On January 22, 2008, the Federal Court of Appeal dismissed the appeal by the Commissioner of Competition in the Labatt/Lakeport merger, delivering its judgment from the bench, after having heard arguments only from the Commissioner's counsel.
The Tribunal decision
The appeal was from an order of the Competition Tribunal made on March 28, 2007, dismissing the Commissioner's application under s.100 of the Competition Act to delay closing of the acquisition of Lakeport Brewing Income Fund (Lakeport) by Labatt Brewing Company Limited (Labatt). This transaction closed on March 29, 2007. Shawn Neylan of Stikeman Elliott LLP led the competition team for Lakeport, supported by Michael Kilby. Litigation partner Katherine Kay argued the case for Lakeport at the Tribunal.
The determinative issue in the Tribunal's decision was whether the potential post-closing remedies of dissolution and divestiture could effectively remedy a substantial lessening of competition (SLC) assuming an SLC were later established, since at the time of the hearing the Commissioner had not concluded that there would be a SLC as a result of the transaction, but was requesting more time to complete her review. The Tribunal found that the Commissioner had not met the burden of establishing that closing would substantially impair the Tribunal's ability to remedy an SLC, and accordingly dismissed the Commissioner's application. The Tribunal pointed out that Canadian merger remedies need not restore the pre-merger situation (as in the U.S.), but need only restore competition to the point that there is no substantial lessening of competition, a point which the Tribunal's decision indicated that the Commissioner's evidence had not addressed.
Many of the circumstances of the case were relevant to whether post-closing remedies would be inadequate to remedy an SLC: (i) Lakeport units were publicly traded and there was therefore a public interest in the orderly functioning of securities markets, in addition to the public interest in competition; (ii) a proposed "hold separate arrangement" would have covered the entire Lakeport business (there was no issue of the potentially messy separation of parts of the business should a remedy be required); (iii) the Commissioner had refused to engage in discussions regarding such a hold separate arrangement; (iv) Labatt voluntarily undertook to abide by a hold separate arrangement in the event that the Tribunal dismissed the Commissioner's application; (v) Lakeport had recently undergone an initial public offering and had performed very well, indicating it could be re-sold to implement a future remedy; (vi) Lakeport and Labatt had complied with document and information production orders before the s. 100 application, and most other recipients of such orders had also complied; and (vii) the Commissioner had substantial recent industry knowledge as a result of considering another proposed beer acquisition in the recent past.
The Court of Appeal decision
The Court noted that three conditions must be satisfied before an interim order delaying closing may be granted. The first two conditions were not disputed on the appeal as the Commissioner: (i) had certified that an inquiry was being made into the transaction; and (ii) was of the opinion that more time was required to complete the inquiry.
The third condition, the subject of the appeal, is that "the Tribunal must be satisfied that if the interim order is not granted, a person is likely to take an action that would substantially impair the ability of the Tribunal to make an order under section 92 to remedy the effect of the proposed transaction on competition because that action would be difficult to reverse."
The Commissioner argued on appeal that the correct interpretation of s.100 is that once the first two conditions are met (i.e., once the Commissioner certifies that an inquiry is being made into a transaction and is of the opinion that more time is required to complete the inquiry), the Tribunal can refuse to grant an order delaying closing only if either the Commissioner has acted in a patently unreasonable manner or not in good faith, or the application is an abuse of process. The Court found that Parliament had not intended so limited a role for the Tribunal.
The Commissioner also argued that the Tribunal's decision essentially restored a now non-existent requirement that the Commissioner satisfy the Tribunal that the transaction is reasonably likely to prevent or lessen competition substantially. This requirement was removed through an amendment to s.100 in 1999. The Court, however, found that the Tribunal had not revived the pre-1999 language because the Tribunal had not required the Commissioner to establish that the transaction was reasonably likely to prevent or lessen competition. Instead, the Court found that the Tribunal was correct in requiring that it be satisfied that its ability to remedy the effect of the merger on competition would be substantially impaired if the order delaying closing was not granted. The Commissioner's application was deficient in this key regard - it failed to establish to the Tribunal's satisfaction that, without an interim order, the Tribunal's remedial powers would be substantially impaired.
The Court added that in the factual context of the Labatt / Lakeport transaction, the Tribunal needed to understand the nature of the potential lessening of competition that prompted the inquiry, the kinds of remedies that might ultimately be sought by the Commissioner, the action the Commissioner wished to forbid, what would be required to reverse the action, and the potential effectiveness of remedies with and without the interim order.
Implications for future transactions
The ability to potentially close very complex transactions soon after the expiry of the statutory waiting period raises important tactical implications for transactions where the purchaser is prepared to close without competition clearance and thereby take the risk of a post-closing merger challenge by the Commissioner. Although in this case the Tribunal refused to order a hold separate over the objection of the Commissioner, in the future it may still be wise to propose a workable hold separate to the Commissioner if the parties wish to close at the end of the statutory waiting period. The Commissioner may decline to participate in such discussions in order to preserve the ability of the Tribunal to fashion a post-closing remedy, but this may be at her peril. It may also be appropriate to propose an alternative form of hold separate arrangement that does not need the Commissioner's involvement. Indeed, the Commissioner agreed to a hold separate arrangement in the scrap metal merger of American Iron & Metal Company Inc. and SNF Inc. on January 29, 2008, immediately after filing an application under section 100 to delay closing.