Canada: Canada’s Federal Court of Appeal Endorses a Forward-Looking Approach to Prevention of Competition

Last Updated: March 12 2013
Article by Nikiforos Iatrou and Scott McGrath


For the first time in a decade, Canada's appellate courts have weighed in on the merits of a contested merger, upholding the Competition Tribunal's divestiture order in Commissioner of Competition v Tervita Corporation.

During the tenure of Melanie Aitken, Commissioner of Competition from 2009 to 2012, the Canadian Competition Bureau had increased its enforcement presence. The decision in Tervita vindicates the then-Commissioner's aggressive approach to merger enforcement, not only because of its rarity – the case marks the first time since 2005 that the Competition Bureau had challenged a merger before the Competition Tribunal, and is only the sixth litigated merger in Canadian history – but because of the nature of the allegations: the Commissioner alleged that the transaction prevented competition that had not yet arisen, as opposed to typical merger cases where the allegations involve a lessening of pre-existing competition.

The decision sets a clear framework for future prevention cases. Importantly, it also marks an alignment between Canadian and American jurisprudence, as the Federal Court of Appeal drew on U.S. caselaw to shed light on what elements and what evidence need to be present for the Bureau to succeed in what the U.S. authorities would refer to as an "actual potential competition case". Tervita is equally notable for the fact that the deal was non-notifiable and had already been consummated by the time the Commissioner brought her case.


Tervita – the acquiror in this case, formerly known as CCS Corp. – owns the only two operating hazardous waste landfills in Northeastern British Columbia ("NEBC"). These landfills are specially designed for the permanent disposal of solid hazardous waste, most of which is generated by oil and gas companies as a by-product of drilling for and producing oil and natural gas.

Complete Environmental Inc. ("Complete") – the company that Tervita acquired – owned certain lands in NEBC. These lands are situated in the heart of shale gas country, just off of the Alaska Highway, making them easily accessible for oil and gas exploration companies seeking to dispose of hazardous waste. Recognizing the potential of this site, Complete's predecessors began in 2006 to obtain the necessary approvals to establish a hazardous waste landfill at the site known as Babkirk.

After a lengthy, uncertain and expensive regulatory process, the necessary regulatory approvals for Babkirk were obtained in February 2010. Soon thereafter, the individuals who owned Complete (the "vendors") began approaching a number of participants in the waste management industry, including Tervita, for expressions of interest. By the summer of 2010, Tervita had entered into a binding agreement to buy Complete and the deal closed in January 2011 for roughly $6 million. To put that transaction size into context, in Canada, unless a deal is valued at over $77 million, the transacting parties are not required to notify the Bureau of the deal.

One of Tervita's competitors brought the deal to the Bureau's attention and the transaction closed over the Bureau's objection that the merger would maintain Tervita's monopoly for hazardous waste disposal services in the area. The Commissioner brought her case challenging the merger three weeks after the deal closed. The case was brought pursuant to s. 92 of the Competition Act, which grants jurisdiction to the Tribunal to intervene where "a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially" (emphasis added).

The case culminated in a trial that took place in November and December 2011. The Commissioner argued that Tervita had substantially prevented competition that would have arisen if a competitor, rather than Tervita, were to build and operate a landfill at Babkirk. The Commissioner alleged that Tervita's acquisition of Complete thwarted this possibility. In response, Tervita and Complete took the position that if Tervita had not purchased Complete, Complete's owners would not have operated a secure landfill at Babkirk, but instead would have operated a bioremediation business that would not compete with Tervita's landfilling operations. Since there was no competition or likelihood of competition, they argued, the Commissioner's case must fail.


The Tribunal released its decision in May 2012. The Tribunal accepted that, absent the sale to Tervita, the vendors would not have immediately operated a secure landfill in competition with Tervita. However, the Tribunal carried on to consider the viability of the vendors' bioremediation business and agreed with the Commissioner that the bioremediation business would have failed and the vendors would have switched course.

The Tribunal found that, but for the merger, the vendors would have operated the bioremediation business for a year, from October 2011 to October 2012. It found that this business would have failed for want of customers and due to the technical limitations of bioremediating hazardous waste. The Tribunal then found that after the bioremediation business failed, the vendors would have either begun operating the facility as a secure landfill themselves, or would have sold the site to another party that would have operated it as a secure landfill. In either event, by the spring of 2013, there would be an operational landfill at Babkirk.

The Tribunal concluded that the operation of a secure landfill at the site by the spring of 2013 would have resulted in substantial competition for the supply of secure landfill services. The Tribunal relied on Tervita's internal documents that predicted that it stood to lose a great deal of money, market power and operating margins if a competitor operated a landfill at Babkirk. These documents hinted at the likelihood of a price war in the region; competition that the Commissioner alleged was thwarted as a result of the merger. The Tribunal also noted that in neighbouring Alberta, where Tervita faces competition from other secure landfill operators, landfilling prices are significantly lower.

In the result, the Tribunal ordered Tervita to sell the assets relating to the landfill site, including the regulatory permits. The order directed that the sale be to a purchaser approved by the Commissioner. As is customary in Canadian divestiture orders, the Tribunal ordered that if Tervita was unable to sell the acquired assets within a specific period of time, a trustee would be charged with completing the sale on Tervita's behalf.


Tervita appealed the Tribunal's decision to the Federal Court of Appeal ("FCA") on a number of grounds. Chief among them, Tervita argued that the Tribunal had erred by extending its analysis beyond the date of the merger and engaging in "uncabined speculation" regarding possible future events. In a decision dated February 11, 2013, the FCA unanimously dismissed Tervita's appeal.

The Tribunal found that in a prevention case, it was charged with determining whether the new entry that the Commissioner alleged was prevented would have occurred within a reasonable period of time. Tervita challenged this interpretation, arguing that the Tribunal's analysis should be confined to the time around the merger, not in the future. The FCA rejected Tervita's position. It stated:

Contrary to most trial courts, which are essentially concerned with ascertaining the facts relating to past events, the Tribunal's role under sections 92 and 96 of the Competition Act requires it to project into the future various events in order to ascertain their potential economic and commercial impacts. The role of the Tribunal is thus to identify and remedy market problems that have not yet occurred. This is a daunting exercise steeped in economic theory and requiring a deep understanding of the economic and commercial factors at issue. Because an appellate court may encounter difficulties in fully understanding the economic and commercial aspects of the Tribunal's decision, it must defer to its findings of fact and of mixed law and fact on these issues.

Thus, not only must the Tribunal look into the future to determine whether the new entry would have occurred within a reasonable period of time, its findings in this regard deserve particular deference.

The next question to be determined on appeal was the meaning of "reasonable period of time". The FCA found that while this will necessarily vary from case to case and will depend on the business under consideration, certain guidelines should be followed to ascertain the appropriate temporal framework for "poised entry" in any given prevention case.

First, the time frame must be discernable. An amorphous determination that there would have been entry in the market at a future, undeterminable date will not be sufficient to satisfy the antitrust enforcer's burden of proof. Second, the time frame for thwarted competition should fall within the temporal dimension of the barriers to entry into the market at issue. In Tervita, the evidence established that it would take a new entrant at least 30 months to open a secure landfill. Absent the merger, the Tribunal held, there would have been competition within about two years. This was within the time frame of the barriers to entry, thus meeting this branch of the test. Tervita therefore clarifies that poised entry means entry within the time frame relating to barriers to entry.

In coming to this view, the FCA cited the U.S. decision in BOC International Ltd v Federal Trade Commission, where the Second Circuit Court of Appeals found that:

It seems necessary ... that the finding of probable entry at least contain some reasonable temporal estimate related to the near future, with 'near' defined in terms of entry barriers and lead time necessary for entry in the particular industry, and that the finding be supported by substantial evidence in the record.

The FCA agreed with the sentiment of this passage and found that using the barriers to entry in the market in question would be a helpful guidepost for future prevention cases in determining whether the entrant under consideration was "poised" to enter the market. The FCA stressed that it was not establishing a hard and fast rule, and that in some cases it might be appropriate to expand the temporal analysis beyond the temporal dimension of the barriers to market entry.

Bringing the analysis back to the facts before it, the FCA rejected the submission that the Tribunal had engaged in unbridled speculation. On the contrary, it recounted the evidence that was before the Tribunal in support of the conclusion that the bioremediation business of the vendors would have failed. The vendors' own internal documents showed that they were prepared only to try the bioremediation business for a year. There were no identifiable customers for bioremediation and the cost of bioremediation would have far outweighed the cost of disposal at a secure landfill. Given those market dynamics, the FCA found that it was reasonable for the Tribunal to conclude that the bioremediation business would have failed and that the vendors would have switched course, operating the secure landfill themselves or selling it to a third party that would have done so.


Tervita sets an important precedent for antitrust enforcement in North America.

1. Prevention of Competition Cases can Successfully be Brought

Tervita demonstrates that it is possible for an antitrust enforcement agency to successfully challenge a merger solely on the ground that it prevents future competition. This had not previously been done in North America. The line of cases in the U.S., including ited States v Marine Bancorporation, Inc, Yamaha Motor Co Ltd v Federal Trade Commission, and BOC International Ltd v Federal Trade Commission, raised these issues and developed the equivalent U.S. doctrine of "actual potential competition", but the enforcement agencies' efforts in these cases were all ultimately unsuccessful.

The acceptance of the prevention of competition model in Tervita provides a vital framework for future cases and sets a precedent that should be utilized to its fullest advantage by North American antitrust enforcers going forward. From the merging parties' perspective, the lesson is, just because you're not competing today, don't think that you're immune from an enforcement challenge tomorrow.

2. Barriers to Entry Serve as a Guidepost for the Forward-Looking Time Frame

While it did not set down a hard rule, the FCA reasoned that in a prevention of competition case, the outer limit of a "reasonable period of time" for poised entry is the time it would take a new entrant to enter the market. It will be important for regulators to establish an evidentiary foundation to determine how long new entry would take. If the regulator can establish that, absent the merger, the poised entrant would have effectively competed sooner than this outer limit, the regulator is well on its way to proving its prevention of competition case.

This raises two considerations. First, industries with greater barriers to entry pose additional difficulties for antitrust agencies in prevention of competition cases. For example, where a new entrant would take 25 years to effectively enter (in a large mining case, for example) the future-looking task may be complicated by numerous factors that could muddy a 25-year predictive exercise. Second, it is vital for parties to a merger to understand what the barriers to entry in their respective industries are. It would be prudent for parties to an at-risk merger to seek objective, outside advice on the barriers to entry and whether the merger could be offside antitrust legislation.

3. A Proper Evidentiary Record is Key

Finally, Tervita reaffirms the vital importance of the evidentiary record in merger cases. The Tribunal, as affirmed by the FCA, relied on various internal documents from both the vendors and Tervita to establish, for example, that the bioremediation business of the vendors would have failed within a year and that the entrance of Babkirk into the secure landfill market in NEBC would have had a material effect on prices. When a potential anticompetitive merger is being investigated, it should be expected that antitrust regulators will take all possible steps to preserve, collect and use the internal documents of the subjects of the investigation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Nikiforos Iatrou
Scott McGrath
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