Canada: Canada´s New US-Style Merger Review Process May Increase Burdens For More Complicated Transactions

New Merger Review Process

On September 18, 2009, following a consultation and comment period, the Competition Bureau issued its final Merger Review Process Guidelines, which explain the Bureau's approach to administering Canada's new, two-stage merger review process. The publication of the final Guidelines sheds important light on the Bureau's approach to the new process - especially given the lack of meaningful debate within the Canadian competition bar or Parliament as to the desirability or scope of the changes, prior to them becoming law in March, 2009, as part of an omnibus budget stimulus package rushed through Parliament in response to the economic crisis.

In summary, the new Canadian merger review process mimics that in the U.S., with an initial thirty-day waiting period, which can be extended for another thirty days after the merging parties comply with a "supplementary information request," or SIR, if one is issued during the initial waiting period. Anyone familiar with U.S. merger review will, of course, also be aware of the complaints regarding the enormous time and expense of complying with such "second requests" - and the questions regarding the efficiency of what some see as disproportional document production requirements.

While the Bureau was quick to deny that it would mimic the U.S. approach in terms of either the scope of documentary production, or the number of such requests that are issued, the Guidelines - and recent experience1 - indicate that many features of U.S. procedure and practice have been adopted - creating a more burdensome process for merging parties in complex cases than they were used to under the old regime.2


The merger process amendments were first formally proposed in the Gover Report, issued to the Commissioner of Competition on June 19, 2008, but only publicly released for broad distribution on August 12, 2008. Following an unfavourable Federal Court decision calling the Commissioner to task for seeking, on an ex parte basis, overbroad and duplicative document production in the Labatt/Lakeport merger3, Mr. Gover had been given a mandate by the Minister of Industry to investigate the Bureau's use of its investigative powers under section 11. Gover's recommendation, based on a limited consultation, was to implement a U.S.-style "second request" merger regime - thus allowing the Bureau unilaterally to issue wide-ranging document production subpoenas, without any judicial oversight at all. This recommendation was somewhat surprising - its implication being that the appropriate legislative response to the Federal Court's concerns over abuse of the Commissioner's powers was to eliminate the possibility for oversight of the Commissioner by the Federal Court.

On June 26, 2008, the Competition Policy Review Panel (the "Wilson Panel") issued its final report, Compete to Win, and similarly recommended adoption of a U.S.-style merger regime, despite the facts that its terms of reference did not include consideration of the merger review process, and that none of the approximately 155 written submissions made prior to the submission deadline, including the Commissioner of Competition's submission, had advocated or even suggested the possibility of adopting a U.S.-style merger regime. Subsequent written submissions by the Commissioner and oral submissions by invited experts to meetings of the Wilson Panel did address the merits of a U.S.-style merger regime and, as noted above, it had been promoted in the Gover Report issued to the Commissioner prior to issuance of the Wilson Panel report - but the nature of the process leading to both of those reports ensured the proposal remained largely under wraps until included in a blue-ribbon panel report whose broad-ranging recommendations to improve Canada's competitiveness were quickly adopted by the government of the day.

Given the lack of public debate about the merits of the amendments, little was known about the Bureau's approach to issuance of and compliance with SIRs. Moreover, questions were raised about how the new procedure would interface with unique, and well-regarded, features of the Canadian regime, including the ability of the Bureau (exercised in the vast majority of cases, which do not raise competition issues) to clear a transaction well within the thirty-day waiting period on the basis of a request for an "advance ruling certificate" (ARC) or no-action letter, rather than on the basis of formal notification.

The Guidelines

In that regard, the Guidelines do confirm that the best features of current practice regarding non-problematic transactions will remain in place. They also indicate, in our view, a more formalistic approach to compliance with documentary production requests than had necessarily been the case with the old section 11 order process.

  • The Bureau's practice of reviewing "non-complex" transactions within a maximum two-week timeframe (after receipt of sufficient information regarding the likely competitive impact), and of issuing ARCs where appropriate, remains unchanged. Such an approach maintains the widely acknowledged efficiency with which the Bureau reviews transactions that do not raise potential competition issues.
  • The Guidelines discuss the class of transactions falling within the Bureau's "complex" designation, which the Bureau endeavours to review within a maximum ten-week, non-statutory period, a period that is obviously longer than the initial thirty-day statutory waiting period. The Guidelines state that for some "complex" transactions, the Bureau will be willing to refrain from issuing a SIR, allowing the waiting period to lapse on the understanding that the parties will not close the transaction for an agreed-upon period and will cooperate with the Bureau's information requests on a voluntary basis. It should be noted, however, that based on limited experience to date, a "very complex" transaction will likely be subject to a SIR, and the Bureau appears likely to ask for a timing agreement in place of a SIR for a "complex" transaction - in practice, the waiting period will be extended (voluntarily or otherwise) for "complex" and "very complex" transactions.
  • The Guidelines note that before issuing a SIR, the Bureau will generally engage in limited "pre-issuance dialogue" with the merging parties, including providing a draft SIR to the parties. In this manner, parties may be able to identify issues related to how certain information is requested or is to be provided. The Bureau is open to the possibility that pre-issuance dialogue may lead to a reduction in the potential burden of the SIR - provided such dialogue is concluded quickly (i.e., a few business days, at most).
  • The Guidelines explain that the Bureau will engage in post-issuance dialogue with the merging parties regarding the scope of the SIR, and set out certain post-issuance practices and procedures. Most notably, a custodian maximum limit of thirty individuals (not including records contained in central files) will generally apply, in all but exceptional cases, where the parties cooperate in providing the Bureau with detailed information about their personnel structures, including specific discussions about individual roles and responsibilities.4
  • The Guidelines contemplate that in some circumstances (such as where there are no competition issues unique to Canada) it may be possible to limit custodians to the same custodians agreed upon for purposes of a U.S. second request. In certain circumstances, the Bureau may accept records provided to foreign competition agencies as being responsive to the Canadian SIR.
  • The Bureau will generally limit document production to year-to-date records plus the previous two calendar years. The Bureau will generally limit data requests to year-to-date data plus the previous three calendar years. The Bureau will generally not require parties to resort to producing records contained on back-up media if the Bureau can obtain sufficient records through less onerous means. The Bureau recommends that parties provide it with access to members of technical staff to discuss archival systems.
  • The Bureau is open to entering into timing agreements (wherein the parties agree not to fully comply with the SIRs before a specified date or event), which can include provisions respecting when the parties and the Bureau expect to reach certain milestones in the review of the transaction.

The Guidelines contain several elements of potential concern:

  • The Guidelines contemplate that where records provided "appear to be substantially incomplete," the Bureau could revisit the issue of custodians, including designating additional custodians to be searched. As a practical matter, requiring additional searches once the parties have fully complied with the SIR would delay the commencement of the second thirty-day waiting period by several weeks and, as discussed below, calls into question the legal grounds upon which the Commissioner can challenge the sufficiency of SIR compliance once the affidavit is filed.
  • The Guidelines' approach to potential challenges to SIR compliance is especially troubling. The Guidelines state that the Bureau must receive each party's response to its respective SIR before it can properly assess whether any information remains outstanding, and that the Bureau reserves the right to request additional information if production is deemed to be insufficient, and will do so "as soon as reasonably possible." This approach appears to ignore, however, 116(3) of the Act. Subsection 116(3) permits the Commissioner seven days within which to notify a party that it is required to submit information excluded on the grounds of subsection 116(2) (lack of relevance to the Commissioner's inquiry), or (2.1) (information previously supplied) - seven days commencing when the party submits the affidavit (without regard to whether the other party has also complied). More importantly, there is no express provision for the Commissioner to second-guess a party's sworn claim under subsection 116(1) that information cannot reasonably be obtained, is subject to solicitor-client privilege, or would breach a confidentiality requirement established by law. Absent challenge under subsection 116(3) within seven days of the filing of a party's affidavit, the Commissioner arguably has no power unilaterally to require the production of additional information or to delay commencement of the second waiting period.5
  • The Guidelines set out internal appeal procedures should the parties seek to contest the scope of the SIR, or should the Bureau contest the completeness of the SIR response. Under these processes, a senior Bureau official (including, potentially, an official not involved in merger review) is charged with resolving disputes between another senior Bureau official and the parties. The effectiveness and fairness of such internal review mechanisms - as compared to the potential for court supervision under the old section 11 regime - remain unclear.


As of mid-September, 2009, after six months of experience with SIRs, senior Bureau officials revealed that SIRs had been issued in respect of five proposed transactions. The Guidelines claim that the SIR process allows the Bureau to obtain records and data "through a more efficient and less formal information-gathering process than that associated with obtaining orders under section 11 of the Act." Time will tell, but experience to date suggests that the information-gathering process has become more, not less, formal with the new procedures - at least from the point of view of the merging parties. Moreover, the Guidelines' approach to questioning the sufficiency of SIR compliance may well prove contentious.


1 Members of Stikeman Elliott LLP's Competition Group, including the authors, have been counsel to parties that have received SIRs from the Competition Bureau under the new regime.
2 The old system, with a choice between a short and a long-form notification, had finite waiting periods, which the Commissioner could not extend without obtaining an injunction from the Tribunal to delay closing - thus putting power to delay closing beyond the waiting periods in the hands of the Tribunal, not the Commissioner. It also featured a requirement for the Commissioner to obtain a court order, albeit available on an ex parte basis, if she required further documents and information beyond that contained in notifications or provided voluntarily by the parties. The new regime eliminates, for practical purposes, court and Tribunal oversight for at least a period of several months, while parties must comply with detailed "supplementary information requests" issued by the Commissioner, before being in a position to bring the waiting period to a close.
3 See Hofley and Pindera: "Substantial disclosure obligations for production orders: Federal Court rebukes Commissioner in Labatt/Lakeport merger" ( The Competitor, February 2008).
4 Of note, the Bureau also reserves the right to require additional custodians to be searched, depending on its view of the sufficiency of production it receives once both parties have complied. Moreover, given the time and expense of document review for each custodian (outside technology firms are typically engaged to assist with retrieval of years of archived e-mails and documents, and small armies of lawyers are required to review the documents for relevance and privilege), the proportionality of even thirty custodians compared to the probative value of additional documents received must surely be questionable, at best, in many cases.
5 In this regard, in the case of a disputed subsection 116(1) claim that information is "not reasonably obtainable," privileged or would breach a legal requirement of confidentiality, the Commissioner would appear to have to use the new section 123.1 of the Act, pursuant to which the Commissioner may seek a court order enjoining completion of a transaction in violation of the waiting period (or, among other things, imposing a $10,000-per-day fine in respect of closed transactions), and/or requiring a person to submit information required under subsection 114(2) of the Act (the SIR provision). Arguably, by operation of subsection 116(1), however, information that the affiant believes in good faith to be subject to the 116(1) exceptions is not required under subsection 114(2) of the Act. Time will no doubt tell how courts will view the interplay between these provisions, but the exclusion of subsection 116(1) from the ability of the Commissioner unilaterally to challenge SIR compliance, and the limitation of the Commissioner's ability to request additional information to seven days after filing of the affidavit, are surely significant.

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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