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
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.
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
- 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
- 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"
- 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
- 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
- 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
- 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
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.