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CSS Corporation ("CCS") is the only operator of secure
hazardous waste disposal landfills in northern Alberta and
north-eastern British Columbia. In 2010, CCS agreed to
acquire Complete Environmental Inc. ("Complete"), whose
subsidiary had obtained a permit to operate a new secure hazardous
waste disposal landfill in north-eastern British Columbia.
Complete never intended to operate its site as a competitive secure
hazardous waste landfill; rather, its business plan was to use the
site as an incidental complement for its bioremediation
business. Although the merger fell below the pre-merger
notification thresholds of the Competition Act, CCS chose to
voluntarily notify the Commissioner of the proposed
transaction.1 After a detailed review, the
Commissioner expressed concerns and indicated that the parties
should only close at their own risk. Despite the warning, the
parties closed in early January 2011. The Commissioner filed
a notice of application challenging the transaction shortly
thereafter. On May 29, the Competition Tribunal agreed with
the Commissioner.
This case marks the first time since 2005 that the Commissioner
has challenged a merger in contested Tribunal proceeding. This was
also the first time that the Commissioner challenged a merger on
the grounds that it would result in a substantial prevention of
competition rather than a substantial lessening of competition. In
her application, the Commissioner sought dissolution as her primary
remedy (i.e., unwinding the transaction) or, in the alternative,
requiring the divestiture of assets to a pre-approved purchaser.
While the Tribunal agreed that the transaction was
anti-competitive, it rejected dissolution.
Perhaps most notable is that the Tribunal was willing to
substitute its own business judgment for that of Complete in
assessing the viability of the prospective Babkirk facility as a
potential competitor to CCS. The tribunal decided that the business
plan formulated by the Vendors (which did not involve competing
with CCS) was likely to fail, and that the Vendors would then
likely begin to compete against CCS.
This case illustrates a number of important points:
The case highlights the focus of the merger provisions: i.e.,
whether the proposed transaction is likely to substantially lessen
or prevent competition among suppliers.
The Tribunal adopted the "but for" test formulated by
the Federal Court of Appeal under the abuse of dominance
provisions. Specifically, would the relevant markets be
substantially more competitive "but for" the impugned
practice of anti-competitive acts.
The Tribunal may conclude that the parties to proposed
transaction are likely to compete even when one of the parties has
no intention to do so.
This is a surprising departure from the deference to business
judgment that we are used to seeing from Canadian courts, and may
be the most troubling aspect of this decision.
Dissolution is not likely to be a primary remedy for a
problematic merger; rather, divestiture will likely continue to be
the preferred option.
This is important, especially to sellers, who typically, after a
transaction closes, move on and deploy the sale proceeds
elsewhere.
The fact that a merger is not notifiable does not mean that it
is without risk. Non-notifiable mergers can be successfully
challenged at the Tribunal.
Tribunal proceedings are time consuming and expensive.
Where a non-notifiable merger gives the merged firm a dominant
market share or preserves its dominant market share, the parties
should evaluate the legal risk of competition challenge and assess
whether steps could be taken to minimize that risk.
A more detailed discussion of the case can be found
here
Footnotes
1 An overview of the pre-merger notification provisions
of the Act may be found
here.
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On April 29, 2013, the Government of Canada tabled its budget implementation bill, the Economic Action Plan 2013 Act, which includes proposed amendments to the Investment Canada Act, particularly in relation to state-owned enterprises.
Following its approval in December 2012 of two high-profile transactions involving foreign state-owned enterprises acquiring Canadian businesses, the Canadian government announced new policies that would guide the minister of industry in applying the Investment Canada Act (ICA) to subsequent similar transactions.
On April 18, 2013 before Justice L.D. Ratushny of the Ontario Superior Court of Justice, a Japanese supplier of motor vehicle components, Yazaki Corporation ("Yazaki") pleaded guilty to three counts of bid-rigging, in violation of subsection 47(2) of the Competition Act.
In cases heard barely two weeks apart, Canada’s Competition Bureau obtained record-setting fines against two Japanese auto parts suppliers that pleaded guilty to bid-rigging charges.
