CSS Corporation (“CCS”) is the only operator of secure hazardous waste disposal landfills in northern Alberta and north-eastern British Columbia.  In 2010, CCS agreed to acquire Complete Environmental Inc. (“Complete”), whose subsidiary had obtained a permit to operate a new secure hazardous waste disposal landfill in north-eastern British Columbia.  Complete never intended to operate its site as a competitive secure hazardous waste landfill; rather, its business plan was to use the site as an incidental complement for its bioremediation business. Although the merger fell below the pre-merger notification thresholds of the Competition Act, CCS chose to voluntarily notify the Commissioner of the proposed transaction. [1]  After a detailed review, the Commissioner expressed concerns and indicated that the parties should only close at their own risk.  Despite the warning, the parties closed in early January 2011.  The Commissioner filed a notice of application challenging the transaction shortly thereafter.  On May 29, the Competition Tribunal agreed with the Commissioner. 

This case marks the first time since 2005 that the Commissioner has challenged a merger in contested Tribunal proceeding. This was also the first time that the Commissioner challenged a merger on the grounds that it would result in a substantial prevention of competition rather than a substantial lessening of competition. In her application, the Commissioner sought dissolution as her primary remedy (i.e., unwinding the transaction) or, in the alternative, requiring the divestiture of assets to a pre-approved purchaser. While the Tribunal agreed that the transaction was anti-competitive, it rejected dissolution.

Perhaps most notable is that the Tribunal was willing to substitute its own business judgment for that of Complete in assessing the viability of the prospective Babkirk facility as a potential competitor to CCS. The tribunal decided that the business plan formulated by the Vendors (which did not involve competing with CCS) was likely to fail, and that the Vendors would then likely begin to compete against CCS.

This case illustrates a number of important points:

  1. The case highlights the focus of the merger provisions: i.e., whether the proposed transaction is likely to substantially lessen or prevent competition among suppliers.

The Tribunal adopted the “but for” test formulated by the Federal Court of Appeal under the abuse of dominance provisions. Specifically, would the relevant markets be substantially more competitive “but for” the impugned practice of anti-competitive acts.

  1. The Tribunal may conclude that the parties to proposed transaction are likely to compete even when one of the parties has no intention to do so.

This is a surprising departure from the deference to business judgment that we are used to seeing from Canadian courts, and may be the most troubling aspect of this decision.

  1. Dissolution is not likely to be a primary remedy for a problematic merger; rather, divestiture will likely continue to be the preferred option.

This is important, especially to sellers, who typically, after a transaction closes, move on and deploy the sale proceeds elsewhere.

  1. The fact that a merger is not notifiable does not mean that it is without risk.  Non-notifiable mergers can be successfully challenged at the Tribunal.

Tribunal proceedings are time consuming and expensive.  Where a non-notifiable merger gives the merged firm a dominant market share or preserves its dominant market share, the parties should evaluate the legal risk of competition challenge and assess whether steps could be taken to minimize that risk.

A more detailed discussion of the case can be found here

[1] An overview of the pre-merger notification provisions of the Act may be found here.