Supreme Court allows blocked merger in landfill case

The Supreme Court of Canada has concluded that the acquisition of a hazardous waste site in northeastern British Columbia should be permitted to go ahead, overruling previous decisions by the Federal Court of Appeal and the Competition Tribunal.

Marshall RothsteinThe majority decision written by Justice Marshall Rothstein, found that only marginal gains in efficiency are not sufficient grounds under the Competition Act to block an anti-competitive merger.

“The analysis is a balancing act,” wrote Rothstein in a 6-1 ruling in Tervita Corp. v. Canada (Commissioner of Competition). “Efficiency gains of a smaller sale may not be ‘marginal’ when compared to and weighed against anti-competitive effects of an even smaller degree,” he stated.

The court ruled in favour of Tervita Corp., which held two of four permits issued in northeastern B.C., for the operation of secure landfills for the disposal of hazardous waste generated by oil and gas operations. One of the other permits was issued for a site owned by an Aboriginal community, where a landfill had not been constructed. The fourth permit was issued to a subsidiary of Complete Environmental Inc., which Tervita acquired in 2011.

The federal Commissioner of Competition opposed the transaction. In 2012, the Competition Tribunal found the acquisition was likely to “prevent competition substantially,” under s. 92 of the act. The efficiencies exception in s. 96 was not met and Tervita was ordered to divest itself of the company that controlled the landfill permit. The Federal Court of Appeal upheld the decision and Tervita, represented by Torys LLP, appealed to the Supreme Court.

A “forward-looking analysis” is what is required, said Rothstein, when interpreting the two sections of the Competition Act. In deciding the impact of a merger preventing competition, a “but for” test should be applied, “to see if absent the merger, the potential competitor would have likely entered the market and if so whether that the entry would have decreased the market power of the acquiring firm,” said the majority.

If the Tervita merger was permitted to go ahead, it would “substantially prevent competition,” Rothstein stated.

In determining whether an efficiency defence is accepted, “all available quantitative and qualitative evidence should be considered,” he explained.

On the facts of this case, he concluded Tervita proved quantifiable gains and the efficiencies defence should apply so the merger can go ahead.

Rothstein was joined in his conclusions by Chief Justice Beverly McLachlin and justices Thomas Cromwell, Richard Wagner, and Michael Moldaver.

Justice Rosalie Abella concurred in the result, but disagreed with the majority’s findings that a correctness standard of review applied to the Competition Tribunal’s conclusions on questions of law. Judges and lawyers in review proceedings have rightly believed that, “notwithstanding legislative wording, when a tribunal is interpreting its home statute, reasonableness applies,” wrote Abella. “I am a loss to see why we would chip away — again — at this precedential certainty.”

The correctness standard of review, explained Rothstein, was a result of statutory wording that a decision of the tribunal is appeal as of right, as if it were a decision of the Federal Court.

This part of the decision shows  the Supreme Court “is not making a religion out of deference,” to tribunals said Scott Rollwagen, a lawyer and the research partner at Lenczner Slaght Royce Smith Griffin LLP in Toronto.

Rollwagen noted it is somewhat ironic that less deference is shown to one of the most specialized and technical tribunals in the country, as a result of the statutory wording on the right of appeal.

“The takeway from this, is when have a judicial review case, take a look at the statute. The wording still matters,” says Rollwagen.

Justice Andromache Karakatsanis dissented on the result and would have upheld the decision blocking the Tervita acquisition.

“I do not agree that the need for ‘reasonable objectivity’ justifies Justice Rothstein’s hierarchical approach to quantitative and qualitative aspects under the efficiencies defence. Nor do I accept his assessment that qualitative effects will be of lesser importance,’ she wrote. A flexible analytical approach would better reflect the “wide range of objectives” within the Competition Act, said Karakatsanis.

Commissioner of Competition John Pecman said in a statement he welcomes the decision: “I am pleased that the court upheld the conclusions of the Competition Tribunal and the Federal Court of Appeal that competition would be substantially prevented as a result of the merger.

He added the bureau will take into account the court’s guidance on efficiens and any changes to its analysis and information gathering processes during merger review.

Update 1:50pm: comments from John Pecman added.

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