Unique to Canada, the substantive merger control provisions of the Competition Act specifically permit the clearance of mergers that result in, or are likely to result in, a substantial lessening or prevention of competition, where the efficiencies brought about from the merger are greater than and offset its anti-competitive effects.1 This is generally referred to as the "efficiencies defense". In a 2015 decision, the Supreme Court of Canada (SCC) ruled that the efficiencies defence applied to save the acquisition by Tervita Corp. (which owned the only operating landfill disposal sites in northeastern British Columbia), of a site with the requisite permits to become a new landfill site. This decision came notwithstanding the conclusion of the Competition Bureau that the transaction resulted in a substantial prevention of competition in the market for hazardous waste disposal services in northeastern British Columbia.2 In that case, the SCC found that the Bureau had failed to quantify all quantifiable anti-competitive indicators. This resulted in the court assigning a value of zero to the anti-competitive effects attributable to the transaction.3 When measured against the overhead efficiency gains, the SCC concluded that with a zero figure attributed to the anti-competitive effects, the efficiencies, though marginal, were greater than and offset the anti-competitive effects, and permitted the merger to continue.4

Since the SCC's decision, which clarified the evidentiary burden on the Bureau, observers have watched to see if the Bureau would change its approach to efficiencies, which had historically been to litigate claims of efficiencies by parties, instead of balancing them against anti-competitive effects during the Bureau's review of the relevant merger.

On June 28, 2016, the Bureau signaled a new approach to the issue of efficiencies by approving the acquisition of Canexus Corporation by Superior Plus Corp. on the basis of efficiencies, notwithstanding a substantial lessening of competition in the market for sodium chlorate in eastern and western Canada. In its publicly-released statement regarding its clearance of the transaction, the Bureau noted that the transaction would result in efficiencies in overhead costs, freight optimization, and corporate services that outweighed the higher costs resulting from the acquisition.5

Superior Plus' acquisition of Canadian clearance under the efficiencies defence, however, was a hollow victory, coming as it did one day following the filing by the US Federal Trade Commission of an administrative complaint challenging the transaction on the basis of anti-competitive effects in the United States.6 This ultimately led to the abandonment of the acquisition by Superior Plus.7

In 2017, Canexus was again before the Bureau regarding another potential acquisition of its shares, this time to Chemtrade Logistics Income Fund (Chemtrade). And again, the Bureau cleared the acquisition on the basis of efficiencies related—at least in part—to transportation, notwithstanding anti-competitive effects in the sodium chlorate market in western Canada.8 While the two Canexus reviews suggest that the Bureau is signaling more of a willingness to balance efficiencies against anti-competitive effects during the course of its review (as opposed to after, in a litigation context) on a principled basis, Commissioner of Competition John Pecman has suggested that he is not pleased to be doing so, citing the fact that Canada is out of step with its major trading partners and suggesting an amendment eliminating the efficiencies defence may be warranted:

Businesses and consumers benefit from a uniform application of legal and economic principles across jurisdictions. We’ve come a long way in this respect. For example, our 2009 amendments brought the Competition Act more closely in line with our country's major trading partners. I have also witnessed first-hand many younger competition law agencies recognizing the benefits of convergence by developing competition regimes that are aligned with international consensus.

Yet, recent developments, like our decision in Superior/Canexus, show that Canada's approach to efficiencies is increasingly misaligned with other jurisdictions. My view is that this is bad for businesses and bad for consumers.9

While there has been no indication from the current Government that it is prepared to amend or repeal the efficiencies defence, parties considering competitively complex transactions and who may want to rely on the efficiencies defence would be well served by speaking to their Canadian competition counsel and expert economists as early as possible. By so doing they can confirm the applicable regulatory context and engage in the up-front work necessary to substantiate any potential efficiencies.