A chill descends
Competition Tribunal sends mixed message concerning cost award against Bureau for failed attempt to block telecoms merger.
When Competition Tribunal ordered the Competition Bureau ordered the Competition Commissioner last week to pay roughly $13 million to Rogers Communications Inc. and Shaw Communications Inc. in legal fees, saying he engaged in “unreasonable behaviour” in a legal challenge of their proposed merger, reactions were mixed.
The Tribunal was especially harsh in criticizing Commissioner Matthew Boswell for pursuing the action before the Tribunal, even after a divestment deal of Shaw's Freedom Mobile to Vidéotron was proposed to ease clearance for the merger.
"The general principle is that loser pays, and this follows that, but the amounts awarded are a fraction in the order of five percent or less of the actual spend," says Michael Osborne, chair of the Canadian competition practice at Cozen O'Connor LLP in Toronto, who was not counsel to any of the parties involved.
Osborne points to the comments that the Commissioner's conduct was much more unreasonable than the respondents' and that Boswell's position was "divorced from reality" and a "foray into fantasy." He says his intransigence should have consequences, adding there weren't any to speak of because the Tribunal awarded such a small amount for counsel fees. "He does so out of a concern not to chill the Commissioner from bringing cases in the future," Osborne says.
"These amounts are very substantial for a public authority such as the Commissioner," Justice Paul Crampton, who presided over the Tribunal decision, wrote in his reasons. "I am mindful that the public interest may suffer if the level of costs awarded against the Commissioner were to begin to reach the point at which they have a chilling effect on his willingness to bring responsible cases that are in the public interest."
Justice Crampton goes on to say that it was neither vexatious nor irresponsible for Boswell to have brought the case and that it raised novel issues.
However, according to Osborne, when reviewing the decision, it becomes clear that it ceased to be a responsible case once the Vidéotron offer had been made.
"There seems to be a certain amount of internal contradiction going on, and maybe he's trying to walk a fine line between saying the Commissioner was unreliable in his intransigence, but the case nevertheless was responsible."
University of Ottawa law professor Jennifer Quaid says the decision doesn't make sense. "You can't say it was okay to pursue it because it raised novel interest, and then say you should have stopped. The line is not straight that Crampton is walking."
Quaid adds that it's difficult to reconcile criticism levied against the Commissioner, all the while acknowledging his role as a public interest advocate, which mustn't be discouraged.
Osborne disagrees that the legal costs awarded will have a chilling effect, particularly as Boswell had sought $10.9 million in fees and disbursements.
"I tend to be more of the view that the Commissioner should actually have paid some real costs here, but it's not a small amount," Osborne says. "Part of it, I suspect, is that there is a view that Rogers and Shaw are well able to afford this, and they got the prize, and maybe they should be happy with that."
Keldon Bester, the executive director of the Canadian Anti-Monopoly Project, says that the Commissioner being treated as a private litigant rather than someone acting in the public interest will constrain the Bureau at an organizational level.
"The Bureau's budget for the last year was $60 million, but only a portion of that is federally funded—the rest comes from the merger filing fee," Bester says. "When we say $13 million [cost award], it's a big portion of their budget and an even bigger part of their federal funding because I don't know if they can use the filing fee for this."
Bester says this will incentivize the Bureau only to take slam dunk cases.
"As we look at our merger law, with only two successful cases in 30-some years, and one of those cases was particularly egregious," Bester says. "The concept that the Bureau is not immunized from cost awards is extremely constraining and ensures that the Bureau is very conservative when it attempts to take these cases."
Besides, the Commissioner had decided to fight the transaction as proposed initially — pre-divestment. "On a more fundamental level, the Bureau was correct to say we need to understand this original transaction to see if this remedy is going to solve the problem," Bester says. "Obviously, the Tribunal disagrees and sees them as intransigent as a result of that."
Bester says it's worth stepping back and asking why treat the Bureau and the Commissioner like this.
"Anti-trust litigation has become this phenomenally expensive enterprise because we believe that if we throw enough economists at this, we'll get the right answer," Bester says. The Bureau not only faces budget limitations in pursuing successful litigation, but these cost awards also discourage it and force it to absorb a portion of the inflated costs incurred by Rogers and Shaw, who hire separate law firms and multiple economic consultants. "There are some real perverse incentives there," says Bester.
Quaid says there was a legitimate question of law on the table. Boswell's mistake was to have insisted on having that point of law decided first and then, win or lose, the trial becomes the whole deal or not the deal.
"It's a legal point, and why shouldn't the Commissioner push? Because they've been saddled with crappy, through-the-back-door interpretations of the Act, and then they get stuck with them," Quaid says. "They didn't want to be stuck with this, and I understand why."
Quaid notes that in the discussion about the eleventh-hour change to the deal around the proposed divestiture, the decision doesn't note the date the application was filed. What's more, months of preparation went into it.
According to Quaid, the Tribunal overlooked the practicalities of the public service. Having worked in the Justice Department, she says there's a misconception that the state has limitless resources and that the merging parties are entirely subject to the government's whims. "The reality is that it's the civil service, and you can't get your support staff to work on the weekend," she says. "Rogers and Shaw filed things on the day before the long weekend, knowing it would exploit the number one weakness or the public service."
Quaid worries less about the chilling effect of the cost award—and its amount—than its characterization.
"We can stop pretending that there is this asymmetry of power between the state and the parties—they have the big stick," Quaid says. "They have more money. They don't need these costs. To the average person, these amounts seem like a lot of money, but it's not in litigation terms. But for public servants, and hitting the Bureau with this, I'm deeply uncomfortable with the message it sends."
Quaid believes the award will reward the parties for holding out and springing the divestment late. "What's the incentive to cooperate early?" She asks. "None, if you've got the money to put up a plausible litigation."
For Osborne's part, the decision signals that the Tribunal will be very conservative and miserly when awarding costs to a successful party.
He adds there should be a certain level of reciprocity in these awards and that if the Commissioner sought $10.9 million in costs, he should be willing to pay a commensurate amount, and that the award against him is in that same ballpark.
"If it had been me, I would have been inclined to give an award that was a higher percentage of the actual legal spend, but I can't say it's unreasonable for the Tribunal to have done what it did," Osborne says.
So it appears that disagreeing with the Tribunal's logic can be costly. But on a broader level, says Bester, new and novel arguments will also face real scrutiny if the companies offer an alternative version of their litigation.
The decision is a call to be more conservative, specifically urging greater deference to the merging parties, Bester says. He would prefer to immunize the Bureau from cost awards so that it can pursue public interest litigation more frequently.
"The Bureau was unsuccessful, and they didn't convince the Tribunal," Bester says. "The Bureau should be doing new and novel things as the economy evolves. If it's always punished, we're going to see what we see today—it going after a waste management merger for the third time because it's easy to understand."