Competition Bureau Continues Enforcement Against Restrictive Covenants in Grocery Leases

The Competition Bureau announced yesterday that it has entered into an agreement with Empire Company (the parent company of Sobeys, IGA and others grocery chains) to remove a ‘property control’ that the Bureau says restricted retail grocery store competition in Crowsnest Pass, Alberta. The announcement comes amid the Bureau’s ongoing investigation into the impact of restrictive covenants in commercial leases on competition in the grocery sector.

This action follows legislative changes that expanded the Bureau’s tool chest for challenging anticompetitive agreements under section 90.1 of the Competition Act. Importantly, those changes provided for the following:

• The Tribunal may now make an order against an agreement where the parties are not competitors (as is likely the case in commercial leases) if a significant purpose of at least part of the agreement was anticompetitive. Previously, the Competition Tribunal could only make an order against an anticompetitive agreement where the parties to the impugned agreement were each other’s competitors.
• The Tribunal now has a range of powers in respect of anticompetitive agreements, including the ability to impose significant administrative monetary penalties. Previously, the Tribunal’s only recourse against anticompetitive agreements was  to make the impugned agreements or provisions inoperative.
• The Tribunal may now make orders against agreements that are no longer in force. Previously, the Tribunal could only make an order against a current agreement (thus permitting parties to skirt enforcement at any time by terminating or modifying an agreement amid Bureau scrutiny).

Notably, the Bureau and Empire resolved this matter without registering a consent agreement with the Tribunal. Registered consent agreements are the Bureau’s preferred method for resolving enforcement matters. There are several possible reasons why the Bureau may have agreed to informally resolve this matter (though the Bureau has not disclosed its reasons):

• Empire may have refused to enter into a registered consent agreement, and the Bureau may not have been confident enough in its case to proceed with litigation. To obtain an order against Empire, the Bureau would have likely needed to show the court that (1) a significant purpose of part of the agreement was anticompetitive (i.e., a measure of Empire’s intent, which is difficult to prove); and (2) competition was substantially lessened or prevented in a relevant antitrust market, which raises complex economic issues.
• The first litigated case under the revised section 90.1 will be an important precedent for the Bureau. The Bureau may have chosen to refrain from litigation in the hope that the first litigated matter will present facts more favourable to the Bureau.
• The Bureau may be employing the same strategy it utilized successfully in deceptive marketing cases relating to “drip pricing”. In those matters, the Bureau resolved numerous cases over several years – both informally and through registered consent agreements with escalating administrative monetary penalties – before eventually bringing a significant litigated matter, in which the Tribunal imposed a $38 million administrative monetary penalty on Cineplex.

Finally, it is notable that the Bureau’s enforcement action relates to Crowsnest Pass, a small and remote town with only one grocery store. As noted above, to obtain an order from the Tribunal, the Bureau would need to demonstrate that an agreement is lessening or preventing competition in a relevant antitrust market. This is more difficult to prove in larger communities which may have existing grocery competition, and which may feature greater availability of properties not subject to restrictive covenants.

For further information on how the Bureau’s new approach to restrictive covenants in lease agreements may apply to your business, please contact any member of our Competition and Foreign Investment Group.