Bill C-11, An Act to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other Acts, has introduced a public interest review regime into the Canada Transportation Act (the CTA) for mergers and acquisitions involving a “transportation undertaking.” Prior to the enactment of Bill C-11, only transactions involving “air transportation undertakings” were subject to public interest review under the CTA. Transactions involving other transportation undertakings (such as rail, pipelines and trucking) were subject only to review under the Competition Act (the CA). Despite a number of concerns expressed regarding the establishment of a broader merger review regime under the CTA by a variety of stakeholders, including the Commissioner of Competition, Bill C-11 received Royal Assent on June 22, 2007, and must be carefully considered when dealing with a transaction involving a “transportation undertaking.”
CTA Merger Notification Regime
The Notification Trigger
The parties to a proposed transaction involving a “transportation undertaking” which is subject to merger notification under the CA are required to give notice of the transaction to the Minister of Transportation no later than the date on which notification under the CA is required. In the case of a proposed transaction involving an “air transportation undertaking”, notification also needs to be provided to the National Transportation Agency. Failure to notify is an offence which can result in a fine of up to $50,000.
Neither the term “involves” nor the phrase “transportation undertaking” are defined in Bill C-11. Therefore, it is unclear, for example, whether a “transportation undertaking” extends beyond airlines and railways which are the focus of the CTA to include bus lines, trucking operations, pipelines and related businesses, and whether a “transportation undertaking” includes an entity for which transportation comprises only a minor portion of its operations. It is also unclear how a transportation undertaking can be “involved” with a proposed transaction. For example, it is unclear whether the CTA’s merger notification regime is intended to apply to a proposed merger between a transportation undertaking and another company not engaged in a transportation business, and whether it extends to a proposed merger between two suppliers of products used by a transportation undertaking.
Interestingly, a transaction in respect of which an advance ruling certificate (ARC) or “no action” letter together with a waiver of the obligation to notify under the CA has been issued by the Commissioner is exempt from notification and review under the CTA. It remains to be seen whether this will affect the Commissioner’s willingness to issue ARCs or “no action” letters. Based on our experience to date, however, it appears that this is unlikely to have a material impact.
The notification must contain all of the CA merger notification information, as well as any information with respect to “the public interest as it relates to national transportation” that may be mandated under any guidelines issued by the Minister in consultation with the Competition Bureau. No such guidelines have yet been issued. After receipt of the notification, the Minister may require that further information be provided.
CTA Merger Review Regime
Where a transaction is subject to notification under the CTA, the Minister is required to assess whether the transaction will raise any “issues with respect to the public interest as it relates to national transportation.” As indicated above, no guidelines have yet been issued by the Minister and, accordingly, it is unclear what factors will be considered in assessing whether this test is satisfied.
Process and Timing
If the Minister concludes that a proposed transaction does not raise any issues, he or she is required to notify the parties accordingly within 42 days of receipt of a notification. In these circumstances, the proposed transaction is not subject to further review under the CTA and can be completed. If, however, the Minister is of the opinion that the proposed transaction does raise public interest issues, he or she may direct the Agency or another person to examine them, and the proposed transaction may not be completed until it is approved by the Governor in Council (i.e., the Federal Cabinet).
Within 150 days of being directed to examine a proposed transaction (or any longer period that the Minister may allow) the Agency or other person is required to report to the Minister. Similarly, if the Commissioner receives a CA notification in respect of a transaction which is also being reviewed under the CTA on public interest grounds, the Commissioner is required to report to the Minister and the parties on any concerns regarding a “potential prevention or lessening of competition” within this same period. Concern has been expressed that the consultation between the Commissioner and the Minister may lead to the politicization of the CA review process.
It should be noted that 150 days is approximately equivalent to the time usually required by the Commissioner to review “very complex” mergers under the CA (approximately 5% or less of all mergers). It is also important to note that the “potential” prevention or lessening of competition test referred to in the CTA is not the test used by the Commissioner to assess transactions under the CA, that test being a “substantial” prevention or lessening of competition. As such, there is some question about the extent to which it will be possible to rely on the substantial body of jurisprudence developed by the Competition Tribunal and the courts in respect of the merger review provisions under the CA, or the Merger Enforcement Guidelines issued by the Bureau.
It should also be noted that, unlike submissions made under the CA which are protected from disclosure to third parties pursuant to section 29 of the CA, there is no such protection afforded submissions made under the CTA (although limited protection may be available under the Access to Information Act).
After receipt of the Commissioner’s report, which is to be made public immediately upon receipt, but before making a recommendation to the Cabinet as to whether a proposed transaction should be approved, the Minister is required to consult with the Commissioner regarding any overlap between their concerns, and to request that the parties address these concerns.
After conferring with the Minister and the Commissioner, the parties are required to inform them of any measures they are prepared to undertake to address their concerns, and they may at that time propose modifications to the proposed transaction. Prior to making a recommendation to the Cabinet as to whether a proposed transaction should be approved, the Minister is required to obtain the Commissioner’s assessment as to the adequacy of any undertakings or modifications to the proposed transaction suggested by the parties.
If the Cabinet is satisfied that it is in the “public interest” to approve a proposed transaction, taking into account any undertakings or modifications suggested by the parties, on the recommendation of the Minister the Cabinet may approve a proposed transaction and specify any terms and conditions which are considered appropriate. It is important to note that since the ultimate standard of review used in determining whether a proposed transaction should be allowed to proceed under the CTA is whether the proposed transaction is in the “public interest”, it would appear that the CTA’s merger review regime contemplates that a proposed transaction may be approved even though the Commissioner has determined it may lead to a “potential prevention or lessening of competition.” In other words, competition concerns will simply be a factor which will be considered rather than a sufficient condition for blocking a proposed transaction.
Failure to comply with the CTA’s review regime can result in significant corporate and individual liability. For example, completing a notifiable transaction without obtaining the Cabinet’s approval (where required) is punishable by imprisonment for a term of up to five years or a fine of up to $10,000,000, or both (and may be subject to further penalties for continuing violations).