On August 16, 2021, the Competition Tribunal (the “Tribunal”) dismissed the Commissioner of Competition’s (the “Commissioner”) request for interim relief in connection with the recently-completed merger of SECURE Energy Services Inc. (“Secure”) and Tervita Corporation (“Tevita”) (the “Transaction”). In summary, in its decision made public on August 23, 2021, the Tribunal found that the Commissioner had failed to provide clear and non-speculative evidence quantifying the harm likely to arise from the Transaction, as required by the “balance of convenience” aspect of the applicable test.
On March 9, 2021, Secure and Tervita announced a transaction to combine their respective midstream infrastructure and environmental solutions businesses.
On June 29, 2021, the Commissioner filed a Notice of Application pursuant to section 92 of the Competition Act (the “Act”) alleging that the Transaction would result in a substantial prevention or lessening of competition in various markets in British Columbia (the “Section 92 Application”).
At the same time he filed the Section 92 Application, the Commissioner also filed a Notice of Application for Interim Order pursuant to section 104 of Act for an order preventing the merging parties from proceeding with the Transaction until the Section 92 Application is finally disposed of (the “Section 104 Application”).
Finally, because the applicable waiting period had expired and the merging parties had advised the Commissioner that they intended to close the Transaction shortly after midnight on July 2, 2021, the Commissioner requested an interim order preventing the parties from closing the Transaction until the Section 104 Application was heard. As discussed in a prior blog post, the Commissioner’s application for what would have amounted to “interim interim” relief was denied by both the Tribunal and the Federal Court of Appeal on the basis that the Tribunal does not have the jurisdiction to issue such relief, with the result that the Transaction closed as planned.
The Section 104 Application was heard by the Tribunal on August 4, 2021. During this hearing, the Commissioner verbally amended the Section 104 Application to request an order requiring certain identified facilities formerly owned by Tervita to be “held separately and operated independently” from Secure. It is unclear from the public record why the Commissioner’s amended relief was limited to select facilities when the Section 92 Application sought a full block of the Transaction, which seems more consistent with a full hold separate of the acquired business.
Test for Section 104 Order
In exercising its discretion to issue an interim order under section 104 of the Act, the Tribunal is directed to consider “the principles ordinarily considered by superior courts when granting interlocutory or injunctive relief”. In this regard, the Tribunal has consistently applied the tripartite test for injunctive relief set out by the Supreme Court of Canada (the “SCC”) in RJR-MacDonald. Accordingly, the Tribunal may issue an interim order under this provision if the Commissioner proves the following on a balance of probabilities: (a) there is a serious issue to be tried; (b) irreparable harm would ensue if an interim order is not granted; and (c) the balance of convenience favours granting the interim order.
Competition Tribunal Decision
As acknowledged by the Tribunal, the Commissioner’s application raised “important issues with respect to each of the three parts of the tripartite test that have not previously been addressed” in the context of a fully contested proceeding. Several of these issues are summarized below.
(a) The Applicable Test
Because the Transaction had closed and certain steps had already been taken to integrate the parties’ businesses, Secure submitted that the tripartite test set out in RJR-MacDonald did not apply. Rather, Secure argued that the Tribunal should apply the more stringent test applicable to requests for mandatory or positive relief, which, consistent with the SCC’s decision in Canadian Broadcasting Corp., would require the Commissioner to demonstrate a “strong prima facie case” rather than a “serious issue to be tried”.
While the Tribunal agreed that this stricter test would ordinarily apply to situations where the Commissioner seeks relief under section 104 of the Act that is largely mandatory in nature, it did not consider it appropriate to do so “in the very particular circumstances of this case”.
(b) Serious Issue to be Tried
Consistent with prior jurisprudence, the Tribunal acknowledged that the threshold to determine whether there is a serious issue to be tried is a low one. In brief, the Tribunal must simply be satisfied that the issues raised are neither vexatious nor frivolous. Not surprisingly, the Tribunal quickly found that the Commissioner had met this standard, as the Section 104 Application raised issues with respect to, among other things, relevant market definition, the effectiveness of remaining competition and the application of the efficiencies defence.
(c) Irreparable Harm
The Commissioner’s submissions with respect to harm focused on the harm that is currently occurring (and would continue to occur) pending the determination of the Section 92 Application, and notably did not include evidence suggesting that, in the absence of injunctive relief, there would not be an effective remedy available to restore competition to the requisite level. In contrast, Secure argued that the interim effects on competition are not relevant as a matter of law in an application under section 104.
The Tribunal disagreed with Secure, finding that adverse interim price and non-price effects on customers can constitute irreparable harm for the purposes of an application under section 104 of the Act. The Tribunal noted that this finding is consistent with both its prior decision in Parkland (which stated that such harm was “irreparable” as, among other things, the Tribunal has no jurisdiction to award damages under the merger provisions of the Act) and the scheme of the Act (including the purpose clause and sections 92, 100, 104 and 123).
Secure also argued that, even if interim effects were to be included in the analysis, there would be no irreparable harm as Secure’s internal “Integration Guidance” to its management team stated that there were to be no price increases to customers. The Tribunal rejected this argument, stating that it “cannot rely on a merged entity to benevolently refrain from exercising any increased market power that results from a merger” as it is “the ability to exercise increased market power that must be addressed in applications under section 104 (and indeed 92)”.
Ultimately, the Tribunal found that the Commissioner had provided clear and non-speculative evidence from which it could be reasonably and logically inferred, on a balance of probabilities, that the alleged irreparable harm would occur. In reaching this conclusion, the Tribunal was mindful that the onus of demonstrating irreparable harm to the public interest is less for a public authority such as the Commissioner than it is for a private applicant.
(d) Balance of Convenience
This stage of the assessment requires the Tribunal to consider “which of the two parties will suffer the greater harm from the granting or refusal of an interlocutory injunction, pending a decision on the merits”. In this regard, while the Tribunal found that Secure had “provided clear and non-speculative evidence regarding the general extent of the harm that it will suffer if the relief requested by the Commissioner is granted”, the Commissioner failed to quantify the harm likely to arise from the Transaction. This ultimately proved to be fatal to Commissioner’s Section 104 Application.
Significantly, the Tribunal stated as follows:
… in a merger case where the respondent provides clear and non-speculative evidence of the extent of harm that it would suffer if the relief sought by the Commissioner is granted, the Commissioner must provide at least some “rough” or initial sense of the irreparable harm he alleges would result if that relief is not granted.
Moreover, the Tribunal stated that, particularly in the case where, as here, the Bureau has extensive information from previous cases upon which he can build, these “rough estimates” should be supported by: (i) the range of price effects that are likely to result from the merger; (ii) a range of plausible elasticities; (iii) a “ballpark” estimate of the deadweight loss; and (iv), where applicable, a basic sense of the extent to which non-price effects are likely to result from the merger. The Tribunal emphasized that this requirement “minimizes the degree of subjective judgment necessary in the analysis and enables the Tribunal to make the most objective assessment possible in the circumstances”. Where the Commissioner requires more time to prepare such rough estimates, the Tribunal noted that interim relief under section 100 of the Act may be available.
The Tribunal’s decision has a number of implications for merging parties going forward, including the following:
- Importance of Efficiencies: Efficiencies have an important role to play under both sections 96 and 104 of the Act. Parties to efficiency-motivated mergers would be well advised to consider and prioritize the assessment and quantification of efficiencies at an early stage if they anticipate a lengthy review by the Competition Bureau.
- Timing for Consideration of Efficiencies: As discussed in more detail in a prior blog post, the Competition Bureau’s Model Timing Agreement for Merger Reviews involving Efficiencies includes a relatively lengthy timeline for the Bureau to assess efficiencies claims. The Tribunal’s decision raises important questions regarding the utility of this timing agreement.
- Increased Reliance of Section 100: Given the need for the Commissioner to quantify harm at an earlier stage – including in the context of a section 104 application – the Commissioner’s historic reluctance to bring section 100 applications may change. Specifically, the Commissioner may opt to file an application under section 100, followed very shortly thereafter by applications under sections 92 and 104 of the Act.
- Less Reliance on Interim Relief: Alternatively, given the Commissioner’s heightened evidentiary burden for interim relief, the Commissioner may see fit to concentrate his efforts on the main section 92 application, relying on his jurisdiction to challenge a transaction up to one year post-closing.
Separately, although the Commissioner has previously acknowledged that “the efficiencies defence is a reality in Canadian competition law”, he has also suggested that it may be time to amend the Act to remove this uniquely Canadian defence. It is possible that the Commissioner will use this decision as further supporting his push for amendments to the Act.
If you have questions about the merger provisions in the Competition Act, you can reach out to any member of Fasken’s Competition, Marketing & Foreign Investment group. Our group has significant experience advising clients on all aspects of Canadian competition law.
The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Competition, Marketing & Foreign Investment group.