Key points of Tervita

On February 25 2013 the Federal Court of Appeal released its reasons in the appeal of Commissioner of Competition v Tervita Corporation. This update summarises the key legal findings in Tervita and provides practical suggestions for merging parties whose merger may be viewed as anti-competitive and consequently investigated by the Competition Bureau.


Tervita Corporation (formerly known as CCS Corporation) owns and operates the only two hazardous waste landfills in northeastern British Columbia. These landfills are utilised by oil and gas producers to treat, recover and dispose of hazardous waste produced through their drilling activities.

On January 7 2011 Tervita acquired the shares of Complete Environmental Inc, which owned the Babkirk site in northeastern British Columbia that had received a provincial government permit authorising the construction of a third secure landfill in the area that could potentially compete with Tervita. Tervita paid just over C$6 million for Complete's shares. Accordingly, the acquisition did not meet the financial thresholds under the Competition Act, which require mandatory pre-closing notification to the bureau.

Nonetheless, on January 26 2011 the Competition Bureau filed an application with the Competition Tribunal pursuant to Section 92 of the act to challenge Tervita's acquisition of Complete. The application alleged that the transaction substantially prevented competition by precluding a competitor of Tervita from building and operating a landfill at Babkirk. On the other hand, Tervita argued that Complete would not have built a hazardous waste landfill at Babkirk and instead would have operated a bioremediation business, which would not have competed with Tervita's landfills in the area.

On May 29 2012 the tribunal ruled in favour of the commissioner and ordered Tervita to divest the Babkirk hazardous waste landfill site. The tribunal concluded that, in the absence of merger, Complete would operate a bioremediation business, but such business would fail within a year and Complete would consequently build and operate a landfill at Babkirk (or sell the site to a third party which would do so). The tribunal stated that this landfill would be in direct competition with Tervita's secure landfills in northeastern British Columbia and, as such, the acquisition was a merger that was more likely than not to maintain Tervita's ability to exercise materially greater market power and prevent competition substantially. The tribunal rejected Tervita's defence that, pursuant to Section 96 of the act, the merger was likely to achieve efficiencies that outweighed any anti-competitive effects. Tervita appealed this decision in June 2012 on several grounds.


Tervita appealed the decision before the Federal Court of Appeal, submitting that the tribunal had made several significant errors in analysing Sections 92 and 96 of the act. Key among these allegations were that:

  • in extending its analysis to include the feasibility of Complete's bioremediation business, its eventual failure and the subsequent building of a secure landfill site, the tribunal had "acted on a theory of the case that had not been pleaded, thus breaching [Complete's] right to a fair hearing";
  • the tribunal had erred in law by extending the analysis of potential entry of a competitor to Tervita beyond the merger date;
  • the tribunal had engaged in speculation regarding possible future events; and
  • the tribunal had erred in its analysis of the efficiency defence under Section 96 of the act on several grounds.


Did the tribunal base its decision on a theory that had not been pleaded?
As stated above, the tribunal found that, in the absence of merger, Complete would have converted the bioremediation operation into a secure landfill as the bioremediation business would have failed. Tervita argued that the commissioner did not plead this theory and, as such, the tribunal had erred in law by determining the case based on this theory. In quoting Pfizer Canada Inc v Mylan Pharmaceuticals ULC, the Federal Court of Appeal stated that:

"There is no procedural unfairness where a trial judge... raises and decides an issue in a proceeding that does not squarely fit within the pleadings, as long as... all of the parties have been informed of that issue and have been given a fair opportunity to respond to it".

The court went on to hold that the possibility of the bioremediation business failing and the subsequent conversion of the Babkirk site into a full-service secure landfill had been dealt with extensively by the parties before the tribunal. Accordingly, the court rejected this argument.

Did the tribunal err by extending its Section 92 analysis into the future?
In the tribunal's analysis under Section 92, it held that when assessing cases that are alleged to prevent competition, it must determine whether the new entry that the commissioner alleged was prevented would occur within a "reasonable period of time".

Tervita challenged the tribunal's view that entry must likely occur within a reasonable period of time. Rather, Tervita argued that the potential entry must be confined to the time that the merger occurred.

The court rejected Tervita's argument and held that the analysis required under Section 92 is necessarily forward looking, as the tribunal is required under the act to take into account future events likely to occur after the impugned merger. Specifically, the court stated that:

"Contrary to most trial courts... the Tribunal's role under sections 92 and 96 of [the act] requires it to project into the future various events in order to ascertain their potential economic and commercial impacts. The role of the Tribunal is thus to identify and remedy market problems that have not yet occurred".

The court went on in its analysis to determine what constitutes a 'reasonable period of time'. It held that it will vary from case to case and depend on the business under consideration, but certain guidelines should be followed to determine an appropriate temporal framework for entry in any given prevention of competition case. The court held that the timeframe for market entry must be "discernable" and should typically fall within the "temporal dimension of the barriers to entry into the market at issue".

With respect to the first guideline, the court held that it would be insufficient to conclude that an acquired firm could have possibly entered the market at some future date. Rather, a clear and discernable timeframe for market entry is required. In addressing the second point, the court quoted the US decision of BOC International Ltd v Federal Trade Commission in stating that the probable entry must "at least contain some reasonable temporal estimate related to the near future, with 'near' defined in terms of entry barriers and lead time necessary for entry in the particular industry".

In the case at hand, the court held that the tribunal's determination that the Babkirk site would enter the market for secured landfills by October 2012 was a clear timeframe based on its assessment of the evidence submitted by the parties. The court went on to state that this timeframe was approximately 21 months after the close of the merger and was therefore well within the temporal framework for barriers to market entry of a new entrant, which the tribunal determined was at least 30 months. As a result, the court rejected Tervita's argument on these grounds as well.

Did the tribunal engage in unfounded speculation regarding possible future events?
Tervita argued that the tribunal had engaged in "unbridled speculation about future events by expanding its analysis to include a review of the feasibility and profitability of [Complete's] contemplated bioremediation business" by concluding that this business would fail and the Babkirk site would eventually be operated as a full-service landfill.

The court rejected this argument as well and held that the tribunal's findings concerning the failure of the bioremediation business were supported by ample evidence adduced at trial, as well as its assessment of market dynamics. As the tribunal's expertise lies in economics and commerce, the court held that its assessment of market dynamics deserved special deference.

Was the tribunal's analysis of the efficiency defence flawed?
Section 96 requires the tribunal to determine, through a balancing test, whether gains in efficiency resulting from a merger are greater than and offset the merger's anti-competitive effects. Tervita argued that the tribunal had erred in several respects in its analysis of this section of the act. While the court partly agreed with Tervita, it concluded that, nonetheless, the proven efficiencies resulting from the merger were negligible. As such, the court concluded that it could not approve an anti-competitive merger under Section 96 if only marginal or insignificant gains in efficiency resulted from that merger.


Tervita signifies that the Competition Bureau will not shy away from reviewing mergers that are below the pre-merger notification thresholds in the act. As stated by former commissioner Melanie Aitken, "volume of commerce is not the only factor we consider when reviewing mergers—we are willing to take on cases where competition is being denied, regardless of size". Merging parties must be cognisant of this fact and not stop their competition analysis after reviewing the notification thresholds.

This case also provides that in determining potential market entry under Section 92, the determination must not be confined to the time that the merger occurred. Instead, the analysis must take into account future events likely to occur after the merger closes. As such, parties to a merger must be aware that the bureau may challenge their merger if there are grounds to believe that, absent the merger, they could become competitors in the future.

The Federal Court of Appeal went on to establish guidelines in regard to such a forward-looking timeframe. While it did not set forth a definitive rule, the court determined that in a prevention of competition case the potential market entry must occur within a "reasonable period of time". A 'reasonable period of time' was established to mean the time that it would take a new party to enter the market. Thus, if it can be established that one of the merging parties, in the absence of merger, would have entered the market and begun competing with the other merging party within such a period of time, the parties should be aware that the bureau may have grounds to challenge their merger.

The evidentiary record in this case proved fatal to Tervita. The tribunal relied on internal documentation from Tervita and Complete to conclude that Complete's bioremediation business would fail, and Complete's eventual entrance into the secure landfill market in northeastern British Columbia would cause financial hardship on Tervita and result in a reduction in prices charged to customers in this market. Merging parties must be cognisant that the bureau will seek all relevant internal documentation to bolster its case.

Finally, Tervita reaffirms that the efficiency defence under Section 96 can be relied on only if the efficiencies gained from the merger outweigh and offset its anti-competitive effects. Moreover, even without evidence of the merger's anti-competitive effects, the efficiency defence can be utilised by merging parties only if the efficiencies created by the merger are more than "marginal" or "negligible". Thus, to rely on this defence merging parties must be able to establish significant and quantifiable efficiencies gained from the merger that outweigh and offset its negative effects.

Key points of Tervita

The key takeaway point from this case are as follows:

  • The transaction fell well below the threshold for mandatory pre-merger notification and signalled a new, vigorous approach to competition law enforcement as the first merger challenged since 2005.
  • The commissioner of competition's theory of the case was premised on the transaction being likely to result in a substantial prevention of competition (as opposed to a substantial lessening of competition, which is the more common theory of harm).
  • It served as a reminder that care must be taken when drafting normal-course business documents, as they may end up in the hands of enforcement officials. The commissioner was able to rely on internal planning documents prepared by the parties to bolster her case;
  • The Federal Court of Appeal endorsed the tribunal's approach of analysing the target's future performance under various scenarios in concluding that ultimately the target would have competed with the acquirer, and therefore the acquisition removed a poised competitor and was likely to lessen competition substantially.
  • The court ruled that when assessing potential market entry, the determination must not be confined to the time that the merger occurred. Instead, the analysis must take into account future events likely to occur after the merger closes. As such, merging parties must be aware that the bureau may challenge a merger if there are grounds to believe that, in the absence of merger, they could become competitors in the future.
  • The court established guidelines in regard to such a forward-looking timeframe: the potential market entry must occur within a "reasonable period of time". A 'reasonable period of time' was established to mean the time it would take a new party to enter the market.

For further information on this topic please contact Kevin Ackhurst or Bradley Schneider at Norton Rose Canada LLP by telephone (+1 416 216 4000), fax (+1 416 216 3930) or email (kevin.ackhurst@nortonrose.com or bradley.schneider@nortonrose.com).