Tervita Corp. v. Canada (Commissioner of Competition)

Tervita Corp. v. Canada (Commissioner of Competition)
Collection
Supreme Court Judgments
Date
2015-01-22
Neutral citation
2015 SCC 3
Report
[2015] 1 SCR 161
Case number
35314
Judges
McLachlin, Beverley; Abella, Rosalie Silberman; Rothstein, Marshall; Cromwell, Thomas Albert; Moldaver, Michael J.; Karakatsanis, Andromache; Wagner, Richard
On appeal from
Federal Court of Appeal
Subjects
Administrative law
Notes
SCC Case Information: 35314
Decision Content
SUPREME COURT OF CANADA
Citation: Tervita Corp. v. Canada (Commissioner of Competition), 2015 SCC 3, [2015] 1 S.C.R. 161
Date: 20150122
Docket: 35314
Between:
Tervita Corporation,
Complete Environmental Inc. and
Babkirk Land Services Inc.
Appellants
and
Commissioner of Competition
Respondent
Coram: McLachlin C.J. and Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner JJ.
Reasons for Judgment:
(paras. 1 to 168)
Partially Concurring Reasons:
(paras. 169 to 180)
Dissenting Reasons:
(paras. 181 to 200)
Rothstein J. (McLachlin C.J. and Cromwell, Moldaver and Wagner JJ. concurring)
Abella J.
Karakatsanis J.
tervita v. canada (commissioner of competition), 2015 SCC 3, [2015] 1 S.C.R. 161
Tervita Corporation,
Complete Environmental Inc. and
Babkirk Land Services Inc. Appellants
v.
Commissioner of Competition Respondent
Indexed as: Tervita Corp. v. Canada (Commissioner of Competition)
2015 SCC 3
File No.: 35314.
2014: March 27; 2015: January 22.
Present: McLachlin C.J. and Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner JJ.
on appeal from the federal court of appeal
Competition — Mergers — Review — Commissioner of Competition opposing merger on ground that merger likely to prevent competition substantially — Merged parties raising statutory efficiencies defence — Competition Tribunal rejecting defence and making divestiture order — Proper legal test for determining when merger gives rise to substantial prevention of competition under Competition Act — Proper approach to statutory efficiencies defence — Content of Commissioner’s burden for purposes of efficiencies defence — Whether merger likely to prevent competition substantially — Whether gains in efficiency resulting from merger greater than and offset anti-competitive effects of merger — Competition Act, R.S.C. 1985, c. C-34, ss. 92 , 96 .
Administrative law — Appeals — Standard of review — Competition Tribunal — Standard of review applicable to tribunal’s determinations of questions of law arising under Competition Act, R.S.C. 1985, c. C-34 — Whether statutory language in appeal provision rebuts presumption that standard of reasonableness applies to tribunal’s interpretation of own statute — Competition Tribunal Act, R.S.C. 1985, c. 19 (2nd Supp .), s. 13(1) .
Four permits for the operation of secure landfills for the disposal of hazardous waste generated by oil and gas operations have been issued in Northeastern British Columbia. T holds two permits and operates two landfills pursuant to them. A third permit is held by an Aboriginal community but the landfill has not yet been constructed. The fourth permit is held by B, a wholly owned subsidiary of C. When T acquired C, the Commissioner of Competition (the “Commissioner”) opposed the transaction on the ground that it was likely to substantially prevent competition in secure landfill services in Northeastern British Columbia. The Commissioner asked the Competition Tribunal (the “Tribunal”) to order, pursuant to s. 92 of the Competition Act, R.S.C. 1985, c. C-34 (the “Act ”), that the transaction be dissolved, or in the alternative, that T divest itself of B or C.
Pursuant to s. 92 of the Act , the Tribunal found that the merger was likely to prevent competition substantially in the relevant market. It further found that the efficiencies gained by the merger were not greater than and would not offset the anti-competitive effects of the merger, such that T had failed to bring itself within the efficiencies exception contained in s. 96 of the Act . The Tribunal ordered T to divest itself of B. The Federal Court of Appeal upheld the Tribunal’s conclusion that the merger would likely substantially prevent competition. With respect to the s. 96 efficiencies defence, the court held that the Tribunal erred in a number of respects. However, in its fresh assessment of the matter, the court concluded that the merger only provided marginal gains in efficiency which were not significant enough to approve a merger under s. 96 . As a result, the court dismissed the appeal.
Held (Karakatsanis J. dissenting): The appeal should be allowed, the divestiture order set aside and the s. 92 application dismissed.
Per McLachlin C.J. and Rothstein, Cromwell, Moldaver and Wagner JJ.: While a standard of reasonableness presumptively applies in this case because the questions at issue are questions of law arising under the Tribunal’s home statute, that presumption is rebutted. The appeal provision in the Competition Tribunal Act, R.S.C. 1985, c. 19 (2nd Supp .), evidences a clear Parliamentary intention that decisions of the Tribunal be reviewed on a less than deferential standard, supporting the view that questions of law should be reviewed for correctness and questions of fact and mixed law and fact for reasonableness.
The concern under the “prevention” branch of s. 92 of the Act is that a firm with market power will use a merger to prevent competition that could otherwise arise in a contestable market. To determine whether a merger gives rise to a substantial prevention of competition under s. 92(1) , the Tribunal must look to the “but for” market condition to assess the competitive landscape that would likely exist if there was no merger. First, it is necessary to identify the firm or firms the merger would prevent from independently entering the market. Typically, the potential competitor will be one of the merged parties: the acquired firm or the acquiring firm. The potential entry of the acquired firm will be the focus of the analysis when, but for the merger, it would likely have entered the relevant market. The potential entry of the acquiring firm will be the focus of the analysis when, but for the merger, the acquiring firm would have entered the relevant market independently or through the acquisition and expansion of a smaller firm.
Second, it is necessary to examine the “but for” market condition to see if, absent the merger, the potential competitor would have likely entered the market and if so whether the effect of that competitor’s entry on the market would likely be substantial. If the independent entry has no effect on the market power of the acquiring firm then the merger cannot be said to prevent competition substantially. At this stage of the analysis, any factor that could influence entry upon which evidence has been adduced should be considered, such as the plans and assets of that merging party, current and expected market conditions, and other factors listed in s. 93 of the Act . The timeframe for entry must be discernible. In other words, there must be evidence of when the merging party is realistically expected to enter the market in absence of the merger. That evidence must be sufficient to meet the “likely” test on a balance of probabilities, keeping in mind that the further into the future the Tribunal looks, the more difficult it will be to meet the test. The inherent time delay that a new entrant, facing certain barriers and acting diligently to overcome them, could be expected to experience when trying to enter the market is an important consideration, but should not support an effort to look farther into the future than the evidence supports. As for whether a potential competitor’s entry into the market will have a substantial effect, it is necessary to assess a variety of dimensions of competition including price and output, as well as the degree and duration of any effect it would have on the market. Section 93 of the Act provides a non-exhaustive list of factors that may be considered.
In the present case, the Tribunal’s conclusion that the merger is likely to substantially prevent competition is correct. It used a forward-looking “but for” analysis, identified the acquired party as the focus of the analysis, and assessed whether, but for the merger, the acquired party would likely have entered the relevant market in a manner sufficient to compete with T. The Tribunal did not speculate; rather, it made findings of fact based on the abundant evidence before it. While the Tribunal’s treatment of the asserted 10 percent reduction in prices that would allegedly have been realized in absence of the merger was flawed, there was sufficient other evidence upon which it could find a substantial prevention of competition as a result of the merger.
As s. 92 of the Act is engaged, it is necessary to determine whether the s. 96 efficiencies defence applies to prevent the making of an order under s. 92 . The defence requires an analysis of whether the efficiency gains of the merger, which result from the integration of resources, outweigh the anti-competitive effects, which result from the decrease in or absence of competition in the relevant geographic and product market. The Commissioner has the burden of proving the anti-competitive effects, and the merging parties bear the onus of proving the remaining elements of the defence. There are different possible methodologies for the comparative exercise under s. 96, two of which have been the subject of judicial consideration in Canada: the “total surplus standard” which involves quantifying the deadweight loss which will result from a merger, and the “balancing weights standard” under which the Tribunal weighs the effects of the merger on consumers against the effects of the merger on the shareholders of the merged entity. Because the Act does not set out which methodology should be used, the Tribunal has the flexibility to make the ultimate choice of methodology in view of the particular circumstances of each merger.
While s. 96 does give primacy to economic efficiency, it is not without limitation. Not all economic efficiencies should be taken into account under s. 96. A distinction should be drawn between efficiencies claimed because a merging party would be able to bring those efficiencies into being faster than would be the case but for the merger (“early-mover efficiencies”), and efficiencies that a merging party could realize sooner than a competitor only because the competitor would be delayed in implementing those efficiencies because of legal proceedings associated with a divestiture order (“order implementation efficiencies”). Efficiencies that are the result of the regulatory process of the Act are not cognizable under s. 96 , because they result from the operation and application of the legal framework regulating competition law in Canada, rather than from the merger itself. On the other hand, early-mover efficiencies are cognizable under s. 96 , because they are real economic efficiencies that are caused by the merger. In this case, however, the classification of the one-year transportation and market efficiency gains claimed by T as either early-mover efficiencies or order implementation efficiencies would not be dispositive because the efficiencies were not ultimately realized by T.
In its consideration of the efficiencies defence, the Tribunal should consider all available quantitative and qualitative evidence. It is the Commissioner’s burden to quantify all quantifiable anti-competitive effects. Effects that can be quantified should be quantified, even as estimates, provided such estimates are grounded in evidence that can be challenged and weighed. If effects are realistically measurable, failure to at least estimate the quantification of those effects will not result in the effects being assessed on a qualitative basis. Effects will only be considered qualitatively if they cannot be quantitatively estimated. This approach minimizes the degree of subjective judgment necessary in the analysis and enables the Tribunal to make the most objective assessment possible in the circumstances.
Here, the Commissioner did not quantify quantifiable anti-competitive effects and therefore failed to meet her burden under s. 96. Specifically, there is no price elasticity information which means that the possible range of deadweight loss resulting from the merger is unknown. To permit the Tribunal to consider the price decrease evidence without the rest of the information necessary to quantify deadweight loss admits far too much subjectivity into the analysis, with no guarantee that the Tribunal will have enough information to ensure that a subjective assessment would align with what would actually be observed if the effect were properly quantified. As a result, those quantifiable anti-competitive effects should be assigned zero weight. In setting the weight of these effects at undetermined, the Federal Court of Appeal allowed for subjective judgment to overtake the analysis. Its “undetermined” approach also raises concerns of fairness to the merging parties, in that it places them in the impossible position of having to demonstrate that the efficiency gains exceed and offset an amount that is undetermined. Under this approach, requiring the merging parties to prove the remaining elements of the defence on a balance of probabilities becomes an unfair exercise as they do not know the case they have to meet.
The balancing test under s. 96 mandates a flexible but objectively reasonable approach by which the Tribunal must determine both quantitative and qualitative aspects of the merger, and then weigh and balance those aspects. The test may be framed as a two-step inquiry. First, the quantitative efficiencies of the merger should be compared against the quantitative anti-competitive effects. Where the quantitative anti-competitive effects outweigh the quantitative efficiencies, this step will in most cases be dispositive, and the defence will not apply. Under the second step, the qualitative efficiencies should be balanced against the qualitative anti-competitive effects, and a final determination must be made as to whether the total efficiencies offset the total anti-competitive effects of the merger at issue. However, despite the flexibility the Tribunal has in applying this balancing approach, more than marginal efficiency gains should not be required for the defence to apply. The words of the Act do not provide a basis for requiring this kind of threshold. Nor does the statutory context of s. 96(1) indicate that it should be read to include a threshold significance requirement. As a result, the Federal Court of Appeal erred in holding that an anti-competitive merger cannot be approved under s. 96 if only marginal or insignificant gains in efficiency result from that merger.
In this case, the Commissioner did not meet her burden to prove the anti-competitive effects, and as such, the weight given to the quantifiable effects is zero. There are no proven qualitative effects. T, however, established overhead efficiency gains resulting from B’s obtaining access to T’s administrative and operating functions. These proven gains meet the “greater than and offset” requirement, and the efficiencies defence has therefore been made out.
Per Abella J.: The applicable standard of review in this case is reasonableness, not correctness. Following the case of Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557, which introduced a new edifice for the review of specialized tribunals, the jurisprudence of this Court has developed into a presumption that, regardless of the presence or absence of either a right of appeal or a privative clause, when a tribunal is interpreting its home statute, reasonableness applies. While the statutory language granting the right of appeal in this case may be different from the language granting the right of appeal in other cases where this Court has applied a reasonableness standard, it is not sufficiently different to undermine the established principle of deference to tribunal expertise in the interpretation of the tribunal’s own statute. Using such language to trump the deference owed to tribunal expertise, elevates the factor of statutory language to a pre-eminent and determinative status we have long denied it. To apply correctness in this case represents a reversion to the pre-Pezim era, undermines the statutorily-recognized expertise of the Tribunal, and constitutes an inexplicable variation from the Court’s jurisprudence that is certain to engender the very “standard of review” confusion that inspired this Court to try to weave the strands together in the first place. Applying the reasonableness standard, the Tribunal’s interpretation of s. 96 of the Act was unreasonable.
Per Karakatsanis J. (dissenting): T was not entitled to the benefit of the s. 96 efficiencies defence. Efficiencies and effects should be quantified wherever reasonably possible in the s. 96 analysis, and the assessment of qualitative effects should be objectively reasonable, supported by evidence and clear reasoning. However, the need for “reasonable objectivity” does not justify a hierarchical approach to quantitative and qualitative aspects under the efficiencies defence; nor should qualitative effects be of lesser importance than quantitative effects. The statutory language of the Act does not distinguish between quantitative and qualitative efficiencies, and many of the wide-ranging purposes of the Act set out in s. 1.1 may not be quantifiable. Indeed, many important anti-competitive effects of a merger may be qualitative in nature, and in some cases, those qualitative effects may be determinative in the s. 96 analysis. The legislation mandates a purposive analysis, and the relative significance of qualitative and quantitative gains or effects can only be determined in the circumstances of each case. It is neither helpful nor necessary to predetermine their relative role and importance in the s. 96 defence.
The Federal Court of Appeal’s view that the s. 96 analysis is at heart about balancing overall efficiency gains against overall anti-competitive effects is an approach that provides an appropriate level of flexibility, given that efficiencies and anti-competitive effects will not always be easy to measure. The s. 96 framework enables the expert Tribunal to holistically assess the entirety of the evidence before it, rather than artificially bifurcating the analysis of qualitative and quantitative effects that may, in some cases, more helpfully be analyzed together.
Further, while the Commissioner bears the evidentiary burden to lead evidence of the anti-competitive effects of a merger, and bears the risk that the failure to fully quantify such effects where possible may render the evidence insufficient to counter the evidence of efficiency gains, the failure to quantify quantifiable anti-competitive effects does not invalidate the evidence that established there was a known anti-competitive effect of undetermined extent. Relevant evidence is generally admissible, and the failure to lead the best evidence available goes to weight, not admissibility. Neither the statutory language of the Act nor its purpose or context require that an anti-competitive effect of undetermined weight become irrelevant or inadmissible.
The Federal Court of Appeal was entitled to conclude that the Tribunal’s finding that prices would have been 10 percent lower in the relevant area in the absence of a merger amounted to evidence of a known anti-competitive effect of undetermined weight. The court was also in a position to accept that T’s pre-existing monopoly was likely to magnify the anti-competitive effects of the merger. Ultimately, the court was entitled to find that the proven efficiency gains were marginal to the point of being negligible and did not likely exceed the known (but undetermined) anti-competitive effects.
Cases Cited
By Rothstein J.
Distinguished: Smith v. Alliance Pipeline Ltd., 2011 SCC 7, [2011] 1 S.C.R. 160; Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557; McLean v. British Columbia (Securities Commission), 2013 SCC 67, [2013] 3 S.C.R. 895; referred to: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, [2011] 3 S.C.R. 654; Canada (Commissioner of Competition) v. Superior Propane Inc., 2001 FCA 104, [2001] 3 F.C. 185, rev’g 2000 Comp. Trib. 15, 7 C.P.R. (4th) 385, leave to appeal dismissed, [2001] 2 S.C.R. xiii; Air Canada v. Canada (Commissioner of Competition), 2002 FCA 121, [2002] 4 F.C. 598; Canada (Commissioner of Competition) v. Canada Pipe Co., 2006 FCA 233, [2007] 2 F.C.R. 3; Canada (Commissioner of Competition) v. Labatt Brewing Co., 2008 FCA 22, 64 C.P.R. (4th) 181; Canada (Commissioner of Competition) v. Canadian Waste Services Holdings Inc., 2001 Comp. Trib. 3, 11 C.P.R. (4th) 425, aff’d 2003 FCA 131, 24 C.P.R. (4th) 178, leave to appeal refused, [2004] 1 S.C.R. vii; Canada (Director of Investigation and Research) v. Hillsdown Holdings (Canada) Ltd. (1992), 41 C.P.R. (3d) 289; Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748; F.H. v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41; Canada (Director of Investigation and Research) v. Laidlaw Waste Systems Ltd. (1992), 40 C.P.R. (3d) 289; BOC International Ltd. v. Federal Trade Commission, 557 F.2d 24 (1977); Canada (Commissioner of Competition) v. Superior Propane Inc., 2002 Comp. Trib. 16, 18 C.P.R. (4th) 417, aff’d 2003 FCA 53, [2003] 3 F.C. 529.
By Abella J.
Applied: Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557; McLean v. British Columbia (Securities Commission), 2013 SCC 67, [2013] 3 S.C.R. 895; Smith v. Alliance Pipeline Ltd., 2011 SCC 7, [2011] 1 S.C.R. 160; referred to: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, [2011] 3 S.C.R. 654; Rogers Communications Inc. v. Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 35, [2012] 2 S.C.R. 283; Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12, [2009] 1 S.C.R. 339; Canada (Canadian Human Rights Commission) v. Canada (Attorney General), 2011 SCC 53, [2011] 3 S.C.R. 471; Canadian National Railway Co. v. Canada (Attorney General), 2014 SCC 40, [2014] 2 S.C.R. 135; Agraira v. Canada (Public Safety and Emergency Preparedness), 2013 SCC 36, [2013] 2 S.C.R. 559; Nor-Man Regional Health Authority Inc. v. Manitoba Association of Health Care Professionals, 2011 SCC 59, [2011] 3 S.C.R. 616; Celgene Corp. v. Canada (Attorney General), 2011 SCC 1, [2011] 1 S.C.R. 3; Nolan v. Kerry (Canada) Inc., 2009 SCC 39, [2009] 2 S.C.R. 678; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633.
By Karakatsanis J. (dissenting)
Canada (Commissioner of Competition) v. Superior Propane Inc., 2002 Comp. Trib. 16, 18 C.P.R. (4th) 417.
Statutes and Regulations Cited
Act to establish the Competition Tribunal and to amend the Combines Investigation Act and the Bank Act and other Acts in consequence thereof, Bill C-91, 1st Sess., 33rd Parl., 1985 (assented to June 17, 1986), S.C. 1986, c. 26.
Combines Investigation Act, R.S.C. 1970, c. C-23.
Competition Act, R.S.C. 1985, c. C-34, ss. 1.1 , 79(1) (c), 91 “merger”, 92, 93, 94 to 96.
Competition Tribunal Act, R.S.C. 1985, c. 19 (2nd Supp .), s. 13(1) .
National Energy Board Act, R.S.C. 1985, c. N-7, s. 101 .
Securities Act, R.S.B.C. 1996, c. 418, s. 167.
Securities Act, S.B.C. 1985, c. 83, s. 149(1).
Authors Cited
Campbell, A. Neil. Merger Law and Practice: The Regulation of Mergers Under the Competition Act. Scarborough, Ont.: Carswell, 1997.
Canada. Competition Bureau. Merger Enforcement Guidelines. Gatineau: The Bureau, 2011.
Canada. House of Commons. House of Commons Debates, vol. VIII, 1st Sess., 33rd Parl., April 7, 1986, p. 11962.
Canada. Minister of Consumer and Corporate Affairs. Competition Law Amendments: A Guide. Ottawa: Supply and Services Canada, 1985.
Facey, Brian A., and Cassandra Brown. Competition and Antitrust Laws in Canada: Mergers, Joint Ventures and Competitor Collaborations. Markham, Ont.: LexisNexis, 2013.
Facey, Brian A., and Dany H. Assaf. Competition and Antitrust Law: Canada and the United States, 4th ed. Markham, Ont.: LexisNexis, 2014.
Facey, Brian A., Gregory Hilton-Sullivan and Mark Graham. “The Reinvigoration of Canadian Antitrust Law — Canada’s New Approach to Merger Review” (2010), 6 C.L.I. 28.
Merriam-Webster’s Collegiate Dictionary, 11th ed. Springfield, Mass.: Merriam-Webster, 2003, “offset”.
Musgrove, James B., Janine MacNeil and Michael Osborne, eds. Fundamentals of Canadian Competition Law, 2nd ed. Toronto: Carswell, 2010.
Oxford English Dictionary, 2nd ed. Oxford: Clarendon Press, 1989, “offset”.
Stanbury, W. T., and G. B. Reschenthaler. “Reforming Canadian Competition Policy: Once More Unto the Breach” (1981), 5 Can. Bus. L.J. 381.
Trebilcock, Michael, et al. The Law and Economics of Canadian Competition Policy. Toronto: University of Toronto Press, 2002.
Waddams, S. M. The Law of Damages, 5th ed. Toronto: Canada Law Book, 2012.
Wakil, Omar. The 2014 Annotated Competition Act. Toronto: Carswell, 2013.
APPEAL from a judgment of the Federal Court of Appeal (Evans, Stratas and Mainville JJ.A.), 2013 FCA 28, [2014] 2 F.C.R. 352, 446 N.R. 261, 360 D.L.R. (4th) 717, [2013] F.C.J. No. 557 (QL), 2013 CarswellNat 1400 (WL Can.), affirming a decision of the Competition Tribunal, 2012 Comp. Trib. 14, [2012] C.C.T.D. No. 14 (QL), 2012 CarswellNat 4409 (WL Can.). Appeal allowed, Karakatsanis J. dissenting.
John B. Laskin, Linda M. Plumpton, Dany H. Assaf and Crawford G. Smith, for the appellants.
Christopher Rupar, John Tyhurst and Jonathan Hood, for the respondent.
The judgment of McLachlin C.J. and Rothstein, Cromwell, Moldaver and Wagner JJ. was delivered by
Rothstein J. —
Table of Contents
Paragraph
I. Overview....................................................................................................... ....................................................................................................... 3
II. Facts............................................................................................................ ts. 4
III. Statutory Provisions................................................................................... ns. 6
IV. Decisions Below............................................................................................ ............................................................................................ 6
A. Competition Tribunal, [2012] C.C.T.D. No. 14 (QL) 6
(1) Section 92.
(2) Section 96 . 9
B. Federal Court of Appeal, 2013 FCA 28, [2014] 2 F.C.R. 352. 11
(1) Section 92. 11
(2) Section 96 . 12
V. Issues............................................................................................................. ............................................................................................................. 14
VI. Analysis....................................................................................................... is. 15
A. Standard of Review.. 15
B. Merger Review Analysis Under Section 92 of the Act 17
(1) Merger Review: An Overview.. 17
(2) Determining Whether a Substantial Lessening or Prevention Will Likely Occur 20
(a) “But For” Analysis Should Be Used. 20
(b) The “But For” Analysis Under Section 92(1) Is Forward-Looking. 21
(c) Similarities and Differences Between the “Lessening” and “Prevention” Branches of Section 92. 22
C. The “Prevention” Branch of Section 92(1) 23
(1) The Law.. 24
(a) Identify the Potential Competitor. 25
(b) Examine the “But For” Market Condition. 26
(i) Likelihood of Entry by One of the Merging Parties. 27
(ii) Likely to Have a Substantial Effect on the Market 32
(2) Application to the Present Case. 32
D. The Efficiencies Defence. 34
(1) History of the Efficiencies Defence. 35
(2) Jurisprudential History of Section 96 . 37
(3) Methodological Approaches to Section 96 . 38
(4) Order Implementation Efficiencies Are Not Valid Efficiencies Under Section 96. 43
(5) The Balancing Test Under Section 96. 51
(a) The Commissioner’s Burden. 51
(i) The Content of the Commissioner’s Burden. 52
(ii) What Consequences Flow From a Failure to Meet the Burden?. 53
(b) The Approach to the Section 96 Balancing. 61
(i) The Requirement That the Efficiency Gains Be “Greater Than” and “Offset” the Anti-competitive Effects. 61
(ii) Pre-existing Monopoly. 69
(iii) Application to This Case. 70
(c) The Commissioner’s Alternative Argument 71
(d) Conclusion on the Balancing Under Section 96. 73
(6) Postscript 75
VII. Conclusion................................................................................................. on. 75
Appendix: Sections 1.1 , 79(1) , 92 , 93 and 96 of the Competition Act, R.S.C. 1985, c. C-34
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3
9
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168
I. Overview
[1] The appellant in this case, Tervita Corp., operates two hazardous waste secure landfills in British Columbia. In February 2010, Tervita Corp. acquired a company which held a permit for another secure landfill site. This transaction attracted the attention of the Commissioner of Competition, who initiated the merger review process under the Competition Act, R.S.C. 1985, c. C-34 (the “Act ”).
[2] The purpose of the Act is in part “to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy” (s. 1.1 ). It is within this context that merger reviews are conducted. This appeal provides this Court the opportunity to address two issues in merger review: the “prevention” branch of s. 92 and the s. 96 efficiencies defence.
II. Facts
[3] Four permits for the operation of secure landfills for the disposal of hazardous waste generated by oil and gas operations have been issued in Northeastern British Columbia. The appellant Tervita Corp. holds two of the permits and operates two hazardous waste landfills pursuant to them: the Silverberry (capacity for 6,000,000 tonnes of waste) and Northern Rockies (3,344,000 tonnes) landfills. A third permit was issued for the Peejay site, a site developed by an Aboriginal community, but the landfill has not yet been constructed.
[4] The fourth permit, Babkirk site, is held by the appellant Babkirk Land Services Inc. (“Babkirk”), a wholly owned subsidiary of the appellant Complete Environmental Inc. (“Complete”). The previous Babkirk owners operated a hazardous waste landfill on the site from 1998 to 2004. In 2009, they sold Babkirk to Complete, which is owned and controlled by five investors (the “Vendors”).
[5] The Vendors intended to begin operating the Babkirk site mainly as a bioremediation facility which would treat contaminated soil using micro-organisms, and to complement the bioremediation site with a secure landfill facility to store hazardous waste not amenable to bioremediation. In February 2010, the Vendors received a permit for this secure landfill with a capacity of 750,000 tonnes.
[6] Soon afterwards, a company called Integrated Resources Technologies Ltd. (“IRTL”) offered to purchase Complete. The Vendors then explored the possibility of selling to other third parties. Secure Energy Services (“SES”) showed some interest, but at a lower price. The Vendors decided to accept IRTL’s offer, but it was withdrawn in June 2010 due to lack of financing. In one last attempt to sell, the Vendors pursued various discussions with SES and Tervita Corp., then known as CCS Corp. (hereinafter “Tervita Corp.”). In July 2010, the Vendors reached an understanding with Tervita Corp. and a letter of intent was signed.
[7] The sale of the Vendors’ shares in Complete (including Babkirk and the Babkirk site) closed on January 7, 2011. However, prior to closing, the Commissioner of Competition informed the parties that she opposed the transaction on the ground that it was likely to substantially prevent competition in secure landfill services in Northeastern British Columbia. After closing, the Commissioner asked the Competition Tribunal to order, pursuant to s. 92 of the Competition Act , that the transaction be dissolved, or in the alternative, that Tervita Corp. divest itself of Complete or Babkirk.
[8] The three appellants in this appeal, Tervita Corp., Complete and Babkirk, are hereinafter referred to collectively as “Tervita”.
III. Statutory Provisions
[9] The relevant statutory provisions in this case are included in the Appendix. The statutory provisions most directly at issue in this appeal are ss. 92 , 93 and 96 of the Act .
IV. Decisions Below
A. Competition Tribunal, [2012] C.C.T.D. No. 14 (QL)
[10] Pursuant to s. 92 , the Tribunal found that the merger was likely to prevent competition substantially in the relevant market. The Tribunal further found that Tervita had not brought itself within the efficiencies exception contained in s. 96 that would have permitted the merger notwithstanding s. 92 . It found that the efficiencies gained by the merger were not greater than the effects of the likely prevention of competition resulting from the merger, and would not offset those effects. It ordered Tervita to divest itself of Babkirk.
(1) Section 92
[11] The Tribunal assessed whether “effective competition in the relevant market likely [would] have emerged ‘but for’ the [m]erger” (para. 129). The parties “essentially agreed” that the commencement of the timeframe for considering the “but for” market condition, i.e. a market condition where the merger did not occur, was the end of July 2010 (para. 131). This was the point in time a letter of intent between Tervita and the Vendors was signed. The Tribunal agreed that this timeframe commenced at the end of July 2010.
[12] As of the end of July 2010, the Tribunal saw only two realistic scenarios for the Babkirk site:
1. The Vendors would have sold to a waste company called [SES], which would have operated a Secure Landfill; or
2. The Vendors would have operated a bioremediation facility together with a half cell of Secure Landfill. [para. 132]
[13] The Tribunal found that, on a balance of probabilities, SES would not have made an acceptable offer for the Complete site at any time during the summer of 2010. Thus, according to the Tribunal, the Vendors would have moved forward with the second option: operate the Babkirk site as a bioremediation facility.
[14] Bioremediation is a “method of treating soil by using micro-organisms to reduce contamination” (para. 42). The Tribunal concluded that the Vendors would have had the bioremediation facility fully operational by October 2011, but that it would have been unprofitable. The Tribunal concluded that it was “unreasonable to suppose that [the Vendors] would have been prepared to operate unprofitably beyond the fall of 2012” (para. 206). Accordingly, the Tribunal found that the Vendors would have either begun operating the Babkirk site as a secure landfill themselves or would have sold the site to a purchaser who would have operated the site as a secure landfill. Either way, the Babkirk site full-service secure landfill would have been a “direct and substantial” competitor with Tervita no later than the spring of 2013 (para. 215).
[15] The Tribunal found that a likely effect of the merger would have been to allow Tervita to maintain its ability to exercise materially greater market power than it would in the absence of the merger. It found that in the absence of the merger, disposal fees, called “tipping fees” in the industry, would have been 10 percent lower in the “Contestable Area” (the relevant geographic market) (para. 229(iii)).
[16] The Tribunal concluded that the merger was likely to prevent competition substantially.
(2) Section 96
[17] The s. 96 efficiencies defence is an exception to the application of s. 92 . The defence prohibits the Tribunal from making an order precluding a merger when it finds that the merger is likely to bring about gains in efficiency that would be greater than and would offset the anti-competitive effects of the merger.
[18] The Tribunal found that the Commissioner had failed to meet her burden to demonstrate the extent of the quantifiable anti-competitive effects. The Commissioner’s expert had only estimated that a price decrease of 10 percent would be precluded by the merger but provided no estimate of the volume having regard to the elasticity of demand. The Tribunal found that this meant that Tervita could not take a position about whether the number it calculated as its total efficiencies was greater than the adverse effects of the merger (para. 246). However, the Tribunal concluded that, “in the unusual circumstances of this case”, Tervita was not prejudiced by the Commissioner’s failure to quantify the anti-competitive effects of the merger. Tervita was still able to effectively attack the Commissioner’s expert’s findings and assert the s. 96 defence (para. 246). The Tribunal accepted, on a balance of probabilities, the Commissioner’s expert’s estimate of a minimum annual deadweight loss (paras. 301-3).
[19] The Tribunal also accepted what it found to be qualitative anti-competitive effects — namely environmental effects related to price reduction on-site clean-up and “value propositions”, or offers Tervita would have made in a competitive environment to certain customers resulting in lower total cost for overall waste services used by such customers (paras. 306-7).
[20] The Tribunal rejected most of Tervita’s claimed efficiencies gains because they would likely be achieved even if the divestiture order were made (para. 265). The Tribunal also rejected the claimed “order implementation efficiencies” (“OIEs”) — those transportation and market expansion efficiencies resulting from delays associated with the implementation of a divestiture order. The Tribunal held that OIEs are not cognizable under s. 96 , because to give merging parties the benefit of these efficiencies would be contrary to the purposes of the Act (para. 270). The Tribunal did accept “overhead” efficiencies claimed by Tervita (para. 275).
[21] The Tribunal weighed the proven quantifiable efficiency gains against the quantifiable anti-competitive effects it accepted and found that the combined quantitative and qualitative efficiency gains were not likely to be “greater than” the combined quantitative and qualitative anti-competitive effects (paras. 313-14). The Tribunal further supported this conclusion on the basis that, in the absence of a s. 92 order, the merger would maintain a monopolistic structure in the relevant market, thus precluding “benefits of competition that will arise in ways that will defy prediction” (para. 317).
[22] In his concurring reasons, Chief Justice Crampton[1] held that for non-quantified effects, where there is not sufficient evidence to provide even a rough quantification of an effect that is ordinarily quantifiable, the Tribunal is still able to accord this factor some qualitative weight (para. 408).
B. Federal Court of Appeal, 2013 FCA 28, [2014] 2 F.C.R. 352
[23] Tervita appealed to the Federal Court of Appeal, challenging the divestiture order made by the Tribunal.
[24] The Federal Court of Appeal first determined that the Tribunal’s findings on questions of law should be reviewed on a standard of correctness, while its findings on questions of fact or of mixed law and fact should be reviewed on a standard of reasonableness (paras. 52-68).
(1) Section 92
[25] The Federal Court of Appeal confirmed the Tribunal’s approach that the analysis required under s. 92 of the Act is “necessarily forward-looking” (para. 87) and therefore the Trib