these advantages are defined by the consumer as he selects the
composite of goods and services which satisfy him best.
63 However, such “poised competition” must be readily identifiable and not
merely the abstract threat that someone, some where will build a better mouse-
trap !
No. 4]
CASE AND COMMENT
are at play in each case. 4 Is there genuinely a monopoly situation?
This question must be answered in each case in view of the dynamics
of the industry in question. Once this is done, the per se rule might
safely be applied where the answer is in the affirmative. If there is
not a “virtual monopoly”, but the structural appraisal nevertheless re-
veals some lessening of competition, a further analysis of the beha-
vioural characteristics is merited.
The regulation of business in the best interest of the Canadian
public has been left in certain sectors to market control, which is itself
the manifestation of the will of the public and in keeping with the
preference of individual freedom, unless its consequences are too
grave. The layman fears concentration because he cannot exact what
he wishes, or at least has no guarantee that his desires will be answer-
ed. Clearly, if the consumer control mechanism is completely destroyed
by a combination the public interest is unquestionably denied. The
danger of this per se doctrine is that it becomes too mechanical and
one tends to lose sight of the economic tenets from which it sprang.
So mechanical has it become that even where it is unjustified in both
law and economic policy it has occasionally been blindly applied or
suggested. 5 It is hoped that the decision by Judge Batshaw will
awaken a consideration of the reasons for competition. Such a re-eva-
luation will hopefully accept the possibility of harm from the lessen-
ing of competitive forces (looking for competitive forces wherever
they may be found in a particular industry and seeking the results
of consumer welfare and control) and reserve the conclusive presump-
tion for situations where at least one objective of public policy, namely
consumer control, can safely be considered to be absent by virtue of
the market structure alone.
64 To be sure this might require a revolutionized administrative structure.
This comment makes no attempt to suggest such a structure, nor to discuss the
constitutional difficulties which exist in this area.
65 For example where the courts have said that a “virtual monopoly” is a
precondition to any conviction under the Act, they are applying the per se
doctrine rather than the legislation itself.
