Canada's latest competition law amendments create new rules for businesses' environmental operations and messaging. On June 20, 2024, Bill C-59, Canada's, Fall Economic Statement Implementation Act, 2023, received Royal Assent and became law. Among many other things, this legislation makes significant amendments to the Canadian Competition Act (the “Act”).
The amendments include important new provisions regarding claims and conduct pertaining to “greenwashing” and collaborations intended to improve the environment:
- new reverse-onus deceptive conduct provisions require businesses to substantiate representations about the benefits of products or practices for the environment; and
- competitors who enter into an agreement “for the purpose of protecting the environment” and which are “not likely to prevent or lessen competition substantially in a market” may apply to the Competition Bureau for a certificate to exempt the agreement from the Act's conspiracy provisions.
It is critical that any business that makes public statements about environmental matters related to their products or practices, including their sustainability, “net-zero”, carbon neutrality, eco-friendliness or recyclability, must review and adapt all existing and future statements to take into account these new provisions which are now in force. That includes statements made by third parties on behalf of or acting in connection with the business.
Deceptive marketing provisions of the Act
The Act applies to virtually all business activity. It contains broad criminal and civil reviewable conduct provisions prohibiting materially false or misleading representations used to promote products or business interests (sections 52(1) and 74.01(1)(a)). Further, if a business makes a statement, warranty or guarantee of the performance, efficiency or length of life of a product, it must be based on “an adequate and proper test”, the proof of which lies with the business (section 74.01(1)(b)). The remedies can be severe and include (for reviewable conduct) the imposition of administrative monetary penalties on a corporation of up to the greater of:
- $10 million ($15 million for subsequent orders); or
- three times the benefit derived from the misrepresentation, or if that cannot be reasonably determined, up to 3 percent of the corporation's annual worldwide gross revenues.
On the strength of these pre-existing general provisions, the Competition Bureau, Canada's federal enforcement agency, has investigated and secured remedies against businesses for alleged “greenwashing”: - i.e. portraying products or services as having greater environmental benefits than is the case. Various interest groups have previously relied upon a provision of the Act that enables six or more Canadian residents to compel the Bureau to open investigations into suspected violations of these provisions. However, the private parties are unable to force the Bureau to conclude there is a violation or to bring an application in court.
The amendments add two new forms of reviewable conduct concerning environmental representations to the public:
- statements, warranties or guarantees of a product's benefits for protecting or restoring the environment or mitigating the environmental, social and ecological causes or effects of climate change that are not based on an adequate and proper test (section 74.01(1)(b.1)); and
- representations about the benefits of a business or business activity for protecting or restoring the environment or mitigating the environmental and ecological causes or effects of climate change that are not based on adequate and proper substantiation in accordance with “internationally recognized methodology” (section 74.01(1)(b.2)).
These are reverse-onus provisions. In a contested case before a court or the Tribunal, the Bureau does not have to prove that the claims are false or misleading. It need only show the nature of the representation. It then falls to the entity which made the representation to prove that before the representation was made, it was appropriately substantiated.
It is not necessarily sufficient for a business to make the representation in good faith believing it to be true or even believing it to be supported by studies, tests or methodologies. When determining what representations may be made, businesses will be faced with several practical challenges including:
- it may be difficult to determine whether a test or substantiation provides “adequate or proper” support for a statement or whether a methodology would constitute “internationally recognized” substantiation. If the business is found to have made an incorrect determination, there may be enormous financial penalties and other negative consequences;
- in an evolving field relating to environmental effects, it may be that there exists no adequate test or internationally recognized standard to support a representation especially when one takes into account the impact on the environment at all stages of the chain of production and eventual usage by end-users or consumers; and
- there may be different standards which are contradictory, or which place different emphasis on beneficial and harmful aspects of a product or practice.
Concerns have been raised that this development may have the unintended consequence of discouraging businesses from pursuing and publicizing innovations in their practices to address climate change or to otherwise protect the environment.
Businesses must immediately take stock of their existing and future public claims and representations about the sustainability and impact of their practices, products and plans with respect to climate change and other environmental matters. This should involve careful review of how representations are developed, framed, qualified and substantiated.
Additional private enforcement
Historically, only the Commissioner of Competition, the head of the Bureau, could bring proceedings to enforce the reviewable conduct provisions of the Act. Criminal matters under the Act are prosecuted by the Public Prosecution Service of Canada, normally working with the Bureau. Private parties who suffer loss or damages as a result of conduct which violates the Part VI criminal provisions of the Act, including the criminal prohibition on knowingly or recklessly making a representation to the public that is false or misleading in a material respect (s. 52(1)), may sue to recover the loss or damage from the person who engaged in the misconduct.
Effective in one year, on June 20, 2025, private parties will gain the ability to seek leave from the Competition Tribunal to enforce reviewable conduct provisions, including the new greenwashing provisions. The Tribunal may grant leave if satisfied that it is in the “public interest” to do so; the applicant will not have to show that they suffered loss or damage.
We anticipate that persons who may have otherwise only complained to the Bureau may take matters into their own hands and advance cases directly. While we expect that the Bureau will eventually provide guidance on its approach to the amendments, those guidelines will not bind the Tribunal or private applicants.
Introduction of environmental certificates to provide antitrust immunity
There have been recent initiatives in Europe and other jurisdictions recognizing that competition laws may chill legitimate efforts by members of industries to collaborate or coordinate practices and standards to address climate change. In view of that, exemptions or defences from conspiracy or cartel laws have been introduced to facilitate such coordination.
Inspired by such initiatives, the amendments introduce a new certification mechanism (under section 124.3) which allows the Bureau to certify certain environment-related agreements, exempting parties to such an agreement from the criminal and civil competitor collaboration provisions under the Act. The Commissioner may issue a certificate where satisfied that:
- a party or parties propose to enter into an agreement or arrangement that is for the purpose of protecting the environment; and
- that the agreement is not likely to prevent or lessen competition substantially in a market.
After the Commissioner receives a request for an environmental certificate, he or she has a duty to consider the request as soon as practicably possible, and the party or parties seeking the certificate have a duty to provide the Commissioner any information related to the agreement or arrangement on request. Once issued, the certificate must be registered with the Tribunal and parties to the certified agreement or the arrangement will be exempt from the competitor collaborations provisions under the Act, including conspiracy and bid-rigging offences and civil competitor collaborations with respect to that agreement.
The development will likely be most useful to relieve businesses from concerns about the application of the per se criminal conspiracy provisions which may be violated regardless of the likely economic impact or benefits of a competitor agreement.
Nevertheless, it is unclear how effective the new regime will be as currently formulated. Unlike many of the changes introduced through Bill C-59, the Bureau did not advocate for the environmental certificate. In fact, the Commissioner opposed this amendment in submissions to Parliament.
As noted, the Commissioner may refuse to grant a certificate on the basis that the agreement is likely to lessen or prevent competition substantially. However, that is the same standard for whether the Tribunal may issue an order under the civil conspiracy provision (section 90.1). So either the certificate is unnecessary as it relates to the civil conspiracy provisions (because the agreement is unlikely to lessen or prevent competition substantially) or the certificate will not issue because there is a likely substantial lessening or prevention of competition. There is also a prospect that measures that benefit the environment — for example an industry-wide agreement to adopt a more expensive but less environmentally harmful manufacturing process — may well lessen competition, in which case the Commissioner may decline to issue the certificate. The new legislation does not expressly address the balancing of pro-environmental measures against the potential anti-competitive effects.
Furthermore, the legislation is silent as to the effect of a certificate with respect to applications under the abuse of dominance provision (section 79(1)). It is possible under the abuse provision for the Commissioner (or a private party with leave of the Tribunal) to apply alleging that two or more persons jointly control or dominate a market, as might be the case if significant market participants were to collaborate.
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