A third guilty plea in residential construction bid‑rigging scheme in Montreal

More than a decade after a tip led the Competition Bureau to conduct an investigation on eight Montreal-area companies suspected of rigging bids for private sector contracts, a Quebec numbered company specializing in the installation of ventilation systems was fined $140,000 fine after it plead guilty to one count of bid-rigging.

The company, 9201-2640 Québec Inc., admitted in Quebec Superior Court that it conspired with two competing firms, Les Entreprises Promécanic ltée and Les Industries Garanties ltée, to obtain a ventilation contract by ensuring it offered the lowest bid.

On December 2010, the Competition Bureau laid criminal charges against eight companies and five individuals accused of rigging bids for private sector ventilation contracts for residential high-rise buildings in the Montreal area. The Bureau said that it uncovered evidence indicating that several companies specializing in ventilation, air conditioning and heating services, “secretly coordinated their bids” between 2003 and 2005 in order to pre-determine the winners of the contracts, while blocking out competitors.

The charges against François Lemay, president of 9201-2640 Québec Inc., were withdrawn in exchange for his full cooperation, including the sharing of any information that could assist the Competition Bureau’s investigation. The numbered company is the third firm that pleaded guilty for participating in the bid-rigging scheme.

“Given the weight of the evidence against it, a third company admitted to colluding with competitors in the construction industry and pleaded guilty to bid-rigging,” said Matthew Boswell, senior deputy commissioner of competition. “These pre-trial resolutions help secure testimony that reinforces the evidence against the other accused, and allow the Bureau to settle cases in a quick, effective and cost-efficient way that benefits all Canadians.”

In 2011, Promécanic plead guilty to three charges of bid-rigging before Quebec Superior Court and was fined $425,000. The company admitted to secretly arranging with its competitors bids on three calls for tenders issued by general contractors in 2004 and 2005 to install ventilation systems. As part of the guilty plea, Quebec Superior Court issued a ten-year prohibition order against Promécanic and its estimator, Joël Perreault, preventing them from engaging in acts that could lead to further contraventions of section 47 of the Competition Act. Perreault as well as the company must also fully cooperate with the prosecution of the remaining accused in this case.

In March 2016, Les Entreprises de ventilation Climasol Inc. and its president, Roch Raby, plead guilty before Quebec Superior Court in Montreal to similar offences. They were fined $130,000 and $10,000 respectively for their role in an agreement to rig bids for a private sector ventilation contract in the Faubourg St‑Laurent Phase II project in Montreal. Raby admitted that he had secretly participated in the coordination of his bid with competitors to pre‑determine the winner of the contract.

The trial of the other accused, Lys Air Mécanic Inc. and its vice-president France Sergerie, and Les Industries Garanties ltée and its estimator, Houmam Nashar, is scheduled for October 2017.

Under section 47 of the Competition Act, bidders are prohibited from entering into an agreement not to submit bids or to submit pre-arranged bids when responding to a bid or a call for tender. Under the Act, there are three distinct criminal bid-rigging offences. It is a criminal offence to agree to not to submit a bid or tender. It is also illegal to agree to withdraw a bid or tender already submitted. And it is a criminal offence to submit a bid or tender that is reached by agreement.

According to competition lawyer Steve Szentesi, bid-rigging in Canada is per se illegal. “No anti-competitive effects on a relevant market (or markets) needs to be established in order to make out an offence,” wrote Szentesi. “However all of the elements need to be established on the criminal standard, such as beyond a reasonable doubt.”

Ottawa tech firms not guilty of bid-rigging

A group of Ottawa-based technology providers were found not guilty of 60 charges of bid-rigging and conspiracy to rig bids by a jury after an eight-month criminal trial in a case that provides guidance and brings greater clarity over the reach of Canadian bid-rigging laws.

Following the decisive setback for the Competition Bureau and the Public Prosecution Service of Canada (PPSC), the Crown has decided not to appeal the verdict, dropped an earlier appeal in a related case against a directed verdict of former defendant David Watts, who also was charged with bid-rigging, and stayed bid-rigging charges in a related action against five other defendants in a case that was scheduled to be heard this August in a judge-only trial, confirmed PPSC spokesperson Sujata Raisinghani.

“Investigators from the Competition Bureau were very inexperienced and never understood the business, and it’s the same for prosecutors as well,” remarked Patrick McCann, an Ottawa lawyer with Fasken Martineau DuMoulin LLP, who along with Peter Mantas successfully plead the case. “They don’t have the background, and I don’t think they make the effort to really understand the business before laying charges. It really is a problem that is recurring in a lot of major cases dealing with complex business issues.”

The case dates back to 2006 when the Competition Bureau launched a criminal inquiry into bid-rigging allegations against 14 individuals and seven companies following complaints made by competitors. Three years later, the Attorney General filed charges, accusing the individuals and the IT firms of colluding in the summer and fall of 2005 to win and divide contracts for information technology services worth more than $60 million at three federal departments. All of the accused were charged with bid-rigging under section 47(2) of the Competition Act (Act), conspiracy to bid-rig under section 465 (1)(c) of the Criminal Code, and counselling an individual to bid-rig under section 464 (a) of the Criminal Code. Under section 47(2) of the Act, it is a criminal offense to submit bids or tenders that are “arrived at by agreement or arrangement” between two or more bidders or tenderers where the agreement is “’not made known” to the person calling for or requesting the bid or tender. Following the Bureau’s investigation, one corporation had sought immunity from the Competition Bureau under its immunity program, two individuals plead guilty, and prior to the preliminary inquiry, the Crown had dropped charges against one individual.

At trial Crown prosecutors tried to establish that TPG Technology Consulting (McCann’s and Mantas’ client) and other companies committed bid-rigging because they agreed to share contractors to fulfill a government IT job and did not inform federal government contracting officials, contrary to section 47 of the Act. The defendants in turn argued that they were responding to requests for proposals, and not bids or tenders. Winning a request for proposal does not result in an actual contract for services, they added. Only when the government issues a so-called task authorization can they actually bill for services. If however, requests for proposals are indeed the first of a two-step process that results in a contract, the defendants submitted that it was “mistake of fact.” In other words, they honestly believed they were not submitting a bid or tender. Finally, they argued that contrary to the Crown’s position, the defendants actually did take steps to inform or “make known” their teaming arrangements to government managers.

After deliberating for six days, the jury acquitted six individuals and three Ottawa IT companies on all 60 charges of bid-rigging and conspiracy to bid rigs. Since the jury does not have to provide reasons, it is not clear what prompted the jury to acquit. Still, says Mantas and McCann, there are invaluable lessons that can be drawn from the case, beginning with the 300-page instruction by Ontario Superior Court Justice Bonnie Warkentin to the jury. “Given that the Crown has decided not to appeal, the importance of her various rulings on aspects of bid-rigging law in Canada assume a very big importance,” said Mantas.

Besides providing a synopsis of the facts of the case, Justice Warkentin’s instructions contained guidance on section 47 of the Act, some of which broke new ground. “She pretty much accepted the defence position that intermediate steps in putting together the bid would not be illegal,” explained McCann. “Only the final product would be illegal if it was arrived by final agreement.”

This finding highlights that there is clearly latitude for parties that are cooperating on bids to share and exchange information as well as to cooperate, short of an agreement, according to Steve Szentesi, a Toronto lawyer specializing in competition law. “There have been cases, and this appears to be another case, where parties can cooperate to a fairly significant extent, including sharing resources, and an agreement may not be found,” said Szentesi. “The offense is not talking about the terms of the bid. The offense is not cooperating on the bid. The offense is not exchanging information, even competitive sensitive information. The offense is two or more bidders entering into an agreement that is prohibited by the Act.”

Justice Warkentin also provided guidance on the issue of “made known.” The Act stipulates that if an agreement or arrangement was “made known” to the party calling for or requesting the bids or tenders, then that is a complete defence. However, what a party has to make known or what they should make known is not clear in the Act, noted Mantas. The Crown maintained such declarations had to be explicit and made known to Public Works, the government’s central contracting agent.  The defendants on the other hand argued that if the body that is calling for the bids knows and they know in advance of the bids being filed then that satisfies the made known requirement.

“In other words, you don’t have to (explicitly) make known that which is already known,”  explained Mantas. That issue has been clarified following Justice Warkentin’s instructions as she agreed with the defendant’s position. “That is a slight departure from earlier law or at least brought clarity to the law, and has suddenly made the ‘made known’ defence a much more interesting tool for companies,” added Mantas.

Justice Warkentin yielded more guidance over the reach of the Competition Act in a pre-trial ruling. Under section 69 (2) of the Act, persons who face proceedings instituted under the Act are presumed to have knowledge of records and its contents. In this case, that meant that defendants were presumed to have read the emails and the thousands of documents that were seized during searches of their homes and business premises. The defendants argued that using section 69 (2) in this manner violated their presumption of innocence under sections 11 (d) and 7 of the Canadian Charter of Rights and Freedoms by shifting the burden of proof onto the accused. They also argued that modern business receive so many emails and attachments that it is no longer reasonable to assume that they were read. Justice Warkentin concurred.

“We argued successfully that it worked at the time the law had passed, which was in the 1940s, but today it just doesn’t work,” said Mantas. “You can’t have a deeming provision of that nature considering the emails that are just flooding us all the time, and we can’t be expected to have read and accepted it all. That is also an important finding that she made.”

The acquittal highlights that business should not necessarily throw in the towel and settle when facing charges by the Competition Bureau, said James Musgrove, the co-chair of the competition and anti-trust practice at McMillan LLP in Toronto. “You needn’t roll over,” said Musgrove. “But everything is risk analysis when you’re in that situation. When you cut a deal, you know what the risks are. If you don’t, you may have a big victory or a big loss.”

Chances are that a growing number of companies will now fight  charges laid against them by the Competition Bureau following the strong stance taken by the Public Works and Government Services Canada (PWGSC) Integrity Framework. Suppliers will be ineligible to do business with PWGSC following a conviction or a guilty plea for corruption, collusion, bid-rigging or any other anti-competitive activity under the Competition Act. “These changes make it a lot harder to plead guilty and take your medicine and move on,” remarked Musgrove. “So more people, especially if the key part of their business is with the federal government, will be fighting the charges because the penalties are bigger. So the calculus has changed.”

The case also underscores the importance of compliance programs, according to Stephen Nattrass of Norton Rose Fulbright Canada LLP. “Companies may be better off to think about compliance policies and programs at the outset so that they don’t end up in a situation that these companies ended up,” said Nattrass. “Think of how it applies to you and your business and ensure compliance before you end up in the magnifying glass of the Competition Bureau.”

Auto parts maker fined $13.4 million for bid-rigging offenses

In the second-largest fine ever ordered by a court in Canada for bid-rigging offenses, the Ontario Superior Court of Justice fined Mitsubishi Electric Corp. $13.4 million after it plead guilty to three counts of bid-rigging for participating in an international conspiracy, capping a fine week by the Competition Bureau.

A Competition Bureau investigation determined that Mitsubishi Electric entered into illegal agreements with a competing Japanese car parts manufacturer. The companies conspired to determine who would win certain calls for bids issued by Honda and Ford for the supply of alternators, and by General Motors for the supply of ignition coils. The calls for bids occurred between 2003 and 2006.

Bureau investigations involving car parts have resulted in over $84 million in fines imposed by the courts in Canada since April 2013. The largest fine to date under the bureau’s campaign was $30 million levied in 2013 on Yazaki Corp. for rigging bids on wire harnesses for Honda and Toyota. All told, ten car parts manufacturers have been fined.

“Today’s resolution including this significant fine sends a clear message to the international marketplace that no matter where illegal agreements are conducted, if they affect Canadian consumers, the Bureau will not hesitate to take action,” said Matthew Boswell, senior deputy commissioner of the Competition Bureau.

According to Steve Szentesi, a Toronto competition lawyer, the “auto parts matter is the most recent in a long series of successful criminal settlements negotiated by the Competition Bureau. The case also shows that bid-rigging remains a top Bureau enforcement priority, including enhanced enforcement in relation to federal government infrastructure spending.”

The auto parts case is part of a long series of settlements tied to the U.S. auto parts price fixing investigation that has been going on for years, added Szentesi.

On July 2016, Japanese auto parts manufacturer Nishikawa Rubber Co., Ltd. was charged in the U.S., and agreed to plead guilty and pay a fine of US$130 million, for its participation in an international bid‑rigging conspiracy affecting Canada and the U.S. Between January 2000 and September 2012, Nishikawa engaged in secret illegal arrangements with other suppliers of body sealing products. These products were sold to car makers in the U.S. for cars manufactured there, and cars manufactured in Canada by Toyota and Honda that were then sent to the U.S. for sale.

The cartel in the auto parts industry came to light through the Competition Bureau’s Immunity Program. The investigation also benefitted from the cooperation of numerous companies under the Leniency Program.

The Competition Bureau relies heavily on these two complimentary programs to detect and investigate activities prohibited by the Competition Act. Under the immunity program, the first party to disclose an offence not yet detected, or to provide evidence leading to the filing of charges, may receive immunity from prosecution from the Director of Public Prosecutions (DPP) as long as the party co-operates with the independent law enforcement agency.

Companies who balk at being first in line to blow the whistle on a conspiracy may nevertheless be eligible for leniency in sentencing. In general, applicants must end their participation in the cartel, agree to co-operate fully and in a timely manner, and agree to plead guilty. The first leniency applicant is eligible to receive a 50-per-cent reduction of the fine that would have otherwise been recommended to the DPP, while the second would be entitled to receive a 30-per-cent reduction. Subsequent applicants could possibly receive a reduction as well.

In 2016, the Cartels Directorate of the Competition Bureau secured a total of approximately $13.4 million in fines for cartel and bid-rigging offences, in contrast to $2.9 million in fines in 2015.

In related news, the Competition Bureau also reached a consent agreement this week with Hertz Canada Limited and Dollar Thrifty Automotive Group Canada Inc. Both companies will pay a total of $1.25 million in administrative monetary penalties, ensure their advertising complies with the law and implement new procedures aimed at preventing advertising issues in the future.

The consent agreement was reached after the Competition Bureau determined that Hertz and Dollar Thrifty were advertising enticing low prices to attract consumers. But “those low prices were unattainable because mandatory fees were systematically added to those prices,” said the Competition Bureau. Additional mandatory fees could increase consumers’ final price from 10 per cent to 57 per cent, leading the Bureau to conclude that the companies’ price representations were misleading.

The Bureau concluded that some of these fees were described in a way that implied that they were mandatory taxes or surcharges imposed by various governments. That was not true. Hertz and Dollar Thrifty chose to impose the additional mandatory fees to recover part of their own cost of doing business. The companies will revise the description of their fees to ensure the descriptions are not misleading.

The Bureau also concluded that Hertz and Dollar Thrifty advertised discounts that led consumers to believe that they would get a percentage off of their total bill. In fact, the discount was not applied to the total bill and the additional mandatory fees still had to be paid in full.