Market competition is crucial for an efficient economy in terms of resources allocation and production. In that respect, there are situations in which authorities have sought to intervene and try to stop anti competition practices. A good example was the application that was filed by the commissioner in January 2011 with the Competition Tribunal challenging a completed acquisition of Complete Environmental Inc by CCS Corporation`s currently known as Tervita. However, the SCC’s majority decision found out that, while the Tribunal and Federal Court of appeal where right in claiming that mergers would usually hinder competition, they wrongly applied the defense efficiencies. Thus, the Competition Commission had failed to quantify properly the mergers anti-competitive effects hence failing to stop the merger from creating a continued monopoly market.
An application was filed by the Commissioner in January 2011 with the Competition Tribunal (Tribunal) challenging acompleted acquisition of Complete Environmental Inc by CCS Corporation`s currently known as Tervita. While there was no mandatory requirement for notification under the Act for the $6.1 million transaction, there was advice to the Competition Bureau of the merger by the parties on a voluntary basis before closing the deal. However, the commission challenged I but SCC’s majority decision found out that, while the Tribunal and Federal Court of appeal where right when they claimed that mergers would usually hinder competition, they wrongly applied the defense efficiencies. The Competition Commission had failed to quantify properly the mergers anti-competitive effects (OSLER, 2015).
Description of relevant market
The market within which the merger took place was a monopoly. That is market structure characterized by a single seller of products that are unique and without any close substitutes. It is one of the four major market structures with the others being oligopoly, monopolistic competition, and perfect competition. The Monopoly has no competition as it sells unique products that have no close substitutes and yet it is a single seller. The market demand is the output produced by the Monopoly firm with complete control of the whole market. The market control inefficiency that always results makes it a key market failure can be demonstrated by the following graph.
In northeast British Columbia, the only two hazardous waste landfills are owned by Tervita. As a result of a transaction in which it acquired full interest on Babkirk Land Services Inc., which had a permit to create a new secure landfill in the northeast British Columbia the company eliminated possible competition. During the period of the proposed merger, the business plan of Babkirk was not to operate a waste landfill but to operate a bioremediation facility on the site. However, the application of the Commissioner claimed that in the absence of a merger, Babkirk would have probably entered the market served by Tervita, and that in northeast British Columbia, the oil, gas and merger companies would have enjoyed the benefits of competition. (OSLER, 2015).
Challenge brought by the Competition Bureau
An application was filed by the Commissioner in January 2011 with the Competition Tribunal challenging the completed acquisition of Complete Environmental Inc (Complete) by CCS Corporation`s . While there was no mandatory notification under the Act for the $6.1 million transaction, there was advice to the Competition Bureau of the merger by the parties on a voluntary basis before closing but the commission argued on the company’s ac Compete ion of preventing competition in the market. (McMillan, 2015)
The decisions at the three levels regarding pre-merger notification thresholds as well as prevention of competition vs. lessening of competition as a basis for challenge
In response, Tervita denied the allegations and brought into play the efficiencies defense that is a Canadian competition law uniquely features. In short, the Act in section 96 provides that an order shall be barred by the Tribunal under the Act in respect of a merger whose focus is to lower or hinder competition if t he Tribunal realizes that the probable results or the results offsets the anti-competition effect on the merger. The Commissioner and the Tribunal agreed and realized that competition was likely to be substantially prevented as per the section 92 of the Act in the relevant market (TORRYS, 2015). A look past the Babkirk`s business by the Tribunal showed that its intention was not to compete with Tervita but to operate a bioremediation site, and made a conclusion that the bioremediation business would have not have succeeded due to the fact that Tervita would have operated the site in competition with Tervita as a landfill, or would have sold it out to a third party who would have done the same. The efficiency defense in section 96 of the Act was determined by the Tribunal to have no saved the merger due to the fact that the anti-competitive effects would not be offset by the merger. Despite the fact that the Commissioner did not give detailed evidence quantifying the probability of the anti-competition impact on the merger, this finding was made. The tribunal decision was appealed by Tervita to the federal Court of Appeal. (OSLER, 2015).
However, the Tribunal conclusion was upheld by the FCA that merger would probably prevent competition. It was determined by FCA that there must be a discernible and clear timeframe for entry to the market and that the load of proving that the target was a poised entrant whose acquisition would hinder competition rested only with the commissioner. The FCA, however, validated the approach of Tribunal of looking beyond the plan that is stated by the parties in order to assess how the same market would have unfolded and developed in the absence of the merger. (McMillan, 2015)
A disagreement by the FCA to the Tribunal on the test to be used for weighing and assessing qualitative and quantitative efficiencies and anti-competition impact on a merger and carried out a new analysis. Despite the fact that FCA was unable to weigh objectively the efficiency gain that is quantifiable against the effects of anti-competition because such anti-competitive effects had not been quantified by the Commissioner. It was nonetheless found that efficiencies gains resulting from mergers could not have been considered reasonably to outweigh its effects on anti-competition as they were marginal to the standard of being negligible. Therefore, the appeal was dismissed by the FCA and upheld the order of Tribunal divestiture (SCC, 2015).
While addressing the significance of efficiencies defense, clause of the Act in section 1.1 was drawn by SCC on purpose which says that in order to encourage and maintain competition in Canada and promote adaptability and efficiency of the Canadian economy, it was noted by SCC that in context of a small Canadian economy, where international trade is necessary, efficiency defense is recognized in the parliament and sometimes consolidation is better than competition.
With the Tribunal and FCA consistent analysis, it was indicated by SCC that efficiency defense needs an analysis on if merger efficiency outweighs the anti-competitive effects, which is as a result of decrease in or complete absence of competition in a given area and product. The SCC affirmed, in making this determination that from the various methodologies for checking on efficiency under section 96 may be chosen by the Tribunal including the “balancing weights standard” and the “total surplus standard”. The SCC by doing this looks like it has avoided the debate that is ongoing which has haunted the defense application since it was adopted by the parliament-namely whether the courts and the Tribunal are needed to consider their effects arising from increase in market power, or only the modest impact on the efficiency of the economy relating to the deadweight loss. Despite the applicable test, it was held by SCC that the Commissioner was the one with the clear burden to quantify the anti-competitive impacts where they could be reasonably quantified. (OSLER, 2015)
McMillan. “Tervita Corp v Canada – The Supreme Court of Canada’s First Merger Decision in 17 Years: An Efficient Outcome.” Competition Bulletin January 2015. Web. 26 April 2015. http://www.mcmillan.ca/Files/179210_Tervita%20Corp%20v%20Canada.pdf
OSLER. Supreme Court of Canada’s Tervita decision provides important guidance on Canada’s merger laws. Web. 26 April 2015 http://www.osler.com/NewsResources/Supreme-Court-of-Canadas-Tervita-decision-provides-important-guidance-on-Canadas-merger-laws/
SSC. Supreme Court Judgments. Web. 26 April 2015. https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/14603/index.do
TORRYS. Tervita Corporation v. Canada (Commissioner of Competition).Web. 26 April 2015http://www.torys.com/work/2015/01/tervita-corporation-v-canada-commissioner-of-competition