Federal Court in Maxzone Case (Auto Parts Price-fixing Investigation) Warns that Mathematical Sentencing Submissions Will No Longer Cut the Mustard

By Steve Szentesi, Canadian Regulatory Law: News, Rules & Trends

“Price-fixing agreements, like other forms of hard core cartel agreements, are analogous to fraud and theft.  They represent nothing less than an assault on our open market economy.  Buyers in free market societies are entitled to assume that the prices of the goods and services they purchase have been determined by the forces of competition.  When they purchase products that have been the subject of such an agreement, they are effectively defrauded.”

(Chief Justice Crampton, R. v. Maxzone Auto Parts
(Canada) Corp.
, 2012 FC 1117)

____________________

In detailed though critical reasons issued this week by the Federal Court in the auto parts price-fixing case, Chief Justice Crampton set the stage for the Court’s approach to joint sentencing submissions for future Canadian cartel cases (R. v. Maxzone Auto Parts (Canada) Corp., 2012 FC 1117).

Crampton C.J.’s reasons relate specifically to his (reluctant) decision last Spring to accept joint sentencing submissions and impose a fine of $1.5 million on Maxzone Canada for its role in the ongoing global aftermarket auto parts price-fixing investigation.

In this regard, on May 3, 2012, Maxzone Auto Parts (Canada) Corp. pleaded guilty to one count of contravening Canada’s foreign directed conspiracy offence under section 46 of the Competition Act.  Chief Justice Crampton’s reasons also set out what the Court expects from future sentencing submissions.

Some of the key (if related) points from this interesting recent decision include:

Mathematical approach to sentencing.  First, parties making sentencing submissions must do more than adopt the mathematical approach to fines set out in the Competition Bureau’s Leniency Bulletin (the “Leniency Bulletin”). The Leniency Bulletin sets out 20% of a cartel participant’s affected volume of commerce in Canada as a starting point for negotiations, which may be reduced by 50% for the first party that complies with all requirements of the Bureau’s Program.

The Bureau’s Leniency Bulletin can be an appropriate framework.  Second, while the Bureau’s Leniency Bulletin can be an appropriate framework for sentencing submissions, it must be followed in both “letter and spirit” with regard to: (i) the fundamental purpose of sentencing and objectives set out in section 718 of the Criminal Code (the “Code”); (ii) the principal of proportionality in section 718.1; (iii) aggravating and mitigating factors in sections 718.2 and 718.21 (and related case law); and (iv) the other principles in section 718.2 (and case law).  In this regard, Crampton C.J. held that “cooperation [under the Bureau’s Leniency Program] cannot so dominate the approach to sentencing as to leave virtually no meaningful role for relevant aggravating factors, other mitigating factors, and the principles of sentencing [under the Code].”

More detailed evidentiary records and submissions will be required.  Third, the court held that significantly more fulsome evidentiary records and more detailed submissions would be required for the Court to be satisfied that a recommended sentence would not be contrary to the public interest or bring the administration of justice into disrepute.

The Crown’s sentencing submissions in this case consisted of two paragraphs, which Crampton C.J. said “do not provide the court with any sense, let alone comfort, that a recommended fine determined [according to a mathematical formula] would appropriately denounce the conduct in question, achieve general or specific deterrence, be proportionate to the gravity of the offence, or even ensure that crime does not pay.”  Crampton C.J. further held that he had:

“… serious concerns as to the Court’s ability to become satisfied, on the basis of an evidentiary record such as that which was submitted …, and the cursory submissions that were made, that a sentence calculated in the arithmetical manner that was followed in this case would not be contrary to the public interest and would not bring the administration of justice into disrepute.”

Crampton C.J. also held that at a minimum, the Court will require either: (i) some sense, even if only in general “ballpark” terms, of the illegal profits contemplated by, and ultimately attributable to, the prohibited agreement; or (ii) evidence that the accused has paid restitution to the victims of an agreement.

The Court will also require: (i) a good sense of any relevant aggravating and mitigating factors and how they influenced the jointly recommended fine (and if no adjustment to the recommended fine has been made to reflect such factors, the rationale for not making an adjustment); and (ii) sufficient information to determine whether the recommended sentence appropriately reflects the purpose of sentencing and objectives in section 718 of the Code, principle of proportionality in section 718.1 and principles in section 718.2 (and case law).

In his reasons, Crampton C.J. also discusses principles for individual sentencing, recognizing that it may be in the public interest for the Crown to agree to refrain from seeking imprisonment in some cases (e.g., directors, officers or employees of the first company to seek leniency) while indicating that parties should explain why a fine alone is appropriate in other cases (e.g., subsequent leniency applicants).

In sum, these recent reasons by Chief Justice Crampton signal an increasingly stern view of cartel sentencing by the Federal Court, a reminder that sentencing in cartel matters must be underpinned and supported by the sentencing principles of the Code and a warning that the Court will not rubber-stamp mathematically derived sentencing submissions.

In this regard, Crampton C.J.’s closing remarks included the following:

“… I ultimately, and reluctantly, agreed to impose the recommended fine of $1.5 million.  Now that these reasons have identified the principal shortcomings associated with such an evidentiary record and such submissions, parties to jointly recommended sentences can no longer reasonably expect that the court will conclude that sentences determined in the manner that was adopted in this case would not be contrary to the public interest and would not bring the administration of justice into disrepute.”

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s