2019 QCCA 1301, 2019 QCCA 1301

Translated from the original French 9085-4886 Québec inc. c. Bank of Montreal 2019 QCCA 1301 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-027461-185 (500-06-000549-101) DATE: July 25, 2019 CORAM: THE HONOURABLE JEAN BOUCHARD, J.A. GENEVIÈVE MARCOTTE, J.A. GENEVIÈVE COTNAM, J.A. 9085-4886 QUÉBEC INC. APPELLANT – Applicant v.

BANK OF MONTREAL BANK OF NOVA SCOTIA CANADIAN IMPERIAL BANK OF COMMERCE ROYAL BANK OF CANADA TORONTO-DOMINION BANK RESPONDENTS – Defendants JUDGMENT [ 1 ] The appellant appeals from a judgment rendered on February 22, 2018, by the Superior Court , District of Montreal (the Honourable Chantal Corriveau) , [1] authorizing it to institute a class action against the respondents while refusing to allow it to submit the questions alleged therein concerning the application of sections 45 and 49 of the Competition Act [2] and

section 234 of the Consumer Protection Act . [3] [ 2 ] For the reasons of Bouchard, J.A., with which Marcotte and Cotnam, JJ.A. concur, THE COURT : [ 3 ] ALLOWS the appeal in part; [ 4 ] REVERSES the judgment of the Superior Court in part; [ 5 ] AUTHORIZES the appellant to submit the questions concerning the application of sections 45 and 49 of the Competition Act to the Superior Court ; [ 6 ] AMENDS subparagraph 138(3) of the judgment so that it reads as follows: 3) Did the defendants’ conduct violate

section 45 of the Competition Act , as worded until March 12, 2010, and after that date, or

section 49 of the Act, during the period covered by the class action? [ 7 ] The whole with legal costs. JEAN BOUCHARD, J.A. GENEVIÈVE MARCOTTE, J.A.

GENEVIÈVE COTNAM, J.A. Mtre Jeffrey Orenstein Mtre Andrea Grass Consumer Law Group Inc. / Groupe de droit des consommateurs inc. Mtre Reidar Mogerman Camp Fiorante Matthews Mogerman Mtre Avichay Sharon Branch MacMaster For the appellant Mtre Yves Martineau Mtre Guillaume Boudreau-Simard Stikeman Elliott For the respondents Date of hearing: May 8, 2019 REASONS OF BOUCHARD, J.A. INTRODUCTION [ 8 ] The appellant operates a restaurant. It allows its clients to pay with Visa and MasterCard credit cards.

This means that it must pay fees, which are deducted from the amount paid by the client. [ 9 ] The appellant, who is of the view that these fees are too high, was authorized to institute a class action against the respondents, which it alleges has conspired to maintain these fees at anti-competitive levels. [4] [ 10 ] It was also authorized to submit certain questions of fact and law, [5] except for those concerning the application of sections 45 and 49 of the Competition Act [6] and

section 234 of the Consumer Protection Act , [7] which the trial judge found disclosed no valid cause of action given the lack of factual basis in the proceeding. [8] It is this last conclusion that the appellant appeals.

It submits that the grounds that were struck from its class action satisfy the requirements set out in article 575(2) C.C.P . , that is, “the facts alleged appear to justify the conclusions sought”. [ 11 ] That being said, and to properly understand the remarks that follow, the functioning of the credit card payment system operated by the banks should first be set out . [9] PAYMENT BY CREDIT CARD [ 12 ] The system requires the participation of five players: • the networks : the Visa and MasterCard networks, which provide clearing and settlement services; • the issuers : the banks authorized to issue Visa or MasterCard credit cards to cardholders as payment instruments; • the acquirers : the entities that play the pivotal role in the payment transaction, providing the merchant with the technology and hardware necessary to accept credit cards; • the cardholders : the clients or consumers who have and use credit cards; and • the merchants : those who accept credit cards as a method of payment for goods or for services rendered. [10] [ 13 ] As stated by authors Nicole L’Heureux and Marc Lacoursière, while credit cards are payment instruments for the cardholders, they are also the undertakings of the issuers towards the merchants.

This is so because the payment process is such that a buyer does not pay a merchant directly; rather, payment is made by the issuer, whom the buyer has undertaken to reimburse: [11] [ translation ]

1004. Payment instrument – Credit cards allow cardholders to purchase goods or obtain services, for which payment is not made immediately by the buyer but is deferred to a later date. It is not the buyer who pays the merchant directly, but rather the issuer, whom the buyer has undertaken to reimburse . Credit cards are thus used as payment instruments in regard to merchants. […] Credit cards allow merchants to obtain the proceeds of their sales not from the hands of the buyer/cardholder, but from the hands of the issuer . How should the issuer’s undertaking be explained?

The issuer’s payment is a prepayment, a cash advance, which it must recover from the hands of its client on behalf of the seller or supplier of goods and services. The issuer therefore plays the role of intermediary between the merchant and the cardholder . The cardholder, as a result of the contract between the issuer and the merchant , does not pay immediately for his or her purchase.

The cardholder has credit from the issuer, but also from the merchant, who participates in the transaction. [Emphasis added.] [ 14 ] In addition, each time a consumer uses his or her credit card to purchase a good or service, the merchant must pay a certain percentage to the acquirer as a “card acceptance fee.” The acquirer then deposits into the merchant’s account the amount billed to the cardholder less the card acceptance fee (or “merchant discount fee”), which may be divided into three categories: network fees paid to Visa or MasterCard, acquirer service fees and interchange fees paid to the issuing bank. [12] [ 15 ] These last fees, which represent 80% of the card acceptance fee, are at the heart of this class action.

According to the appellant, they are artificially maintained at a high percentage by the respondents. [ 16 ] That being said, it should be noted that these fees result from an agreement between the acquirer and the merchant, although they serve to finance the various services offered by the issuer. In this regard, it is again useful to cite authors L’Heureux and Lacoursière: [13] [ translation ] 1014.

Interchange fees – … Concretely, the interchange fee (or commission) represents an amount determined by the network and expressed as a percentage that the acquirer (or the merchant’s bank) must remit to the issuer and that is subsequently paid by the merchant.

These fees help finance various services offered by the issuer , like the grace period (payment with no interest), losses on bad debts, fraud prevention and fraud, the various steps involved in processing transactions (terminal rental, authorization, verification), insurance services, the acquirer’s profit margin, and loyalty programs. [Emphasis added.] [ 17 ] There is no doubt that it is a complex system, in which all the participants are interrelated. [14] [ 18 ] Let us now return to the case before us.

PROCEEDINGS [ 19 ] On December 17, 2010, the appellant filed an application for the authorization to bring a class action against the Visa and MasterCard networks. It was subsequently authorized to amend its application to add several banks, i.e., the respondents, as defendants. [15] Then, on June 13, 2012, the trial judge, with the consent of all parties, suspended the action undertaken in Quebec because of a similar action instituted in British Columbia.

According to the judge: [ translation ] “It is undeniable that the judgment to be rendered in British Columbia will be relevant to the possible continuation of this action before the Quebec courts.” [16] [ 20 ] Speaking of the action brought in British Columbia, it should be noted that the appellant’s argument based on sections 45 and 49 of the Competition Act was dismissed twice by the Court of Appeal of that province on the ground that the facts alleged disclosed no cause of action . [17] It also appears that the application for leave to appeal to the Supreme Court was dismissed. [18] It is not surprising that the respondents now object to resuming a debate in Quebec that seems to have been definitively settled, considering that the credit card networks and relevant contracts are the same throughout the country.

THE TRIAL JUDGMENT [ 21 ] The judge first noted that the respondents did not object to an authorization being granted for the allegations of unlawful agreements that violated the former version of

section 45 of the Competition Act [19] and

article 1457 C.C.Q. [20] She then considered the weight to be given to the British Columbia judgments, concluding that the application for authorization should be assessed in light of the applicable principles of Quebec law, [21] even if, in her view, the debate and the arguments are the same. [22] [ 22 ] Before we continue to review the judge’s reasons, it is worth reproducing the following excerpts from sections 45 [23] and 49 of the Competition Act , and

section 234 of the Consumer Protection Act : Competition Act Conspiracies, agreements or arrangements Complot, accord ou arrangement entre

Conspiracies, agreements or arrangements between competitors 45

(1) Every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges (

a) to fix, maintain, increase or control the price for the supply of the product ; (

b) to allocate sales, territories, customers or markets for the production or supply of the product; or (

c) to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product. Penalty

(2) Every person who commits an offence under subsection (1) is guilty of an indictable offence and liable on conviction to imprisonment for a term not exceeding 14 years or to a fine not exceeding $25 million, or to both. […] Agreements or arrangements of federal financial institutions 49

(1) Subject to subsection (2), every federal financial institution that makes an agreement or arrangement with another federal financial institution with respect to (

a) the rate of interest on a deposit, (

b) the rate of interest or the charges on a loan, (

c) the amount or kind of any charge for a service provided to a customer , concurrents 45

(1) Commet une infraction quiconque, avec une personne qui est son concurrent à l’égard d’un produit, complote ou conclut un accord ou un arrangement :

a) soit pour fixer, maintenir, augmenter ou contrôler le prix de la fourniture du produit ;

b) soit pour attribuer des ventes, des territoires, des clients ou des marchés pour la production ou la fourniture du produit;

c) soit pour fixer, maintenir, contrôler, empêcher, réduire ou éliminer la production ou la fourniture du produit. Peine

(2) Quiconque commet l’infraction prévue au paragraphe (1) est coupable d’un acte criminel et encourt un emprisonnement maximal de quatorze ans et une amende maximale de 25 000 000 $, ou l’une de ces peines. […] Accords bancaires fixant les intérêts, etc. 49

(1) Sous réserve du paragraphe (2), toute institution financière fédérale qui conclut avec une autre institution financière fédérale un accord ou arrangement relatif, selon le cas:

a) au taux d’intérêts sur un dépôt,

b) au taux d’intérêts ou aux frais sur un prêt,

c) au montant ou type de tous frais réclamés pour un service fourni à un client,

d) au montant ou type du prêt consenti à un client,

(

d) the amount or kind of a loan to a customer, (

e) the kind of service to be provided to a customer, or (

f) the person or classes of persons to whom a loan or other service will be made or provided or from whom a loan or other service will be withheld, and every director, officer or employee of the federal financial institution who knowingly makes such an agreement or arrangement on behalf of the federal financial institution is guilty of an indictable offence and liable to a fine not exceeding ten million dollars or to imprisonment for a term not exceeding five years or to both. […]

e) au type de service qui doit être fourni à un client,

f) à la personne ou aux catégories de personnes auxquelles un prêt sera consenti ou un autre service fourni, ou auxquelles il sera refusé un prêt ou autre service, et tout administrateur, dirigeant ou employé de l’institution financière fédérale qui sciemment conclut un tel accord ou arrangement au nom de l’institution financière fédérale commet un acte criminel et encourt une amende maximale de dix millions de dollars et un emprisonnement maximal de cinq ans, ou l’une de ces peines. […] Consumer Protection Act 234.

No person may refuse to enter into an agreement with a merchant, or terminate an agreement binding between him and a merchant, by reason of the fact that such merchant grants a rebate to the consumer who pays him cash or by negotiable instrument. 234.

Nul ne peut refuser de conclure une entente avec un commerçant ou mettre fin à une entente qui le lie à un commerçant en raison du fait que ce commerçant accorde un rabais à un consommateur qui le paie en argent comptant ou par effet de commerce. [ 23 ] It is also worth reproducing paragraphs 6.0.1, 16.0.2 and 16.1.1 of the action brought by the appellant with respect to

section 45 of the Competition Act : 6.0.1. Contrary to s. 45 of the Competition Act , the Respondents conspired, agreed, and/or arranged to fix, maintain, increase or control Interchange Fees .

The Interchange Fee is a charge of a service provided to the Class by the Issuing Banks, being the provision of credit card network services and in particular the credit card and access to the cardholder, and the provision of a payment guarantee from the Issuing Banks to the merchants; 16.0.2 Within each credit card network, the Issuing Banks compete with each other with respect to issuing credit cards to cardholders , and but for the alleged conspiracy, the Issuing Banks would compete with each other with respect to merchants by reducing Interchange Fees in order to increase and maintain their merchant market share.

The Default Interchange Rule and the Merchant Restraints, as described below, eliminate competition among the Issuing Banks in relation to Interchange Fees and allow the Issuing Banks to profit from supracompetitive Interchange Fees; 16.1.1. Credit card network services are supplied to merchants by the networks, the Issuing Banks, and the Acquirers.

The networks provide the network infrastructure, the Issuing Banks issue credit cards to cardholders and provide a payment guarantee to merchants …, and the Acquirers provide point-of-sale services (Exhibit R-6); [Emphasis added.] [ 24 ] The judge first concluded that these allegations did not support the appellant’s submission that the interchange fee is a charge for a service provided to merchants by the banks that issue credit cards. [24] [ 25 ] In the judge’s view, the issuer lends the consumer the funds to make payments using his or her card, up to the authorized credit limit.

The card is therefore a payment instrument. The merchant benefits from the payment it receives. This payment is not a service rendered to the merchant, however, but the performance of an obligation by the buyer. The acquirers make the payment system available to the merchants, in exchange for a card acceptance fee (“merchant discount fee”). The interchange fee is paid by the acquirer to the card issuer. Thus, contrary to what the appellant alleges, the card issuers are not in competition to sell “payment guarantees” to merchants in exchange for fees.

The judge therefore concluded that this statement could not be supported. [25]

[ 26 ] The judge also found that the same was true in regard to

section 49 of the Competition Act , which, like

section 45 , involves a conspiracy related to a service or product provided to a customer, which, in her view, is not the case here. [26] [ 27 ] Finally, because the cause of action regarding

section 234 of the Consumer Protection Act is not alleged anywhere in the proceedings instituted by the appellant, the judge had no difficulty rejecting it, especially since, in her view, there is no connection between that provision and the underlying facts of this case. [27] THE APPELLATE STANDARD OF REVIEW [ 28 ]

Article 575 C.C.P . , formerly 1003 C.C.P . , sets out four cumulative conditions [28] for the authorization of a class action: 575. The court authorizes the class action and appoints the class member it designates as representative plaintiff if it is of the opinion that (1) the claims of the members of the class raise identical, similar or related issues of law or fact; (2) the facts alleged appear to justify the conclusions sought; (3) the composition of the class makes it difficult or impracticable to apply the rules for mandates to take

part in judicial proceedings on behalf of others or for consolidation of proceedings; and (4) the class member appointed as representative plaintiff is in a position to properly represent the class members. 575.

Le tribunal autorise l’exercice de l’action collective et attribue le statut de représentant au membre qu’il désigne s’il est d’avis que: 1° les demandes des membres soulèvent des questions de droit ou de fait identiques, similaires ou connexes; 2° les faits allégués paraissent justifier les conclusions recherchées; 3° la composition du groupe rend difficile ou peu pratique l’application des règles sur le mandat d’ester en justice pour le compte d’autrui ou sur la jonction d’instance; 4° le membre auquel il entend attribuer le statut de représentant est en mesure d’assurer une représentation adéquate des membres. [ 29 ] The general principles underlying the assessment of these different requirements are well known.

The authorization procedure is a filtering mechanism that serves merely to set aside frivolous applications . [29] The threshold of evidence required is low. [30] It is said to be a burden of demonstration. [31] In short, the action will be authorized if the applicant has an arguable case in light of the facts and the applicable law. [32] [ 30 ] Moreover, the judge hearing an application for authorization has significant discretion. [33] This Court has reiterated on several occasions that it must show deference to the authorizing judge’s decision. [34] Only an error of law or a clearly unfounded assessment of the authorization requirements will justify this Court’s intervention. [35] ANALYSIS [ 31 ] Although the trial judge said that the application for authorization should be assessed in light of the applicable rules of Quebec law, [36] she also relied on the second judgment rendered by the British Columbia Court of Appeal to conclude that there was no valid cause of action under the new version of

section 45 of the Competition Act . [37] That is what leads the appellant to say that the judge committed the first error, because, it alleges, the burden of proof at the authorization stage is less onerous in Quebec than in British Columbia. [ 32 ] For the following reasons, this argument cannot be accepted. [ 33 ] While some of the authorization requirements set out in

section 4 of the Class Proceedings Act (C.P.A.) [38] are distinguishable from those set out in

article 575 C.C.P . , the requirement that “the facts alleged appear to justify the conclusions sought” is similar to paragraph 4(1)(

a) of the C.P.A.: 4.

(1) Subject to subsections (3) and (4), the court must certify a proceeding as a class proceeding on an application under

section 2 or 3 if all of the following requirements are met: (

a) the pleadings disclose a cause of action ;

(b) […] [34] In Pro-Sys Consultants Ltd. v. Microsoft Corporation, Rothstein, J. explained what this requirement involves:[39] [63] The first certification requirement requires that the pleadings disclose a cause of action. In Alberta v. Elder Advocates of AlbertaSociety, 2011 SCC 24 , [2011] 2 S.C.R. 261 (“Alberta Elders”), this Court explained that this requirement is assessed on thesame standard of proof that applies to a motion to dismiss, as set out in Hunt v. Carey Canada Inc., (SCC), [1990] 2S.C.R. 959, at p. 980.

That is, a plaintiff satisfies this requirement unless, assuming all facts pleaded to be true, it is plain and obviousthat the plaintiff’s claim cannot succeed (Alberta Elders, at para. 20; Hollick v. Toronto (City), 2001 SCC 68 , [2001] 3 S.C.R.158, at para. 25). [Emphasis added.] [35] The British Columbia Court of Appeal added the following in a recent judgment:[40] [20] The evidentiary burden is not an onerous one. The plaintiff need show only a “minimum evidentiary basis”: Hollick at paras. 24-25; N&C Transportation Ltd. v.

Navistar International Corporation, 2018 BCCA 312 at para. 91, (leave to appeal to SCC refused). Thecourt is not to make a determination of the merits of the action, recognizing that it is ill-equipped to resolve conflicting facts andevidence at the certification stage. The focus is on the form of the action to determine whether the action can appropriately go forward asa class proceeding: Hollick at para. 16; Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57 at para. 102 [Pro-SysConsultants v. Microsoft]; Pro-Sys Consultants Ltd. v.

Infineon Technologies AG, 2009 BCCA 503 at para. 65, leave to appeal ref’d[2010] S.C.C.A. No. 32 [Pro-Sys Consultants v.

Infineon]. [Emphasis added.] [36] This requirement is very similar to the requirement in article 575(2) C.C.P., which will be considered to have been met if thefacts alleged in the application present an arguable case in light of the facts and the applicable law.[41] [37] Given that the British Columbia Court of Appeal refused to authorize the class action on the basis of a similar requirement, itstrikes me as incorrect to conclude that the judge applied a more onerous requirement than the one set out in article 575(2) C.C.P. andcommitted an error. * * * * * [38] The appellant essentially submits that the facts it alleges support an arguable case, in particular under sections 45 and 49 of theCompetition Act.

In its view, the judge erred in rejecting at the outset the possibility that the issuing banks could provide a service tomerchants in the form of a payment guarantee and fix the interchange fees. [39] I will begin by dealing with

section 45. [40] As we have seen, for the judge, a credit card is a payment instrument for the benefit of its holder.

She categorically refused toaccept that it could also constitute a payment guarantee for the merchant.[42] In so doing, she relied on, inter alia, the second judgmentrendered by the British Columbia Court of Appeal.[43] She forgot to note, however, that, contrary to this case, it was not alleged in theBritish Columbia proceedings that the banks were offering the merchants a payment guarantee service:[44] [27] First, the proposed amended pleading does not, at any point, state that the product provided to merchants is a “paymentguarantee”.

Those words appear in the plaintiff’s factum: 28 (a) … the Issuing Banks guarantee payment to the merchant, Acquirers and Network, net only of their Interchange Fees.

The IssuingBanks are therefore responsible for the receivables…The Issuing Banks deliver a payment guarantee to merchants (part of the “creditcard network services” provided by the Issuing Banks to the merchants) ... [41] In my view, to the extent that the appellant alleges that the issuing banks offer a payment guarantee, it seems premature at theauthorization stage to exclude the possibility that a credit card may constitute such a guarantee for the merchants because the holder usesit as a credit instrument.

One does not necessarily exclude the other. [42] Authors L’Heureux and Lacoursière, cited above,[45] when explaining the functioning of the credit card payment system,clearly indicate that credit cards also constitute an undertaking by the issuer towards the merchant:[46] [translation] The merchant undertakes to provide the goods and services to any holder of a valid card approved by the system, that is, a card that hasnot been revoked and that is not expired. It agrees to provide the goods and services without requiring a cash payment from the buyer, asa result of the prior agreement binding it to the issuer.

The agreement provides for the reimbursement of all valid invoices issued inconnection with the credit card for goods and services provided, which reimbursement is deposited by the merchant with its bankinginstitution, less a determined discount rate. The issuer is able to give the merchant this undertaking because of the agreement concludedwith the cardholder.

The merchant thus receives a guarantee that it will obtain the funds quickly, regardless of how much time the clienttakes to pay his or her debt to the issuer. [Emphasis added; references omitted.] [43] Taking the facts alleged as true, as they should be, and without excluding the possibility at this stage that the issuing bankscould offer merchants a payment guarantee, the question arises as to whether the respondent banks conspired together to fix theinterchange fees charged to merchants in exchange for this service. That is what the appellant alleges, but the respondents dispute this,

arguing that they could not have conspired in this way because it is the acquirers, pursuant to a contract for services with the merchants, who fix and charge the interchange fees. [ 44 ] In my view, it is not that simple, at least at this stage of the proceedings. First, the appellant alleges that some of the respondent banks themselves act as acquirers or control acquirers: 16.4 Certain Issuing Banks, such as … CIBC, Settled Respondent Desjardins, RBC, and TD, and all Acquirers participate in both credit card networks.

Certain Issuing Banks, including … BMO, Settled Respondent Desjardins, RBC, and TD are also Acquires or own large stakes in Acquirers, and in some cases, control the operations of those Acquirers. TD and Settled Respondent Desjardins are both Issuing Banks and Acquirers. BMO and RBC own and control Moneris as partners in a joint investment.

CIBC and National have marketing alliances with Global, the whole as appears more fully from a copy of an extract from Respondent Visa’s website at www.visa.ca and from a copy of an extract from Respondent MasterCard’s website at www.mastercard.ca , produces herein en liasse as Exhibit R-8 . [ 45 ] Second, as noted by authors L’Heureux and Lacoursière, interchange fees help finance various services offered by the issuing banks. [47] What will the evidence on the merits reveal in this regard? I do not know.

The fact remains that, at this stage, I do not think it is frivolous to claim that the banks, themselves or through intermediary legal persons, could have entered into one or more agreements among themselves or among themselves and others to fix the interchange fees charged to merchants. [ 46 ] The respondents object to this way of looking at things. In their view, to invoke

section 45 of the Competition Act , the appellant would have to allege that the respondent banks alone fix the interchange fees among themselves. [ 47 ] I will reiterate the appellant’s basic theory. It alleges that there are two separate but related conspiracies among the five players involved.

The first involves Visa, the issuing banks and the acquirers, while the second involves MasterCard, the issuing banks and the acquirers. [ 48 ] It is alleged that for each of the conspiracies, the issuing banks entered into anti-competitive agreements among themselves and with the networks in regard to the interchange fees paid to them. The acquirers, for their part, are alleged to have entered into anti- competitive agreements among themselves, the issuing banks and the networks concerning the network operating rules.

Pursuant to these agreements, the acquirers subsequently entered into service agreements with the merchants, which agreements contain anti-competitive conditions, including compliance with the network rules and the payment of unreasonable acceptance fees. [ 49 ] The British Columbia Court of Appeal rejected a similar argument as follows: [48] [32] In

summary, even if the pleading included a “payment guarantee” as a product, the competitor banks are not alleged to fix the Interchange Fee for that product on their own. Rather, the pleading alleges that it is the combined effect of agreements between and among issuers, networks and acquirers, and in particular the Network Rules and Merchant Restraints, that constrains competition and compels merchants to pay the supra-competitive Interchange Fee.

In short, the pleading is deficient as far as establishing a conspiracy between issuing banks to fix the price of a service and, accordingly, does not disclose a cause of action for breach of current s. 45 . [Emphasis added.] [ 50 ] This suggests that because fixing the interchange fee involves other players and not only the issuing banks, there cannot be a conspiracy within the meaning of

section 45 of the Competition Act . [ 51 ] With respect, I do not think we can be so unequivocal. The Competitor Collaboration Guidelines [49] in regard to

section 45 of the Competition Act state: Where an agreement involves competing and non-competing parties, the fact that some parties are not competitors does not insulate the competing parties from prosecution under

section 45 . [ 52 ] A priori , I therefore see no reason to set aside the application of

section 45 because parties other than the banks are alleged to have also participated in an agreement or arrangement. All the players involved are interrelated in one way or another. In light of the allegations made in the proceedings, we cannot exclude, at this stage, the possibility that the issuing banks may have participated in an anti-competitive agreement or arrangement among themselves. In short, in view of the stage of the file, I believe the judge erred in not referring the analysis of this issue to the hearing on the merits. * * * * * [ 53 ] The reason given by the judge for also setting aside

section 49 of the Competition Act is the same as that underlying her decision to set aside

section 45 : the issuing banks do not provide a service to the merchants. [50] Given the opposite conclusion I have reached, and also because the wording of

section 49 is different than that of

section 45 , it is appropriate to repeat the analysis. [ 54 ] It is appropriate to begin by citing paragraph 45(6) (

b) of the Competition Act , which excludes conspiracies, agreements or arrangements among banks from the application of

section 45 :

Conspiracy 45 (1) […] Exception (6) Subsection (1) does not apply if the conspiracy, agreement or arrangement (

a) is entered into only by parties each of which is, in respect of every one of the others, an affiliate; or (

b) is between federal financial institutions and is described in subsection 49(1) . […] Complot 45 (1) […] Exception

(6) Le paragraphe (1) ne s’applique pas au complot, à l’accord ou à l’arrangement :

a) intervenu exclusivement entre des parties qui sont chacune des affiliées de toutes les autres;

b) conclu entre des institutions financières fédérales et visé au paragraphe 49(1) . […] [ 55 ]

Section 49 of the Competition Act thus specifically concerns agreements among financial institutions: Agreements or arrangements of federal financial institutions 49.

(1) Subject to subsection (2), every federal financial institution that makes an agreement or arrangement with another federal financial institution with respect to (

a) the rate of interest on a deposit, (

b) the rate of interest or the charges on a loan, (

c) the amount or kind of any charge for a service provided to a customer , (

d) the amount or kind of a loan to a customer, (

e) the kind of service to be provided to a customer, or (

f) the person or classes of persons to whom a loan or other service will be made or provided Accords bancaires fixant les intérêts, etc. 49.

(1) Sous réserve du paragraphe (2), toute institution financière fédérale qui conclut avec une autre institution financière fédérale un accord ou arrangement relatif, selon le cas :

a) au taux d’intérêts sur un dépôt,

b) au taux d’intérêts ou aux frais sur un prêt,

c) au montant ou type de tous frais réclamés pour un service fourni à un client ,

d) au montant ou type du prêt consenti à un client,

e) au type de service qui doit être fourni à un client,

f) à la personne ou aux catégories de personnes auxquelles un prêt sera consenti ou un autre service fourni, ou auxquelles il sera refusé un prêt ou autre service,

or from whom a loan or other service will be withheld, and every director, officer or employee of the federal financial institution who knowingly makes such an agreement or arrangement on behalf of the federal financial institution is guilty of an indictable offence and liable to a fine not exceeding ten million dollars or to imprisonment for a term not exceeding five years or to both. […] Definition of federal financial institution

(3) In this

section and

section 45 , federal financial institution means a bank or an authorized foreign bank within the meaning of

section 2 of the Bank Act, a company to which the Trust and Loan Companies Act applies or a company or society to which the Insurance Companies Act applies. […] et tout administrateur, dirigeant ou employé de l’institution financière fédérale qui sciemment conclut un tel accord ou arrangement au nom de l’institution financière fédérale commet un acte criminel et encourt une amende maximale de dix millions de dollars et un emprisonnement maximal de cinq ans, ou l’une de ces peines. […] Définition de institution financière fédérale

(3) Au présent

article et à l’

article 45 , institution financière fédérale s’entend d’une banque, d’une banque étrangère autorisée, au sens de l’article 2 de la

Loi sur les banques , d’une société régie par la

Loi sur les sociétés de fiducie et de prêt ou d’une société ou société de secours régie par la

Loi sur les sociétés d’assurances . […] [ 56 ] The Competition Bureau’s guidelines provide that where the agreement is among federal institutions, it will be assessed under

section 49 and not

section 45: 1.2 Determining Between Strategic Alliance / Conspiracy Provisions or Other Provisions of the Act As an initial step, the Bureau will determine whether to assess the collaboration between competitors under the conspiracy and civil provisions found in sections 45 and 90.1 of the Act or, alternatively, whether the collaboration should be assessed under other provisions of the Act, such as the merger provision in

section 92. The Bureau applies the following principles in making this determination: … b. Agreements Between Federal Financial Institutions: Where the agreement is between federal financial institutions and is described in subsection 49(1) of the Act, the agreement will be assessed under

section 49 and not

section 45 . Subject to the exception described below, agreements between federal financial institutions that are likely to substantially lessen competition may also be subject to review under the civil provision in

section 90.1 of the Act. Subsections 49(2) and 90.1(9) contain certain exceptions, including an exception for agreements in respect of which the Minister of Finance has issued a certification for reasons of financial policy. [51] [Bold emphasis in original; underlining added] [ 57 ] The authors consulted in the field of competition law also share this opinion. For example, author Antoni Di Domenico states: [52] Section 45(6)(

b) provides an exception for federal financial institutions. Section 45(1) does not apply if the agreement is between federal financial institutions. [Reference omitted.] [ 58 ] Authors Randal Hughes and Emrys Davis make a similar statement: [53] §4.22 Subsection 45(6) outlines that a conspiracy, agreement or arrangement does not contravene section 45(1) where it is between affiliate entities or federal financial institutions, the latter of which is prohibited under section 49(1). [ 59 ] We should therefore understand from all of this that sections 45 and 49 cannot apply at the same time. It is one or the other.

[ 60 ] Because the issuing banks are “federal financial institutions,” one might think that

section 49 applies. I note, however, that the agreement or arrangement in question in paragraph 49(1)(

c) must concern “a service provided to a customer.” [ 61 ] As discussed above, the functioning of the credit card payment system involves an undertaking by the issuer towards the merchant. Can it then be argued that the merchant is a customer of the bank within the meaning of

section 49 ? [ 62 ] In my view, that is a tenable, although debateable, position because of the fact that

section 49 creates an indictable offence and, in the event of doubt in regard to the

interpretation to be given to legislation creating an offence, the

interpretation that is most favourable to the accused should be preferred. [54] In short, if the word “customer” is given its ordinary meaning, it is possible that the issuing bank’s undertaking with respect to the merchant is ultimately found to be insufficient to characterize the merchant as a customer. That said, I find this issue to be closely connected to the consideration of the merits of the case. It is best to wait and see what the evidence will reveal, rather than try to answer this delicate question definitively at the authorization stage. [55] * * * * * [ 63 ] The remaining cause of action is based on

section 234 of the Consumer Protection Act , which prohibits any person from refusing to enter into an agreement with a merchant or from terminating an agreement binding that person and a merchant, by reason of the fact that the merchant grants a rebate to the consumer who pays cash or uses a negotiable instrument. [ 64 ] The trial judge dismissed this cause of action because there is no reference to it in the application for authorization and there is no allegation supporting it. [56] She was correct on this point, and there is no reason to intervene.

CONCLUSION [ 65 ] Before concluding, I find it worth repeating that this is a class action that has been authorized. In practice, this means that the respondents are already required to defend themselves against the allegations that the trial judge deemed tenable. Therefore, the argument that frivolous proceedings should be filtered out on the basis of judicial economy and the proper administration of justice carries little weight in the circumstances. The evidence will confirm whether the allegations of the class action based on

section 45 or 49 of the Competition Act are grounded and should not, in either case, be more onerous to administer. [ 66 ] Accordingly, I would allow the appeal in part and amend subparagraph 138(3) of the judgment of the Superior Court so that it reads as follows: 3) Did the defendants’ conduct violate

section 45 of the Competition Act , as worded until March 12, 2010, and after that date, or

section 49 of the Act, during the period covered by the class action? [ 67 ] The whole with legal costs. JEAN BOUCHARD, J.A.

Conspiracy 45

(1) Every one who conspires, combines, agrees or arranges with another person (

a) to limit unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any product, (

b) to prevent, limit or lessen, unduly, the manufacture or production of a product or to enhance unreasonably the price thereof, (

c) to prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, storage, rental, transportation or supply of a product, or in the price of insurance on persons or property, or (

d) to otherwise restrain or injure competition unduly, is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years or to a fine not exceeding ten million dollars or to both. […] Complot 45

(1) Commet un acte criminel et encourt un emprisonnement maximal de cinq ans et une amende maximale de dix millions de dollars, ou l’une de ces peines, quiconque complote, se coalise ou conclut un accord ou arrangement avec une autre personne :

a) soit pour limiter, indûment, les facilités de transport, de production, de fabrication, de fourniture, d’emmagasinage ou de négoce d’un produit quelconque;

b) soit pour empêcher, limiter ou réduire, indûment, la fabrication ou production d’un produit ou pour en élever déraisonnablement le prix;

c) soit pour empêcher ou réduire, indûment, la concurrence dans la production, la fabrication, l’achat, le troc, la vente, l’entreposage, la location, le transport ou la fourniture d’un produit, ou dans le prix d’assurances sur les personnes ou les biens;

d) soit, de toute autre façon, pour restreindre, indûment, la concurrence ou lui causer un préjudice indu. […]