Canada: Dissolution Recognized As Potential Remedy In Merger Challenges

In a recent order dated November 3, 2011, the Competition Tribunal recognized that dissolution can be available as a potential remedy to address the anticompetitive effects of a completed merger. While this order is only an interim decision and does not specify in which circumstances the Tribunal will order a dissolution of a completed transaction, it confirms that the Commissioner of Competition views dissolution as a potential remedy to an anticompetitive merger. It is therefore an element that vendors should consider in assessing and negotiating the allocation of the antitrust risks of a transaction.


This interim decision was issued by the Tribunal in the context of the ongoing challenge filed by the Commissioner in January 2011 against CCS Corporation's completed acquisition of Complete Environmental Inc. CCS owns two hazardous waste landfills in northeast British Columbia and, as a result of the acquisition, acquired Complete's interest in Babkirk Land Services Inc., which owns a proposed secure landfill site in the same part of the province. This $6.1-million transaction was not subject to mandatory notification under the Competition Act, although the parties had voluntarily advised the Competition Bureau prior to closing. The Commissioner's application alleges that Complete was about to enter the market served by CCS with the Babkirk landfill site, and that the transaction thus prevents the arrival of a new competitor in the relevant market.

Dissolution as a primary remedy

In her application, the Commissioner is seeking dissolution of the transaction and, in the alternative, a divestiture of the acquired assets. Although it is explicitly provided for in the merger remedy section of the Competition Act, dissolution is rarely sought by the Commissioner when merger transactions are challenged. Therefore, vendors generally face little antitrust risk once closing has occurred. In this case, however, dissolution is the primary remedy sought by the Commissioner, and would result in CCS having to return its recently acquired interests in Complete (and the Babkirk landfill site) to the vendors; dissolution would also require the vendors to refund the purchase price to CCS. In view of the foregoing, the vendors filed a motion for summary judgment, claiming that dissolution should not be a potential remedy as it would be punitive and result in financial hardship for them. The vendors also claimed that, should the Commissioner prove her case, the most appropriate and least intrusive remedy would be a divestiture.

The Commissioner took the position that the issue of dissolution cannot be decided at this early stage without hearing evidence, and that several factual questions would have to be considered at trial on this issue of dissolution, more specifically the state of the vendors' financing plans and their ability to make the Babkirk site operational, the availability of potential purchasers for the site and the likelihood that such purchasers would place a bid, and the reliability of the vendors' claim of financial hardship.

Tribunal findings

In rejecting the vendors' motion, the Tribunal found that the vendors failed to demonstrate there was no genuine basis for the Commissioner to seek dissolution, and that a proposed remedy of dissolution raises complex issues. The Tribunal also ruled that the Commissioner is not required to explicitly allege that dissolution is the only effective remedy. The Commissioner is entitled to propose alternative remedies and, if the Tribunal finds that a transaction is likely to result in a substantial lessening or prevention of competition, it will ultimately be up to the Tribunal to decide which remedy would be most appropriate in the circumstances.

The Tribunal's order on this issue is, of course, only an interim decision which was not unexpected at this stage of the proceedings. However, it nonetheless confirms that dissolution is an available remedy for completed transactions, and that the Commissioner considers it a serious option. Vendors should therefore keep this in mind when negotiating the antitrust risk in their commercial agreements, especially for transactions that are not subject to mandatory pre-notification and pre-closing review under the Competition Act.

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