Canada: Prevention Is A Problem: The Federal Court Of Appeal's Decision In The Tervita (CCS) Merger

OVERVIEW

The Federal Court of Appeal ("Court of Appeal") has dismissed an appeal from the May 29, 2012 order of the Competition Tribunal ("Tribunal") requiring Tervita Corporation ("Tervita"), formerly known as CCS Corporation, to divest itself of a secure landfill site for solid hazardous waste from oil and gas operations acquired through its merger with Complete Environmental Inc. ("Complete"). This case is the first contested merger to be adjudicated by the Competition Tribunal since 2005.

Section 92 of the Competition Act ("Act") allows the Tribunal to issue remedial orders where it finds that a merger or proposed merger is likely to, inter alia, prevent or lessen competition substantially in a relevant market. Although the Act imposes party and transaction size thresholds below which notifications of mergers do not need to be filed, the Commissioner of Competition ("Commissioner") on behalf of the Competition Bureau ("Bureau") is entitled to challenge any merger under section 92, irrespective of the size of the parties or transaction.

KEY LESSONS

This case underscores two issues:

  1. Small mergers — The Bureau is willing to challenge even small mergers, regardless of the value of the transaction or the breadth of the area it involves – and the Tribunal and Court of Appeal are willing to hold that such transactions may violate section 92.
  2. Prevent Case — Mergers of potential competitors, even if not competing at the time of the transaction, and mergers which in any other way are likely to prevent the entry or expansion of a new competitor within a reasonable period of time, may be challenged as likely to prevent competition in the future under section 92.

THE FACTS

Tervita (CCS) is a private energy and environmental waste company which provides waste management services to upstream oil and gas producers in Western Canada. On January 7, 2011, Tervita acquired Complete, including its wholly-owned subsidiary which owned property in North-Eastern British Columbia ("NEBC") that had a British Columbia government-issued permit to develop a secure landfill for solid hazardous waste from oil and gas operations (the "Babkirk Site").

At the time of the acquisition, only four permits for secure landfills for solid hazardous waste in NEBC had been issued. In addition to the Babkirk Site's permit, Tervita owned and operated the only two operational sites, while the other permit-holding project was stalled and unlikely to be completed.

On January 24, 2011, the Commissioner brought an application to the Tribunal, challenging the completed acquisition pursuant to section 92 of the Act, notwithstanding that the transaction value was significantly below the pre-merger notification threshold at the time.

The grounds for the application were not that the transaction lessened competition, as would be expected in a typical merger challenge. Rather, the Commissioner's grounds were that the transaction was likely to prevent future competition, because it likely prevented the only foreseeable future competitor in the market for solid hazardous waste generated by oil and gas producers.

The Tribunal recognized the relative uniqueness of a challenge to a merger based on a likely prevention of competition, and set out an analytical framework to be used in such cases. The Court of Appeal affirmed this structure. The foundation of the framework was a "but for" analysis, comparing the likely competitive situation if the transaction was allowed with those that would likely exist "but for" (without) the merger. The goal of this analysis was to determine whether the relevant market would have been substantially more competitive "but for" the merger, particularly whether "but for" the merger, one of the merging parties likely would have entered or expanded within the relevant market within a reasonable period of time and on a sufficient scale to effect either a material reduction of prices or a material increase in one or more levels of non-price competition. As the applicant, the Commissioner bore the burden of proof to a balance of probabilities of the likelihood of the future events both if the merger was allowed, and "but for" (without) the merger.

Because the entire "but for" analysis looked at future market conditions, it required the Tribunal to make a number of detailed findings as to likely future events, and to evaluate their likely impact on competition in the relevant market. The Tribunal found that absent the merger, due to business realities, no later than the spring of 2013 the Babkirk Site would likely have been made into a full-scale competing secure landfill, in direct and substantial competition with Tervita. Therefore, it held, concurred with by the Court of Appeal, that by eliminating the likely emergence of this competitor, which would have challenged Tervita's monopoly in the NEBC secure landfill market within approximately one year from the date of its decision, the merger was likely to prevent competition substantially in that market, in violation of section 92 of the Act. The Tribunal found, and the Court of Appeal agreed, that there were significant barriers to entry for any potential new competitor, including a site selection and testing process of approximately 15 to 18 months, a permitting process of at least 18 to 24 months, and 3 to 4 months for construction – and considerable costs for each step.

The Tribunal, and the Court of Appeal also considered Tervita's efficiency defence but only accepted one major efficiency – a reduction in overhead costs, since Tervita could rely upon its existing administrative staff in operating the Babkirk Site. The Tribunal found that the effects of the prevention of competition outweighed the efficiencies that would have resulted from the transaction. The Court of Appeal disagreed with the Tribunal's decision to weigh the efficiencies and likely effects subjectively, stating that this balancing will be conducted objectively with econometric evidence. However, upon reviewing the facts, the Court of Appeal determined that even when weighed objectively, the efficiencies still did not outweigh the likely effects.

HOW FAR AHEAD WILL POTENTIAL PREVENTION BE CONSIDERED?

The Tribunal found that the merger was likely to prevent competition substantially because it found that "but for" the merger, the Babkirk Site would likely have become a serious competitor to Tervita within one year of the Tribunal's decision. It established a rule, that if a transaction would likely prevent a "poised entrant" such as the Babkirk Site from entering or expanding significantly within a "reasonable period of time", that could constitute likely prevention of competition under section 92.

The Court of Appeal agreed with the rule as stated by the Tribunal, and that the prevention of the entry of the Babkirk Site as a new competitor within one year qualified as prevention within a reasonable period of time. However, it also clarified how a "reasonable period of time" should be calculated in future cases. The Court of Appeal explained that "a reasonable period of time" must always be discernible, meaning that the poised entry of a new competitor at some indiscernible point in the future will not substantiate a prevention of competition case. Furthermore, it held that the "reasonable period of time" should generally not, absent special circumstances, be further in the future than the period of time during which it could be shown that barriers to entry to the market would be effective. This means that if in a future case, the Tribunal could only find that entry was limited for one year, that the reasonable period of time during which a likely future prevention of entry or expansion could give rise to a finding that section 92 was violated would be one year.

OTHER IMPORTANT NOTES FROM THE COURT OF APPEAL`S DECISION

Environmental Effects Are Not a Consideration Under Section 96

The Tribunal found that the merger would have had certain environmental benefits, particularly that it was likely to result in there being less hazardous waste deposited in secure landfills than there would have been "but for" the merger. It considered such environmental benefits to be efficiencies weighing on the side of saving the transaction in the offsetting under section 96. However, the Court of Appeal very clearly held that, other than a quantifiable economic benefit associated with an environmental benefit, positive or negative environmental effects from a merger are not valid considerations in an analysis of efficiencies versus likely anti-competitive effects.

PROOF OF "DEADWEIGHT LOSS"

The Court of Appeal rebuked the Tribunal for not requiring the Commissioner to adduce quantifiable evidence of the "deadweight loss" it claimed resulted from Tervita's monopoly and which would be protected by the prevention of the Babkirk Site's entry. In future cases, the Commissioner will be required to affirmatively prove any claimed "deadweight loss" resulting from any merger – it will not be able to simply assert its existence as a matter of fact based on the existence of market power.

PROOF OF QUANTITATIVE EFFECTS

Contrary to the Tribunal's finding, the Court of Appeal made clear that where clear quantitative proof of gains in efficiency are adduced by a party to a merger, claims of quantitative anti-competitive effects by the Commissioner, absent actual quantification thereof, will not be sufficient to overcome the proof of efficiency gains in the offsetting under section 96. However, the Court of Appeal also held that marginal or insignificant efficiency gains, such as the very limited administrative savings proven by Tervita, will not qualify as clear quantitative proof of gains in efficiency. This means that had clear efficiency gains likely to result from the merger been proven by Tervita, the Commissioner's failure to quantify the "deadweight loss" from the merger would likely have resulted in the Court of Appeal dismissing the Commissioner's application.

CLARIFICATION THAT GEOGRAPHIC MARKETS MUST BE PROVEN

On February 15, 2013 on a motion to strike the Application commenced in December 2012 was brought by Reliance Comfort Limited Partnership in The Commissioner of Competition v Reliance. The Commissioner took the position that the Tribunal's Tervita decision supported the principle that in anti-trust cases, the Commissioner is not required to delineate an exact boundary for relevant geographic markets. This was based predominantly on two sentences in the Tribunal's Tervita decision that "it is the Tribunal's view that, in this case, the Tribunal may evaluate the competitive effects of the Merger without precisely defining the relevant geographic market. This conclusion is important because...the evidence that has been adduced does not permit the Tribunal to delineate the exact boundaries of the geographic market."

However, quoting other text from the Tribunal's decision in Tervita, the Court of Appeal made clear that what the Tribunal meant was that, once clear minimum geographic boundaries of the relevant market had been determined, in this case because Tervita would have remained the sole potential supplier of secure hazardous waste landfills for any reasonably defined group of customers beyond those boundaries, it was not necessary to precisely define the geographic market beyond that which was already defined. It is thereby evident that, contrary to the Commissioner's position in Reliance, clear boundaries of a geographic market must still be established in anti-trust cases.

CONCLUSION

The decisions of both the Tribunal and the Court of Appeal in this case make clear that parties contemplating mergers and/or acquisitions must note that the competitive effects of a merger in going forward will be considered when the Bureau decides to review a transaction.

Furthermore, the case's origins demonstrate the important of seeking advanced guidance, such as an Advance Ruling Certificate, before closing any potentially controversial transaction. Otherwise, the parties risk being drawn into costly litigation before the Tribunal, and costly divestiture proceedings. Tervita demonstrates that the Bureau is not reluctant to challenge small and geographically isolated mergers under the right circumstances.

About BLG

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Davies Ward Phillips & Vineberg
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Davies Ward Phillips & Vineberg
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions