Background and Overview
On August 23, 2021, the Canadian Competition Tribunal ("Tribunal") released an important decision regarding the scope of the Competition Bureau's ("Bureau") ability to obtain interim injunctive relief to prevent merging parties from implementing a transaction. In the Secure1 decision, the Bureau sought an order under section 104 of the Competition Act2 preventing the parties, SECURE Energy Services Inc. and Tervita Corporation - who had closed their merger with the Bureau review ongoing - from integrating certain specific facilities formerly owned by Tervita and instead requiring those assets to be held separately and operated independently from Secure pending the outcome of the Bureau's challenge to the deal.
As described further below, despite certain "high-handed" conduct of the merging parties, the Tribunal held that the Bureau did not meet the legal test for interim injunctive relief based on the particular facts of the case.
Applying the Correct Test for Interim Relief
Chief Justice Crampton dealt at length with the correct legal test to be applied to the Bureau's request for interim relief under section 104 of the Act, which involved two differing standards:
- The "Classic" RJR-MacDonald Test: requiring the Tribunal to find that (i) there is a serious issue to be tried; (ii) the applicant would suffer irreparable harm if the application were refused; and (iii) the balance of convenience favours the applicant.3
- Strong Prima Facie Case: the "more stringent" common law test applicable to applications for mandatory relief, requiring that the Bureau demonstrate a "strong prima facie case," rather than simply a "serious issue to be tried".4 (Secure argued that as the merger had closed and steps had been taken to integrate the businesses, the relief sought by the Bureau would require various positive steps that are mandatory in nature.)
The merging parties' conduct influenced the Court's decision on this issue. Citing their "high-handed" behaviour, evidenced by their "racing ahead to close in the face of" a prior Bureau application for interim relief, Justice Crampton held that although the more stringent test "would ordinarily apply to situations where the Commissioner seeks relief under s. 104 that is largely mandatory in nature", based on the "very particular circumstances of this case" - that is, the parties' conduct - it "would not be in the interests of justice to permit Secure to benefit from the more stringent 'strong prima facie case' test."5
However, although the less stringent test for interim relief applied, this did not prevent the parties from nevertheless prevailing on the "balance of convenience" branch of the classic RJR test.
Lack of Bureau Evidence Tips the Balance of Convenience to the Merging Parties
The Tribunal found that where the Bureau is on notice that merging parties intend to rely on Canada's statutory efficiencies defence (section 96 of the Competition Act) and, as here, the merging parties have made some effort to quantify those efficiencies, the Bureau "must provide at least some 'rough' or initial sense of the irreparable harm he alleges would result" so that the Tribunal may assess the harm that would arise on each "side of the ledger".6 The Bureau's failure to do so here ultimately led the Tribunal to conclude that the third prong of the interim relief test, which assesses the "balance of convenience" to each party in granting interim relief, favoured the merging parties.
Justice Crampton rejected the Bureau's argument that Secure had not formally invoked the section 96 efficiencies defence as it had not yet filed its Response to the Bureau's underlying application challenging the merger. Instead, he found that the Bureau "has been on notice" that the parties would make efficiencies-based arguments since the submission of their original request for an Advance Ruling Certificate on March 12, 2021 and certainly since they provided a written submission and an expert economist report on this issue on June 3, 2021.7 The lesson here seems clear - where merging parties intend to rely, even in part, on the statutory efficiencies defence, making this clear to the Bureau early in the review process may pay dividends if interim relief is sought.
The decision raises various other interesting observations. Among others, the Tribunal concluded that in respect of a recently-completed merger "adverse interim price and non-price effects on customers can constitute irreparable harm", and that the Bureau had led sufficient evidence of such interim price and non-price effects.8
Moreover, the Tribunal rejected arguments from the merging parties' counsel that written "Integration Guidance" issued by the merged entity to its management team, stipulating that no price increases should occur in the immediate aftermath of the merger, would prevent any "irreparable harm" from arising. Colourfully, the Tribunal indicated that it "cannot rely on a merged entity to benevolently refrain from exercising any increased market power that results from a Merger."9 Justice Crampton also observed that most pricing in this industry occurred at negotiated discounts off the "list" or "gate" price, and hence an assertion that list prices would not be increased was not a meaningful protection to customers.
Process and Timing Implications for Future Transactions
The decision raises several important considerations for merging parties and the Bureau in future transactions.
- First, as noted above, the Tribunal considered important the parties' conduct in making the Bureau aware at an early stage of the review that efficiencies arguments would be made to help justify the transaction.
- Second, it appears that the parties emphasized to the Bureau on several occasions that "time is of the essence to close the Merger",10 and this may have mitigated the impact of the parties "high-handed" conduct in closing the transaction quickly after the suspensory period expired.
- Third, Justice Crampton explicitly noted that the Bureau
"could have ensured that [it] would obtain the benefit of
the less stringent 'serious issue to be tried' test by
filing the Section 104 Application sooner. As an alternative, he
could also have filed an application under section 100 to obtain
additional time to complete his inquiry and simultaneously prepare
an application under section 104. Among other things, this would
have given him time to prepare at least a rough estimate of a
plausible range of anti-competitive effects. Although the
Commissioner was still in ongoing discussions with the parties in
the week leading up to the filing of the Section 104 Application,
it would have been prudent for him to have better protected
his position before he ultimately filed that application
on June 29, 2021."11
- This may result in greater use of the Bureau's interim relief powers under section 100 of the Act, which allow the Commissioner to seek an order preventing merging parties from taking any steps to complete a merger where the Bureau requires more time to complete its review. Unlike the section 104 interim injunction sought in this case, a section 100 order can be sought before the Bureau has reached a final decision on whether to challenge a pending merger.
- Section 100 allows for up to two injunctive orders of 30 calendar days each, providing the Bureau with the potential to delay closing by up to 60 days while it continues its review of the merger.
- Fourth, Justice Crampton provided definitive views on the timelines for section 104 injunctive relief applications, holding that such matters "should be heard within approximately one week of their filing in circumstances where merging parties appear to be intending to close a merger transaction immediately upon the expiry of the 30 [day] waiting period set forth in paragraph 123(1)(b), or have not confirmed that they will wait until after the application is determined before doing so."12
Consequently, in transactions where the Bureau has serious concerns and the parties are unwilling to enter into a formal timing agreement, we expect that the Bureau may seek to "protect its position" by seeking 30 or 60 days of injunctive relief under section 100 of the Act in order to continue its review before the suspensory period expires, and then subsequently apply for section 104 relief within 7-10 days of the expiration of the section 100 order prohibiting the parties from taking steps to complete the merger.13 To the extent that the Bureau demonstrates its resolve by successfully pursuing such a strategy in one or more transactions, this may create an atmosphere in which merging parties are more open to entering into timing agreements with the Bureau in the future.
Decisions on whether to close transactions still under review following the expiration of the statutory waiting periods raise complex and multi-layered tactical questions for purchasers and for vendors. Our Competition/Antitrust & Foreign Investment Group has successfully handled several such complicated transactions. Please contact us for further information.
1 Canada (Commissioner of Competition) v Secure Energy Services Inc., 2021 Comp Trib 7 ("Secure")
2 R.S.C. 1985, c. C-34, as amended (the "Act"). Section 104 of the Act allows the Bureau to seek injunctive relief where it has already filed an application to challenge a transaction on the merits. A separate provision, section 100, allows the Bureau to seek an order delaying the parties from implementing a transaction for 30-60 days where the Bureau requires additional time to complete its review.
3 RJR-MacDonald Inc. v AG Canada,  1 SCR 311 at 334 ("RJR").
4 R v Canadian Broadcasting Corp, 2018 SCC 5 at para 15.
5 Secure, supra note 1 at paras 43 and 46.
6 Ibid., at paras 114 and 119.
7 Ibid., at para 42.
8 Ibid., at para 80ff.
9 Ibid., at para 103.
10 Ibid., at para 45.
11 Ibid., at para 44 (emphasis added).
12 Ibid., at para 56.
13 While the decision in Secure may foreshadow the Bureau's roadmap going forward, it will face some of the same challenges in a section 100 application as it faced in its section 104 application, namely that it will continue to have the onus of producing evidence to establish the high standard set by the Federal Court of Appeal in Labatt for obtaining an order under section 100 of the Act (The Commissioner of Competition v. Labatt Brewing Co. Ltd. et al., CT-2007-003).
To view the original article click here
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.