Canadian COMPETITION LAW

January 26, 2011

The Competition Bureau (the “Bureau”) has announced today that it has applied to the federal Competition Tribunal (the “Tribunal”) for a Tribunal order to dissolve (i.e., unwind) CCS Corporation’s acquisition of Complete Environmental Inc., owner of the proposed Babkirk Secure Landfill in Northeastern British Columbia (see: Competition Bureau Challenges BC Landfill Merger).

In making its announcement, the Bureau said:

“Following a thorough review, the Bureau concluded that CCS’s acquisition of the proposed Babkirk Secure Landfill will result in a substantial prevention of competition for the disposal of hazardous waste produced largely at oil and gas facilities in Northeastern British Columbia.

‘CCS’s purchase of the Babkirk Secure Landfill prevents competition substantially,’ said Melanie Aitken, Commissioner of Competition. “By purchasing, rather than face competing with the Babkirk Secure Landfill, CCS will prevent the entry of competition into the market for secure hazardous waste disposal in Northeastern British Columbia.”

The Babkirk Landfill is located 130 km north of Fort St. John, BC. Complete Environmental obtained regulatory approval to convert Babkirk into a secure landfill in February 2010. CCS currently operates the only two operational secure landfills in British Columbia. Had the Babkirk Secure Landfill opened, it would have been CCS’s competitor.”

While no decision has yet been made by the Tribunal, this is a landmark case for several reasons.

First, contested merger proceedings in Canada are rare, with the Bureau itself stating that this is the first merger challenge filed by the Bureau in six years.

The vast majority of mergers in Canada that raise issues are resolved by way of negotiated settlement (i.e., consent agreements for the divestiture of assets or the imposition of other remedies, such as “behavioural” remedies to modify the merged entity’s conduct post-merger).

Second, while the Bureau has jurisdiction to challenge completed mergers for up to one year post-completion (recently shortened from the previous three years as a result of the 2009 amendments to the Competition Act), to our knowledge this has never actually occurred.  This will certainly alter advice to merging party clients, which had often been that while the Bureau could challenge a completed merger, it never had.

Third, the Bureau is proceeding on the theory that the acquisition will prevent competition (a rarer basis of challenge under section 92 of the Competition Act, which allows the Tribunal to issue orders, including for the dissolution of a completed merger, where it either prevents or lessens competition substantially in one or more relevant markets).

Finally, the CCS Corporation / Complete Environmental Inc. transaction does not appear to have been notified.  While the transaction may not have met the pre-merger notification thresholds under the Competition Act, any transaction in Canada that meets the definition of “merger” under the Competition Act (which is very broad and includes, in addition to de jure control, acquisitions of control in fact, i.e., acquisitions of “significant interests”) may be challenged by the Bureau where it takes the position that it prevents or lessens competition substantially.

As such, merging parties and their counsel are well advised to review transactions in small markets (i.e., where a transaction may not be notifiable) where the market is consolidated, the parties have large market shares despite the transaction value being under the notification thresholds or where other factors may mean the transaction may be problematic (e.g., high barriers to entry, significant regulation, etc.).

This case is also another example of the Bureau’s recently more aggressive enforcement approach to its key enforcement areas (i.e., criminal conspiracies, abuse of dominance (monopolies), deceptive marketing and misleading advertising and mergers).

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