On February 25, 2013, the reasons for the decision of the Federal Court of Appeal (FCA) in Tervita Corporation v. Commissioner of Competition were made public. The decision provides the first Canadian jurisprudence on merger efficiencies and the law on the "prevention" of competition in over a decade. While the FCA upheld the Competition Tribunal's (Tribunal) finding that the transaction prevented competition substantially and its accompanying divestiture order, the Court made three important clarifications.

First, the FCA confirmed that the efficiencies analysis is the hallmark of merger review in Canada. Second, when assessing whether the efficiency gains brought about by a merger are likely to be greater than, and will offset, any anticompetitive effects, the analysis must be as objective as is reasonably possible. Third, the time-frame for determining whether a merger is likely to prevent competition substantially will typically correspond to the time that it would take for entry to occur in the relevant industry.


In January 2011, the Commissioner of Competition brought an application challenging the completed acquisition by Tervita Corporation (formerly CCS Corporation) of Complete Environmental Inc. (Complete) and its proposed Babkirk hazardous waste landfill site. The Commissioner claimed that Complete was poised to enter the market for the disposal of hazardous waste served by Tervita. In May 2012, the Tribunal granted the Commissioner's application, holding that the merger would lead to a substantial prevention of competition for the disposal of hazardous waste in the northeastern section of the province of British Columbia and ordering Tervita to divest the Babkirk landfill site. The Tribunal denied the Commissioner's proposed dissolution remedy. Tervita and its shareholders appealed the Tribunal's decision.

The challenge was notable because the transaction was challenged by the Commissioner even though the acquisition had already been completed and it did not meet the relevant pre-merger notification thresholds.

Efficiencies Defence

The Competition Act (Act) provides an express "efficiencies defence" to anticompetitive mergers, which applies in cases where the efficiencies from the merger are likely to be greater than and offset the merger's anticompetitive effects. The FCA confirmed that the Commissioner bears the burden of proving the extent of the quantifiable and qualitative anticompetitive effects of the merger, while the respondents bear the burden of showing that the cognizable efficiencies would be likely to offset those effects. The Commissioner is relieved of this burden only where the efficiency gains adduced by the respondents are marginal or negligible, as was the case in the Tervita matter.

The FCA held that the balancing exercise undertaken to weigh the quantitative and qualitative gains in efficiency against the anticompetitive effects of a merger "must be as objective as is reasonably possible." In this regard, both the Commissioner and the respondent(s) must provide precise quantification where possible. When it is not reasonably possible to provide a precise quantification for an element of the offset analysis, "a rough estimate is to be preferred to a subjective judgment call."

Prevention of Competition

The FCA also clarified the framework for cases in which the Commissioner's theory of harm is based on the merger's alleged prevention of future competition (as opposed to a lessening of existing competition). Specifically, the FCA confirmed that the burden of proving both that a merging firm is a "poised entrant" in a specific market and that the merger is likely to prevent competition substantially in that market rests with the Commissioner.

In determining whether a merging party was poised to enter the market prior to the merger, the Tribunal may take into account events occurring after the date of the merger. While the appropriate time-frame over which to consider this will necessarily vary from case to case, and will depend on the nature of the industry, the time-frame must be discernible and generally will correspond to the time that it would take for entry to occur and the barriers to entry in the industry generally. On this point, the FCA expressly adopted the reasoning of the U.S. Court of Appeals (2nd Circuit) in BOC International Ltd. v. Federal Trade Commission.

Importance for Merger Planning

The FCA's decision reinforces a number of considerations that parties contemplating a transaction should keep in mind, including the following:

  • Regardless of whether a merger triggers a pre-merger notification requirement under the Act, mergers may be challenged by the Commissioner for up to one year after completion. Substantive due diligence is critical in mergers even in circumstances where formal advance notice need not be given to the Commissioner.
  • Parties to a merger that generates efficiencies that can be supported with evidence may be in an improved position for getting their merger cleared in light of the evidentiary burdens placed on the Commissioner.