On March 30, 2007, the Competition Tribunal issued its decision in The Commissioner of Competition v. Labatt Brewing Co. Ltd. et al.,1 denying an application by the Commissioner of Competition to delay the closing of the proposed acquisition of the units of Lakeport Brewing Income Fund by Labatt. This decision significantly limits the ability of the Commissioner to obtain interim orders under section 100 of the Competition Act2 pending a merger review and to halt the implementation of a merger transaction, and will likely lead to important changes in the timing of merger reviews in Canada.


On February 1, 2007, Labatt Brewing Company Limited (“Labatt”) offered to purchase all of the issued and outstanding units of the Lakeport Brewing Income Fund (“Lakeport”), which owns a 78% interest in Lakeport Brewing Limited Partnership.3 The transaction was subject to review by Canadian competition authorities and Labatt submitted a long-form notification filing to the Competition Bureau on February 12, 2007. The transaction was scheduled to close on March 29, 2007, after the expiry of the 42-day statutory waiting period.

In transactions where the Bureau advises the parties that the complexity of a case requires it to take more than the statutory waiting period to complete its substantive review, the Bureau’s standard practice has been to try to work with the parties to complete the review on a mutually acceptable timetable without the need for litigation. However, in this case, from the beginning of the review process, Labatt and Lakeport advised the Commissioner of Competition that they intended to close at the end of the 42-day waiting period and offered to be bound by a time-limited hold separate agreement (“HSA”) with the Commissioner. The HSA would have preserved the boundaries between Lakeport and Labatt for a month after the closing of the transaction in order to provide the Bureau with additional time to complete its substantive review before the operations were integrated. The Commissioner did not accept the HSA and felt she needed more time to review the transaction before agreeing to let it close on any terms.

With the statutory waiting period set to expire (and the Bureau’s review of the transaction not yet complete), the Commissioner filed an application for an interim order under section 100 of the Competition Act. If granted, the effect of the order sought by the Commissioner would have been to prohibit the parties from closing or taking steps toward closing the transaction. On March 28, 2007, the Competition Tribunal dismissed the Commissioner’s application, thereby clearing the way for the transaction to proceed on schedule. The Tribunal concluded that the Commissioner had “failed to establish that the Tribunal’s ability to remedy the effect of the merger on competition would be substantially impaired if the merger proceeded.”


The Labatt decision is the first to be issued under the new wording of section 100 and, on the facts, challenged what seemed to be the inviolable rule against “scrambling the eggs” in merger review cases. Pursuant to this approach, if a merger transaction is permitted to close before the Bureau has completed its review, the assets and operations of the combining parties could be so inextricably intermingled that, at the end of the day, the Tribunal’s ability to issue an order to remedy competition issues post-closing would be significantly impaired.

The Labatt decision draws a distinction between the ability to remedy the effect of a merger on competition and the ability to restore the market to pre-closing market conditions (the position advanced by the Commissioner). The Tribunal was of the view that mergers are not always prohibitively difficult to unwind, stating that “a merger can be broken up, competition can be restored, though it may be difficult to do and inconvenient.” In this case, the Tribunal found that the evidence presented by the Commissioner did not establish that, absent an order, the Tribunal’s remedies postclosing would not be effective in restoring the appropriate amount of competition. The Tribunal also noted that the expert evidence presented in support of the Commissioner’s application suffered “from the infirmity of addressing all issues from the perspective of U.S. law, which aims at restoring competition to pre-merger conditions” (emphasis added). The Tribunal clarified that, under Canadian law, the benchmark of whether closing would substantially impair the Tribunal’s ability to remedy a transaction is not whether the transaction could be unwound to restore competition to pre-closing market conditions; rather, the test is whether, post-closing, the Tribunal can still “restore competition to the point at which it can no longer be said to be substantially less than it was before the merger – to bring matters back to the point that the [substantial lessening of competition] ceases.”4


The Labatt decision is expected to restore balance to negotiations with the Bureau regarding the cases and circumstances where closing is allowed to proceed subject to the terms of an HSA. This is likely because the decision will have the effect of narrowing the conditions for the granting of interim orders by permitting them only where the evidence clearly establishes that, absent the interim order, the Tribunal’s ability to remedy the effects of the merger on competition would be significantly impaired. The evidentiary burden that the Commissioner must meet to satisfy the test is high: it requires the Commissioner to put forward specific and compelling evidence as to why, in order to preserve the Tribunal’s ability to issue a remedial order, the statutory waiting period should be extended. The Tribunal expressed the view that obtaining injunctive relief cannot be reduced to a simple matter based on the Commissioner’s need for more time to examine a merger. The Labatt decision confirms that such orders are extraordinary remedies to be granted in limited circumstances. There will thus be a “heightened expectation” that the Bureau should complete its review of mergers quickly and, in certain cases, within the prescribed maximum 42-day waiting period.

While merging parties have often waited for the Commissioner to complete her merger review before proceeding to close (even when it extended beyond the applicable waiting period), the Labatt decision may now cause merging parties to take a stricter view of the statutory waiting periods and, in appropriate cases, consider closing immediately upon expiry of the applicable period. The Tribunal’s decision also sends a clear signal that, absent compelling evidence going to the heart of the Tribunal’s ability to issue an effective remedial order post-closing, business transactions cannot be jeopardized or delayed by an extended merger review.

Whether the Commissioner will now be more open to negotiating or proactively seeking HSAs in cases in which the Commissioner believes that further time is needed but the parties affirm that they need to close for commercial reasons remains unclear. However, the Labatt decision does make it more likely that certain mergers, while raising competition issues, can close (perhaps on the basis of a negotiated HSA) upon the expiry of the applicable statutory waiting period.