On 22 January 2015, the Supreme Court of Canada (the “SCC”) released its much anticipated decision in Tervita Corporation, et al v Commissioner of Competition (“Tervita”). The SCC granted Tervita’s appeal and overturned decisions of the Canadian Competition Tribunal (“Tribunal”) and the Federal Court of Appeal (“FCA”), which had concluded that the likely anti-competitive effects of Tervita’s acquisition of a potential competitor – a merger that fell below thresholds for mandatory notification and pre-closing review – would not be outweighed by any gains in efficiency and ordered a post-closing divestiture. This is the first SCC decision relating to the mergers provisions of the Canadian Competition Act (“Act”) in almost 20 years, and the first in which the SCC has considered the appropriate framework for assessing “prevention” of competition as a result of a merger. Importantly, the SCC outlined a two-step balancing test for efficiencies analysis, with a view to applying what it calls a “flexible but objectively reasonable approach” that considers and weighs both quantitative and qualitative aspects of efficiencies. Under the Act, the Tribunal may make a remedial order where it finds that any merger “prevents or lessens, or is likely to prevent or lessen, competition substantially”. In Tervita, the Commissioner of Competition (“Commissioner”) had challenged Tervita’s acquisition of a company that held a permit to build a competing oil and gas hazardous waste disposal site, on the basis that it was likely to prevent competition in secure landfill services in Northeastern British Columbia. The SCC agreed and confirmed the reasoning of the FCA, which had applied a forward-looking “but for” analysis that considered whether, but for the merger, a firm (here, the acquired party) would likely have entered the relevant market as a competitor. However, the Act provides an exception for gains in efficiency which, if established, prevents the Tribunal from issuing an order. To qualify for the exception, the parties to a merger must establish that the merger has or is likely to bring about gains in efficiency; that these gains will be greater than, and will offset, the effects of any prevention or lessening of competition resulting from the merger; and that such gains would not likely be attained if an order were made. The SCC in Tervita set out the following guidelines to clarify the role of both quantitative and qualitative evidence in efficiencies analysis, emphasizing both flexibility and objectivity in applying this balancing approach:

  • When challenging a merger, the Commissioner has the burden of quantifying all quantifiable anti‑competitive effects, even as estimates, which must be grounded in evidence.
  • Effects will only be assessed qualitatively if they cannot be quantitatively estimated.
  • The first step is to compare the quantitative efficiencies and anti-competitive effects of the merger; where the latter outweigh the former, in most cases the defence will not apply.
  • The second step is to compare the qualitative efficiencies and anti-competitive effects of the merger. A final determination must then be made as to whether the total efficiencies offset the total anti‑competitive effects of the merger at issue.
  • It is not necessary that efficiency gains be “more than marginal” for the defence to apply. Proven efficiency gains of any magnitude can outweigh the anti-competitive effects.

In Tervita, the SCC concluded that the burden to prove the anti‑competitive effects of the merger, specifically with respect to the possible range of deadweight loss resulting from the merger, was not met, and the weight given to the quantifiable effects should therefore be zero. Moreover, there were no proven qualitative effects. On the other hand, the SCC concluded that Tervita established overhead efficiency gains resulting from the acquired party’s access to Tervita’s administrative and operating functions. These proven gains met the requirement that efficiencies be “greater than and offset” anti-competitive effects in order to establish the efficiencies defence. The full text of the SCC decision is available at the following link: http://scc-csc.lexum.com/scc-csc/scc-csc/en/item/14603/index.do.

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