Tervita Corp. V. Canada (Commissioner Of Competition), 2015 SCC 3
This Supreme Court of Canada decision provides a measure of certainty to companies that intend to merge. It confirms the proper analytical framework for "prevention" merger reviews under the Competition Act, and the proper approach to the "efficiencies defence" exception.
Tervita Corp. operates two landfills for hazardous waste generated by oil and gas operations in northeastern B.C. In February 2010, Tervita acquired a company that held a permit for another landfill site. The transaction attracted the attention of the Commissioner of Competition, who initiated a merger review process, designed to identify mergers that will have anti-competitive effects. Ultimately, the Competition Tribunal ordered that Tervita divest itself of the acquired company, holding that the merger was likely to prevent competition and that Tervita did not bring itself within the "efficiencies" exception.
A majority of the Supreme Court of Canada set aside the divestiture order. In doing so, the Court held that a two-stage, forwarding-looking "but for" market condition analysis should be used to determine if a merger prevents or lessens, or is likely to prevent or lessen, competition substantially. The first step is to identify the potential competitor (typically one of the merged parties). It then must be determined if "but for" the merger, the potential competitor would have likely entered the market and decreased the market power of the acquiring firm. The timeframe for likely entry must be discernable and based on evidence of when the potential competitor was realistically expected to enter the market in absence of the merger. The Court emphasized that, in performing this analysis, speculation is improper and mere possibilities are insufficient.
The Court also confirmed that the proper approach to the "efficiencies defence" is a balancing test, requiring analysis of whether the quantitative and qualitative efficiency gains of the merger outweigh the anticompetitive effects. The Tribunal has flexibility to choose an appropriate methodology, but the approach should be objectively reasonable, quantifying all effects that are realistically measurable and ensuring that the estimates provided are grounded in the evidence.
For more on this decision and it potential impacts, see McCarthy Tétrault LLP's Canadian Appeals Monitor blog post entitled "SCC Undoes the Competition Tribunal and FCA Decisions in Tervita."
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