On January 22, 2015, the Supreme Court of Canada (SCC) issued a
groundbreaking decision in the area of merger efficiencies in Tervita Corp. v. Canada (Commissioner of
Competition), allowing the appeal of Tervita Corporation
(Tervita) and overturning the holdings of the Federal Court of
Appeal (FCA) and the Competition Tribunal (Tribunal). In its
decision, the SCC agreed with the Commissioner of Competition
(Commissioner) that the merger was likely to result in a prevention
of competition but found that the efficiencies generated by the
merger offset any proven anti-competitive effects.
This represents the first SCC decision relating to the mergers
provisions of the Canadian Competition Act (Act) in almost
20 years, and it will have significant implications for parties
seeking to rely on the efficiencies defence in section 96 of the
IMPORTANCE FOR MERGER PLANNING
Parties contemplating a transaction should note the
Merging parties need to consider whether the efficiencies
defence may apply to their proposed transaction in light of this
new paradigm, as more strategic mergers could be approved in the
The SCC decision places a clear onus on the Commissioner to
quantify anti-competitive effects
It will be critical to develop and provide quantitative and
qualitative evidence of the efficiency gains generated by the
merger and to consider whether the Commissioner is likely to be
able to adequately and properly quantify potential anti-competitive
In 2011, the Commissioner brought an application challenging the
completed acquisition by Tervita (formerly CCS Corporation) of
Complete Environmental Inc. (Complete) and its Babkirk hazardous
waste landfill site. The Tribunal found that the transaction had
prevented competition substantially because Complete or another
purchaser would likely have begun operating Babkirk as a secure
landfill site in competition with Tervita if the transaction had
not occurred. Moreover, the Tribunal rejected the efficiency
defence put forward by Tervita on the basis that the efficiency
gains were not likely to offset the anti-competitive effects of the
transaction. On appeal, the FCA upheld the Tribunal's
determination that the transaction would likely prevent competition
substantially and rejected the efficiency defence on the grounds
that any efficiency gains were marginal and insignificant. Tervita
appealed this decision to the SCC.
PREVENTION OF COMPETITION
The SCC clarified that in assessing whether a potential
competitor would have likely entered the market "but for"
the transaction, the time-frame for assessing entry must be
discernible and there must be evidence of when the entrant is
realistically expected to enter the market in the absence of the
merger. Moreover, the further into the future that the Tribunal
must look, the more difficult it will be to show that a prevention
of competition is "likely." In this case, the SCC agreed
that there was abundant evidence for the Tribunal to find that the
transaction resulted in a likely prevention of competition.
Section 96 of the Act provides a defence to mergers that are
otherwise likely to lessen or prevent competition where the
efficiencies from the merger are likely to be greater than and
offset the merger's anti-competitive effects. In its decision,
Clarified that the Commissioner bears the burden of proving all
quantifiable anti-competitive effects of a merger, and any effects
that are realistically measurable cannot be considered on a
qualitative basis if no quantitative evidence is provided
Noted that there is no minimum threshold of efficiency gains
that must be found in order for the efficiency defence to
Drew a distinction between quantitative and qualitative
effects, and set out a two-step inquiry first comparing
quantitative factors and then comparing qualitative factors.
Because the Commissioner had failed to provide measurements of
the quantifiable anti-competitive effects, the SCC found that the
Commissioner had failed to meet her burden to prove the
quantifiable anti-competitive effects of the merger. Since no
quantitative or qualitative effects of the merger were proven, the
SCC found that the efficiency gains proven to result from the
merger were "greater than and offset" any
anti-competitive effects of the merger.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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