On August 22, 2012, the Federal Court of Appeal granted Tervita Corporation, formerly CCS Corporation (CCS), a stay of the Competition Tribunal’s May 29, 2012 Divestiture Procedure Order until final determination on appeal.
Recall that in January 2011, CCS, an energy and environmental waste management company concerned with the treatment, recovery and disposal of hazardous waste, acquired the shares of Complete Environmental Inc. (Complete) and ownership of Complete’s wholly-owned subsidiary, Babkirk Land Services Inc. (Babkirk). At the time, CCS owned and operated the only two operational secure landfill sites in northeastern British Columbia. Babkirk was the owner of a site in northeastern British Columbia that had received a provincial government permit authorizing the construction of a secure landfill site that would, potentially, compete with CCS. The acquisition was not a notifiable merger under the Competition Act.
Nevertheless, the Commissioner of Competition applied to the Competition Tribunal for an order dissolving the transaction or, in the alternative, requiring divestiture on the grounds that the transaction prevented competition substantially. In her application, the Commissioner alleged that Complete, through its Babkirk facility, was poised to enter the relevant market for secure landfill services and, through entry, would have led to a decline in the average price for the disposal of hazardous waste at secure waste sites in the relevant market. CCS countered that Complete had no intention to operate the site as a price competitive alternative to CCS and claimed that the Commissioner gerrymandered geographic market definitions to arrive at a conclusion that CCS possessed market power in a relevant market. On May 29, 2012, the Tribunal sided with the Commissioner, finding that CCS’s acquisition of Complete was likely to prevent competition substantially in the relevant market, and ordered CCS to divest itself of the Babkirk assets. The Tribunal subsequently ordered that the divestiture be complete by December 28, 2012, failing which a trustee would effect a sale on or before March 31, 2013. 1
CCS appealed the Tribunal’s order to the Federal Court and, in the interim, brought a motion for an order expediting the appeal and for a stay of the Tribunal’s order and related Divestiture Procedure Order pending decision on appeal. In granting CCS’s motion, the Federal Court applied the test in RJR – Macdonald Inc v. Canada (A.G.)2 finding that (i) there was a serious issue to be determined; (ii) CCS would suffer irreparable harm if the stay were refused; and (iii) CCS would suffer greater harm if the stay were refused than would the Commissioner (i.e., the public) if it were granted. Specifically, the Federal Court held that:
- Given the lack of jurisprudence related to substantial preventions of competition (as acknowledged by the Tribunal), CCS’s claim that the Tribunal failed to apply, or misapplied, the correct test for determining a substantial prevention of competition thereby leading it to engage in “impermissible and unsupportable speculation,” raises serious and important issues to be determined;
- If CCS were forced to dispose of the Babkirk assets and had no practical way of re-acquiring them, that, in the context of the proceedings, would constitute irreparable harm as there exists no right in law to claim damages from the Commissioner in the event of a successful appeal; and
- Although there may exist a public interest in the speedy determination of competition law cases, there is also a countervailing interest in ensuring due process; in this case, the requirement for expeditious process would be best served by expediting the appeal.
The Federal Court held that because this case dealt with the prevention of a new entrant from participating in an existing, allegedly non-competitive market and not the removal or exit of an existing competitor from the market, the relevant market’s “status quo ante” would not be disturbed by a stay. It added that because in the Tribunal’s order the Tribunal determined that the competition that would have been offered by Babkirk prior to the spring of 2013, would likely have had no material impact on pricing by CCS in the relevant market, and because CCS’sappeal would likely be heard before the spring of 2013, granting the stay would not put the public in “a less disadvantageous competitive market environment than had CCS not acquired Complete and Babkirk.” In granting the stay and in expediting the appeal, the Federal Court ordered that the stay apply until the final determination of the appeal and be conditional on CCS’s preservation of the subject assets.
This is the first case that has considered the meaning of “substantially prevent” in the context of a merger case. As such, it stands as an important precedent for the Federal Court of Appeal to consider. If the Court would have refused the requested stay, the appeal would have become moot as the divestiture process would have been completed before the appeal could be heard. Consequently, it is not at all surprising that the stay was granted. On the other hand, this case demonstrates the long time lines involved in contested Tribunal proceedings. The acquisition closed in January, 2011. With the appeal anticipated to be heard in the spring of 2013, it is difficult to see a decision coming from the Federal Court of Appeal before the fourth quarter of 2013. Even if the Tribunal’s decision were upheld on appeal, with the potential re-application of the Tribunal’s seven-month “Initial Sale Period” and the subsequent sale to a third party, it is unlikely that a sale would be effected before 2015. It is also important to remember that the Babkirk assets forming the subject of the contested merger proceedings are related to a prospective secure landfill site; that is, a site that will require the investment of extensive amounts of capital and time before it can be made operational and competitive. According to the Tribunal’s order, at least 15 months of planning and development would be required before the Babkirk facility could be used as an operational secure landfill site, albeit at a limited capacity. As such, ignoring any further potential delays that would inevitably be associated with an appeal to the Supreme Court of Canada, a conservative estimate suggests that it will likely not be before late 2016 or early 2017 — almost six years after the time of the original acquisition — that a functional and competitive secure landfill site will be operational at the Babkirk site. Given this time frame, the presumably large amount of capital expended, and the possibility that the anticipated Babkirk site will fail, it is uncertain when, if ever, the theoretically pro-competitive impact of the Tribunal’s decision will occur.