Tervita Corporation, Complete Environmental Inc. v. Babkirk Land Services Inc., 2015 SCC 3

SUPREME COURT OF CANADA Citation: Tervita Corp. v. Canada (Commissioner of Competition), 2015 SCC 3, [2015] 1 S.C.R. 161 Date: 20150122 Docket: 35314 Between: Tervita Corporation, Complete Environmental Inc. and Babkirk Land Services Inc. Appellants and Commissioner of Competition Respondent Coram: McLachlin C.J. and Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner JJ. Reasons for Judgment: (paras. 1 to 168) Partially Concurring Reasons: (paras. 169 to 180) Dissenting Reasons: (paras. 181 to 200) Rothstein J. (McLachlin C.J. and Cromwell, Moldaver and Wagner JJ. concurring) Abella J.

Karakatsanis J. tervita v. canada (commissioner of competition), 2015 SCC 3, [2015] 1 S.C.R. 161 Tervita Corporation, Complete Environmental Inc. and Babkirk Land Services Inc. Appellants v. Commissioner of Competition Respondent Indexed as: Tervita Corp. v. Canada ( Commissioner of Competition)

2015 SCC 3 File No.: 35314. 2014: March 27; 2015: January 22.

Present: McLachlin C.J. and Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner JJ. on appeal from the federal court of appeal Competition — Mergers — Review — Commissioner of Competition opposing merger on ground that merger likely to prevent competition substantially — Merged parties raising statutory efficiencies defence — Competition Tribunal rejecting defence and making divestiture order — Proper legal test for determining when merger gives rise to substantial prevention of competition under Competition Act — Proper approach to statutory efficiencies defence — Content of Commissioner’s burden for purposes of efficiencies defence — Whether merger likely to prevent competition substantially — Whether gains in efficiency resulting from merger greater than and offset anti-competitive effects of merger — Competition Act, R.S.C. 1985, c.

C-34, ss. 92 , 96 . Administrative law — Appeals — Standard of review — Competition Tribunal — Standard of review applicable to tribunal’s determinations of questions of law arising under Competition Act, R.S.C. 1985, c. C-34 — Whether statutory language in appeal provision rebuts presumption that standard of reasonableness applies to tribunal’s

interpretation of own statute — Competition Tribunal Act, R.S.C. 1985, c. 19 (2nd Supp .), s. 13(1) . Four permits for the operation of secure landfills for the disposal of hazardous waste generated by oil and gas operations have been issued in Northeastern British Columbia. T holds two permits and operates two landfills pursuant to them. A third permit is held by an Aboriginal community but the landfill has not yet been constructed. The fourth permit is held by B, a wholly owned subsidiary of C.

When T acquired C, the Commissioner of Competition (the “Commissioner”) opposed the transaction on the ground that it was likely to substantially prevent competition in secure landfill services in Northeastern British Columbia. The Commissioner asked the Competition Tribunal (the “Tribunal”) to order, pursuant to s. 92 of the Competition Act , R.S.C. 1985, c. C-34 (the “Act”), that the transaction be dissolved, or in the alternative, that T divest itself of B or C. Pursuant to s. 92 of the Act , the Tribunal found that the merger was likely to prevent competition substantially in the relevant market.

It further found that the efficiencies gained by the merger were not greater than and would not offset the anti-competitive effects of the merger, such that T had failed to bring itself within the efficiencies exception contained in s. 96 of the Act. The Tribunal ordered T to divest itself of B. The Federal Court of Appeal upheld the Tribunal’s conclusion that the merger would likely substantially prevent competition. With respect to the s. 96 efficiencies defence, the court held that the Tribunal erred in a number of respects.

However, in its fresh assessment of the matter, the court concluded that the merger only provided marginal gains in efficiency which were not significant enough to approve a merger under s. 96. As a result, the court dismissed the appeal. Held (Karakatsanis J. dissenting): The appeal should be allowed, the divestiture order set aside and the s. 92 application dismissed.

Per McLachlin C.J. and Rothstein, Cromwell, Moldaver and Wagner JJ.: While a standard of reasonableness presumptively applies in this case because the questions at issue are questions of law arising under the Tribunal’s home statute, that presumption is rebutted. The appeal provision in the Competition Tribunal Act , R.S.C. 1985, c. 19 (2nd Supp.), evidences a clear Parliamentary intention that decisions of the Tribunal be reviewed on a less than deferential standard, supporting the view that questions of law should be reviewed for correctness and questions of fact and mixed law and fact for reasonableness.

The concern under the “prevention” branch of s. 92 of the Act is that a firm with market power will use a merger to prevent competition that could otherwise arise in a contestable market. To determine whether a merger gives rise to a substantial prevention of competition under s. 92(1), the Tribunal must look to the “but for” market condition to assess the competitive landscape that would likely exist if there was no merger. First, it is necessary to identify the firm or firms the merger would prevent from independently entering the market.

Typically, the potential competitor will be one of the merged parties: the acquired firm or the acquiring firm. The potential entry of the acquired firm will be the focus of the analysis when, but for the merger, it would likely have entered the relevant market. The potential entry of the acquiring firm will be the focus of the analysis when, but for the merger, the acquiring firm would have entered the relevant market independently or through the acquisition and expansion of a smaller firm.

Second, it is necessary to examine the “but for” market condition to see if, absent the merger, the potential competitor would have likely entered the market and if so whether the effect of that competitor’s entry on the market would likely be substantial. If the independent entry has no effect on the market power of the acquiring firm then the merger cannot be said to prevent competition substantially.

At this stage of the analysis, any factor that could influence entry upon which evidence has been adduced should be considered, such as the plans and assets of that merging party, current and expected market conditions, and other factors listed in s. 93 of the Act . The timeframe for entry must be discernible. In other words, there must be evidence of when the merging party is realistically expected to enter the market in absence of the merger.

That evidence must be sufficient to meet the “likely” test on a balance of probabilities, keeping in mind that the further into the future the Tribunal looks, the more difficult it will be to meet the test. The inherent time delay that a new entrant, facing certain barriers and acting diligently to overcome them, could be expected to experience when trying to enter the market is an important consideration, but should not support an effort to look farther into the future than the evidence supports.

As for whether a potential competitor’s entry into the market will have a substantial effect, it is necessary to assess a variety of dimensions of competition including price and output, as well as the degree and duration of any effect it would have on the market.

Section 93 of the Act provides a non-exhaustive list of factors that may be considered. In the present case, the Tribunal’s conclusion that the merger is likely to substantially prevent competition is correct. It used a forward-looking “but for” analysis, identified the acquired party as the focus of the analysis, and assessed whether, but for the merger, the acquired party would likely have entered the relevant market in a manner sufficient to compete with T. The Tribunal did not speculate; rather, it made findings of fact based on the abundant evidence before it. While the Tribunal’s treatment of the asserted 10

percent reduction in prices that would allegedly have been realized in absence of the merger was flawed, there was sufficient otherevidence upon which it could find a substantial prevention of competition as a result of the merger. As s. 92 of the Act is engaged, it is necessary to determine whether the s. 96 efficiencies defence applies to prevent themaking of an order under s. 92.

The defence requires an analysis of whether the efficiency gains of the merger, which result from theintegration of resources, outweigh the anti-competitive effects, which result from the decrease in or absence of competition in therelevant geographic and product market. The Commissioner has the burden of proving the anti-competitive effects, and the mergingparties bear the onus of proving the remaining elements of the defence.

There are different possible methodologies for the comparativeexercise under s. 96, two of which have been the subject of judicial consideration in Canada: the “total surplus standard” which involvesquantifying the deadweight loss which will result from a merger, and the “balancing weights standard” under which the Tribunal weighsthe effects of the merger on consumers against the effects of the merger on the shareholders of the merged entity.

Because the Act doesnot set out which methodology should be used, the Tribunal has the flexibility to make the ultimate choice of methodology in view of theparticular circumstances of each merger. While s. 96 does give primacy to economic efficiency, it is not without limitation. Not all economic efficiencies should betaken into account under s. 96.

A distinction should be drawn between efficiencies claimed because a merging party would be able tobring those efficiencies into being faster than would be the case but for the merger (“early-mover efficiencies”), and efficiencies that amerging party could realize sooner than a competitor only because the competitor would be delayed in implementing those efficienciesbecause of legal proceedings associated with a divestiture order (“order implementation efficiencies”).

Efficiencies that are the result ofthe regulatory process of the Act are not cognizable under s. 96, because they result from the operation and application of the legalframework regulating competition law in Canada, rather than from the merger itself. On the other hand, early-mover efficiencies arecognizable under s. 96, because they are real economic efficiencies that are caused by the merger.

In this case, however, theclassification of the one-year transportation and market efficiency gains claimed by T as either early-mover efficiencies or orderimplementation efficiencies would not be dispositive because the efficiencies were not ultimately realized by T. In its consideration of the efficiencies defence, the Tribunal should consider all available quantitative and qualitativeevidence. It is the Commissioner’s burden to quantify all quantifiable anti-competitive effects.

Effects that can be quantified should bequantified, even as estimates, provided such estimates are grounded in evidence that can be challenged and weighed. If effects arerealistically measurable, failure to at least estimate the quantification of those effects will not result in the effects being assessed on aqualitative basis. Effects will only be considered qualitatively if they cannot be quantitatively estimated. This approach minimizes thedegree of subjective judgment necessary in the analysis and enables the Tribunal to make the most objective assessment possible in thecircumstances.

Here, the Commissioner did not quantify quantifiable anti-competitive effects and therefore failed to meet her burden unders. 96. Specifically, there is no price elasticity information which means that the possible range of deadweight loss resulting from themerger is unknown.

To permit the Tribunal to consider the price decrease evidence without the rest of the information necessary toquantify deadweight loss admits far too much subjectivity into the analysis, with no guarantee that the Tribunal will have enoughinformation to ensure that a subjective assessment would align with what would actually be observed if the effect were properlyquantified. As a result, those quantifiable anti-competitive effects should be assigned zero weight. In setting the weight of these effectsat undetermined, the Federal Court of Appeal allowed for subjective judgment to overtake the analysis.

Its “undetermined” approachalso raises concerns of fairness to the merging parties, in that it places them in the impossible position of having to demonstrate that theefficiency gains exceed and offset an amount that is undetermined. Under this approach, requiring the merging parties to prove theremaining elements of the defence on a balance of probabilities becomes an unfair exercise as they do not know the case they have tomeet.

The balancing test under s. 96 mandates a flexible but objectively reasonable approach by which the Tribunal mustdetermine both quantitative and qualitative aspects of the merger, and then weigh and balance those aspects. The test may be framed as atwo-step inquiry. First, the quantitative efficiencies of the merger should be compared against the quantitative anti-competitive effects. Where the quantitative anti-competitive effects outweigh the quantitative efficiencies, this step will in most cases be dispositive, and thedefence will not apply.

Under the second step, the qualitative efficiencies should be balanced against the qualitative anti-competitiveeffects, and a final determination must be made as to whether the total efficiencies offset the total anti-competitive effects of the mergerat issue. However, despite the flexibility the Tribunal has in applying this balancing approach, more than marginal efficiency gainsshould not be required for the defence to apply. The words of the Act do not provide a basis for requiring this kind of threshold.

Nordoes the statutory context of s. 96(1) indicate that it should be read to include a threshold significance requirement. As a result, theFederal Court of Appeal erred in holding that an anti-competitive merger cannot be approved under s. 96 if only marginal or insignificantgains in efficiency result from that merger. In this case, the Commissioner did not meet her burden to prove the anti-competitive effects, and as such, the weight given tothe quantifiable effects is zero. There are no proven qualitative effects.

T, however, established overhead efficiency gains resultingfrom B’s obtaining access to T’s administrative and operating functions. These proven gains meet the “greater than and offset”requirement, and the efficiencies defence has therefore been made out. Per Abella J.: The applicable standard of review in this case is reasonableness, not correctness. Following the case ofPezim v.

British Columbia (Superintendent of Brokers), (SCC), [1994] 2 S.C.R. 557, which introduced a new edificefor the review of specialized tribunals, the jurisprudence of this Court has developed into a presumption that, regardless of the presenceor absence of either a right of appeal or a privative clause, when a tribunal is interpreting its home statute, reasonableness applies.

Whilethe statutory language granting the right of appeal in this case may be different from the language granting the right of appeal in othercases where this Court has applied a reasonableness standard, it is not sufficiently different to undermine the established principle ofdeference to tribunal expertise in the

interpretation of the tribunal’s own statute. Using such language to trump the deference owed totribunal expertise, elevates the factor of statutory language to a pre-eminent and determinative status we have long denied it. To applycorrectness in this case represents a reversion to the pre-Pezim era, undermines the statutorily-recognized expertise of the Tribunal, andconstitutes an inexplicable variation from the Court’s jurisprudence that is certain to engender the very “standard of review” confusionthat inspired this Court to try to weave the strands together in the first place. Applying the reasonableness standard, the Tribunal’s

interpretation of s. 96 of the Act was unreasonable. Per Karakatsanis J. (dissenting): T was not entitled to the benefit of the s. 96 efficiencies defence. Efficiencies and effectsshould be quantified wherever reasonably possible in the s. 96 analysis, and the assessment of qualitative effects should be objectivelyreasonable, supported by evidence and clear reasoning. However, the need for “reasonable objectivity” does not justify a hierarchicalapproach to quantitative and qualitative aspects under the efficiencies defence; nor should qualitative effects be of lesser importance thanquantitative effects.

The statutory language of the Act does not distinguish between quantitative and qualitative efficiencies, and many ofthe wide-ranging purposes of the Act set out in s. 1.1 may not be quantifiable. Indeed, many important anti-competitive effects of amerger may be qualitative in nature, and in some cases, those qualitative effects may be determinative in the s. 96 analysis. Thelegislation mandates a purposive analysis, and the relative significance of qualitative and quantitative gains or effects can only bedetermined in the circumstances of each case.

It is neither helpful nor necessary to predetermine their relative role and importance in thes. 96 defence. The Federal Court of Appeal’s view that the s. 96 analysis is at heart about balancing overall efficiency gains against overallanti-competitive effects is an approach that provides an appropriate level of flexibility, given that efficiencies and anti-competitiveeffects will not always be easy to measure.

The s. 96 framework enables the expert Tribunal to holistically assess the entirety of theevidence before it, rather than artificially bifurcating the analysis of qualitative and quantitative effects that may, in some cases, morehelpfully be analyzed together.

Further, while the Commissioner bears the evidentiary burden to lead evidence of the anti-competitive effects of a merger,and bears the risk that the failure to fully quantify such effects where possible may render the evidence insufficient to counter theevidence of efficiency gains, the failure to quantify quantifiable anti-competitive effects does not invalidate the evidence that establishedthere was a known anti-competitive effect of undetermined extent. Relevant evidence is generally admissible, and the failure to lead thebest evidence available goes to weight, not admissibility.

Neither the statutory language of the Act nor its purpose or context require thatan anti-competitive effect of undetermined weight become irrelevant or inadmissible. The Federal Court of Appeal was entitled to conclude that the Tribunal’s finding that prices would have been 10 percentlower in the relevant area in the absence of a merger amounted to evidence of a known anti-competitive effect of undetermined weight. The court was also in a position to accept that T’s pre-existing monopoly was likely to magnify the anti-competitive effects of themerger.

Ultimately, the court was entitled to find that the proven efficiency gains were marginal to the point of being negligible and didnot likely exceed the known (but undetermined) anti-competitive effects. Cases Cited By Rothstein J. Distinguished: Smith v. Alliance Pipeline Ltd., 2011 SCC 7, [2011] 1 S.C.R. 160; Pezim v. British Columbia(Superintendent of Brokers), (SCC), [1994] 2 S.C.R. 557; McLean v. British Columbia (Securities Commission), 2013SCC 67, [2013] 3 S.C.R. 895; referred to: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Alberta (Information andPrivacy Commissioner) v.

Alberta Teachers’ Association, 2011 SCC 61, [2011] 3 S.C.R. 654; Canada (Commissioner of Competition) v.Superior Propane Inc., 2001 FCA 104, [2001] 3 F.C. 185, rev’g 2000 CACT 15 , 2000 Comp. Trib. 15, 7 C.P.R. (4th) 385,leave to appeal dismissed, [2001] 2 S.C.R. xiii; Air Canada v. Canada (Commissioner of Competition), 2002 FCA 121, [2002] 4 F.C.598; Canada (Commissioner of Competition) v. Canada Pipe Co., 2006 FCA 233, [2007] 2 F.C.R. 3; Canada (Commissioner ofCompetition) v. Labatt Brewing Co., 2008 FCA 22, 64 C.P.R. (4th) 181; Canada (Commissioner of Competition) v.

Canadian WasteServices Holdings Inc., (CT), 2001 Comp. Trib. 3, 11 C.P.R. (4th) 425, aff’d 2003 FCA 131, 24 C.P.R. (4th) 178,leave to appeal refused, [2004] 1 S.C.R. vii; Canada (Director of Investigation and Research) v. Hillsdown Holdings (Canada) Ltd.(1992), (CT), 41 C.P.R. (3d) 289; Canada (Director of Investigation and Research) v. Southam Inc., (SCC), [1997] 1 S.C.R. 748; F.H. v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41; Canada (Director of Investigation and Research) v.Laidlaw Waste Systems Ltd. (1992), 40 C.P.R. (3d) 289; BOC International Ltd. v.

Federal Trade Commission, 557 F.2d 24 (1977);Canada (Commissioner of Competition) v. Superior Propane Inc., 2002 CACT 16 , 2002 Comp. Trib. 16, 18 C.P.R. (4th) 417,aff’d 2003 FCA 53, [2003] 3 F.C. 529. By Abella J. Applied: Pezim v. British Columbia (Superintendent of Brokers), (SCC), [1994] 2 S.C.R. 557; McLean v.British Columbia (Securities Commission), 2013 SCC 67, [2013] 3 S.C.R. 895; Smith v. Alliance Pipeline Ltd., 2011 SCC 7, [2011] 1S.C.R. 160; referred to: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Alberta (Information and PrivacyCommissioner) v.

Alberta Teachers’ Association, 2011 SCC 61, [2011] 3 S.C.R. 654; Rogers Communications Inc. v. Society ofComposers, Authors and Music Publishers of Canada, 2012 SCC 35, [2012] 2 S.C.R. 283; Canada (Citizenship and Immigration) v.Khosa, 2009 SCC 12, [2009] 1 S.C.R. 339; Canada (Canadian Human Rights Commission) v. Canada (Attorney General), 2011 SCC53, [2011] 3 S.C.R. 471; Canadian National Railway Co. v.

Canada (Attorney General), 2014 SCC 40, [2014] 2 S.C.R. 135; Agraira v.Canada (Public Safety and Emergency Preparedness), 2013 SCC 36, [2013] 2 S.C.R. 559; Nor-Man Regional Health Authority Inc. v.Manitoba Association of Health Care Professionals, 2011 SCC 59, [2011] 3 S.C.R. 616; Celgene Corp. v. Canada (Attorney General),2011 SCC 1, [2011] 1 S.C.R. 3; Nolan v. Kerry (Canada) Inc., 2009 SCC 39, [2009] 2 S.C.R. 678; Sattva Capital Corp. v. Creston MolyCorp., 2014 SCC 53, [2014] 2 S.C.R. 633. By Karakatsanis J. (dissenting) Canada (Commissioner of Competition) v. Superior Propane Inc., 2002 CACT 16 , 2002 Comp.

Trib. 16, 18 C.P.R.(4th) 417. Statutes and Regulations Cited Act to establish the Competition Tribunal and to amend the Combines Investigation Act and the Bank Act and other Acts in consequence

thereof, Bill C-91, 1st Sess., 33rd Parl., 1985 (assented to June 17, 1986), S.C. 1986, c. 26. Combines Investigation Act, R.S.C. 1970, c. C-23. Competition Act, R.S.C. 1985, c. C-34, ss. 1.1, 79(1)(c), 91 “merger”, 92, 93, 94 to 96. Competition Tribunal Act, R.S.C. 1985, c. 19 (2nd Supp.), s. 13(1). National Energy Board Act, R.S.C. 1985, c. N-7, s. 101. Securities Act, R.S.B.C. 1996, c. 418, s. 167. Securities Act, S.B.C. 1985, c. 83, s. 149(1). Authors Cited Campbell, A. Neil. Merger Law and Practice: The Regulation of Mergers Under the Competition Act. Scarborough, Ont.: Carswell,1997. Canada.

Competition Bureau. Merger Enforcement Guidelines. Gatineau: The Bureau, 2011. Canada. House of Commons. House of Commons Debates, vol. VIII, 1st Sess., 33rd Parl., April 7, 1986, p. 11962. Canada. Minister of Consumer and Corporate Affairs. Competition Law Amendments: A Guide. Ottawa: Supply and Services Canada,1985. Facey, Brian A., and Cassandra Brown. Competition and Antitrust Laws in Canada: Mergers, Joint Ventures and CompetitorCollaborations. Markham, Ont.: LexisNexis, 2013. Facey, Brian A., and Dany H. Assaf. Competition and Antitrust Law: Canada and the United States, 4th ed.

Markham, Ont.: LexisNexis, 2014. Facey, Brian A., Gregory Hilton-Sullivan and Mark Graham. “The Reinvigoration of Canadian Antitrust Law — Canada’s NewApproach to Merger Review” (2010), 6 C.L.I. 28. Merriam-Webster’s Collegiate Dictionary, 11th ed. Springfield, Mass.: Merriam-Webster, 2003, “offset”. Musgrove, James B., Janine MacNeil and Michael Osborne, eds. Fundamentals of Canadian Competition Law, 2nd ed. Toronto: Carswell, 2010. Oxford English Dictionary, 2nd ed. Oxford: Clarendon Press, 1989, “offset”. Stanbury, W. T., and G. B.

Reschenthaler. “Reforming Canadian Competition Policy: Once More Unto the Breach” (1981), 5 Can. Bus.L.J. 381. Trebilcock, Michael, et al. The Law and Economics of Canadian Competition Policy. Toronto: University of Toronto Press, 2002. Waddams, S. M. The Law of Damages, 5th ed. Toronto: Canada Law Book, 2012. Wakil, Omar. The 2014 Annotated Competition Act. Toronto: Carswell, 2013. APPEAL from a judgment of the Federal Court of Appeal (Evans, Stratas and Mainville JJ.A.), 2013 FCA 28, [2014] 2F.C.R. 352, 446 N.R. 261, 360 D.L.R. (4th) 717, [2013] F.C.J.

No. 557 (QL), 2013 CarswellNat 1400 (WL Can.), affirming a decision ofthe Competition Tribunal, 2012 CACT 14 , 2012 Comp. Trib. 14, [2012] C.C.T.D. No. 14 (QL), 2012 CarswellNat 4409 (WLCan.). Appeal allowed, Karakatsanis J. dissenting. John B. Laskin, Linda M. Plumpton, Dany H. Assaf and Crawford G. Smith, for the appellants. Christopher Rupar, John Tyhurst and Jonathan Hood, for the respondent. The judgment of McLachlin C.J. and Rothstein, Cromwell, Moldaver and Wagner JJ. was delivered by Rothstein J. — Table of Contents ParagraphI.

Overview.............................................................................................................................................................................................................. 3 II. Facts............................................................................................................ts. 4 1 3 9

III. Statutory Provisions ................................................................................... ns . 6 IV. Decisions Below ............................................................................................ ............................................................................................ 6 A. Competition Tribunal, [2012] C.C.T.D. No. 14 (QL) 6

(1) Section 92 .

(2) Section 96 . 9 B. Federal Court of Appeal, 2013 FCA 28 , [2014] 2 F.C.R. 352 . 11

(1) Section 92 . 11

(2) Section 96 . 12 V. Issues ............................................................................................................. ............................................................................................................. 14 VI. Analysis ....................................................................................................... is . 15 A. Standard of Review .. 15 B. Merger Review Analysis Under

Section 92 of the Act 17

(1) Merger Review: An Overview .. 17

(2) Determining Whether a Substantial Lessening or Prevention Will Likely Occur 20 (a) “But For” Analysis Should Be Used . 20 (

b) The “But For” Analysis Under Section 92(1) Is Forward-Looking . 21 (

c) Similarities and Differences Between the “Lessening” and “Prevention” Branches of

Section 92 . 22 C. The “Prevention” Branch of Section 92(1) 23

(1) The Law .. 24 (

a) Identify the Potential Competitor . 25 (

b) Examine the “But For” Market Condition . 26 (

i) Likelihood of Entry by One of the Merging Parties . 27 (ii) Likely to Have a Substantial Effect on the Market 32

(2) Application to the Present Case . 32 D. The Efficiencies Defence . 34

(1) History of the Efficiencies Defence . 35

(2) Jurisprudential History of

Section 96 . 37

(3) Methodological Approaches to

Section 96 . 38

(4) Order Implementation Efficiencies Are Not Valid Efficiencies Under

Section 96 . 43

(5) The Balancing Test Under

Section 96 . 51 (

a) The Commissioner’s Burden . 51 (

i) The Content of the Commissioner’s Burden . 52 (ii) What Consequences Flow From a Failure to Meet the Burden? . 53 (

b) The Approach to the

Section 96 Balancing . 61 (

i) The Requirement That the Efficiency Gains Be “Greater Than” and 10 10 11 17 23 25 28 33 34 34 41 42 49 49 52 54 56 60 61 64 67 78 80 84 85 88 91 102 121 122 123 127 141 142 156 159

“Offset” the Anti-competitive Effects . 61 (ii) Pre-existing Monopoly . 69 (iii) Application to This Case . 70 (

c) The Commissioner’s Alternative Argument 71 (

d) Conclusion on the Balancing Under

Section 96 . 73

(6) Postscript 75 VII. Conclusion ................................................................................................. on . 75 Appendix : Sections 1.1 , 79(1) , 92 , 93 and 96 of the Competition Act , R.S.C. 1985, c. C-34 161 165 167 168 I. Overview [ 1 ] The appellant in this case, Tervita Corp., operates two hazardous waste secure landfills in British Columbia. In February 2010, Tervita Corp. acquired a company which held a permit for another secure landfill site.

This transaction attracted the attention of the Commissioner of Competition, who initiated the merger review process under the Competition Act , R.S.C. 1985, c. C-34 (the “Act”). [ 2 ] The purpose of the Act is in part “to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy” ( s. 1.1 ). It is within this context that merger reviews are conducted. This appeal provides this Court the opportunity to address two issues in merger review: the “prevention” branch of s. 92 and the s. 96 efficiencies defence. II.

Facts [ 3 ] Four permits for the operation of secure landfills for the disposal of hazardous waste generated by oil and gas operations have been issued in Northeastern British Columbia. The appellant Tervita Corp. holds two of the permits and operates two hazardous waste landfills pursuant to them: the Silverberry (capacity for 6,000,000 tonnes of waste) and Northern Rockies (3,344,000 tonnes) landfills.

A third permit was issued for the Peejay site, a site developed by an Aboriginal community, but the landfill has not yet been constructed. [ 4 ] The fourth permit, Babkirk site, is held by the appellant Babkirk Land Services Inc. (“Babkirk”), a wholly owned subsidiary of the appellant Complete Environmental Inc. (“Complete”). The previous Babkirk owners operated a hazardous waste landfill on the site from 1998 to 2004.

In 2009, they sold Babkirk to Complete, which is owned and controlled by five investors (the “Vendors”). [ 5 ] The Vendors intended to begin operating the Babkirk site mainly as a bioremediation facility which would treat contaminated soil using micro-organisms, and to complement the bioremediation site with a secure landfill facility to store hazardous waste not amenable to bioremediation. In February 2010, the Vendors received a permit for this secure landfill with a capacity of 750,000 tonnes. [ 6 ] Soon afterwards, a company called Integrated Resources Technologies Ltd. (“IRTL”) offered to purchase Complete.

The Vendors then explored the possibility of selling to other third parties. Secure Energy Services (“SES”) showed some interest, but at a lower price. The Vendors decided to accept IRTL’s offer, but it was withdrawn in June 2010 due to lack of financing. In one last attempt to sell, the Vendors pursued various discussions with SES and Tervita Corp., then known as CCS Corp. (hereinafter “Tervita Corp.”).

In July 2010, the Vendors reached an understanding with Tervita Corp. and a letter of intent was signed. [ 7 ] The sale of the Vendors’ shares in Complete (including Babkirk and the Babkirk site) closed on January 7, 2011. However, prior to closing, the Commissioner of Competition informed the parties that she opposed the transaction on the ground that it was likely to substantially prevent competition in secure landfill services in Northeastern British Columbia.

After closing, the Commissioner asked the Competition Tribunal to order, pursuant to s. 92 of the Competition Act , that the transaction be dissolved, or in the alternative, that Tervita Corp. divest itself of Complete or Babkirk. [ 8 ] The three appellants in this appeal, Tervita Corp., Complete and Babkirk, are hereinafter referred to collectively as “Tervita”. III. Statutory Provisions [ 9 ] The relevant statutory provisions in this case are included in the Appendix. The statutory provisions most directly at issue in this appeal are ss. 92 , 93 and 96 of the Act . IV. Decisions Below A.

Competition Tribunal, [2012] C.C.T.D. No. 14 (QL) [ 10 ] Pursuant to s. 92, the Tribunal found that the merger was likely to prevent competition substantially in the relevant market. The Tribunal further found that Tervita had not brought itself within the efficiencies exception contained in s. 96 that would have permitted the merger notwithstanding s. 92. It found that the efficiencies gained by the merger were not greater than the effects of the

likely prevention of competition resulting from the merger, and would not offset those effects. It ordered Tervita to divest itself of Babkirk.

(1) Section 92 [ 11 ] The Tribunal assessed whether “effective competition in the relevant market likely [would] have emerged ‘but for’ the [m]erger” (para. 129). The parties “essentially agreed” that the commencement of the timeframe for considering the “but for” market condition, i.e. a market condition where the merger did not occur, was the end of July 2010 (para. 131). This was the point in time a letter of intent between Tervita and the Vendors was signed.

The Tribunal agreed that this timeframe commenced at the end of July 2010. [ 12 ] As of the end of July 2010, the Tribunal saw only two realistic scenarios for the Babkirk site: 1. The Vendors would have sold to a waste company called [SES], which would have operated a Secure Landfill; or 2. The Vendors would have operated a bioremediation facility together with a half cell of Secure Landfill. [para. 132] [ 13 ] The Tribunal found that, on a balance of probabilities, SES would not have made an acceptable offer for the Complete site at any time during the summer of 2010.

Thus, according to the Tribunal, the Vendors would have moved forward with the second option: operate the Babkirk site as a bioremediation facility. [ 14 ] Bioremediation is a “method of treating soil by using micro-organisms to reduce contamination” (para. 42). The Tribunal concluded that the Vendors would have had the bioremediation facility fully operational by October 2011, but that it would have been unprofitable. The Tribunal concluded that it was “unreasonable to suppose that [the Vendors] would have been prepared to operate unprofitably beyond the fall of 2012” (para. 206).

Accordingly, the Tribunal found that the Vendors would have either begun operating the Babkirk site as a secure landfill themselves or would have sold the site to a purchaser who would have operated the site as a secure landfill. Either way, the Babkirk site full-service secure landfill would have been a “direct and substantial” competitor with Tervita no later than the spring of 2013 (para. 215). [ 15 ] The Tribunal found that a likely effect of the merger would have been to allow Tervita to maintain its ability to exercise materially greater market power than it would in the absence of the merger.

It found that in the absence of the merger, disposal fees, called “tipping fees” in the industry, would have been 10 percent lower in the “Contestable Area” (the relevant geographic market) (para. 229(iii)). [ 16 ] The Tribunal concluded that the merger was likely to prevent competition substantially.

(2) Section 96 [ 17 ] The s. 96 efficiencies defence is an exception to the application of s. 92. The defence prohibits the Tribunal from making an order precluding a merger when it finds that the merger is likely to bring about gains in efficiency that would be greater than and would offset the anti-competitive effects of the merger. [ 18 ] The Tribunal found that the Commissioner had failed to meet her burden to demonstrate the extent of the quantifiable anti-competitive effects.

The Commissioner’s expert had only estimated that a price decrease of 10 percent would be precluded by the merger but provided no estimate of the volume having regard to the elasticity of demand. The Tribunal found that this meant that Tervita could not take a position about whether the number it calculated as its total efficiencies was greater than the adverse effects of the merger (para. 246). However, the Tribunal concluded that, “in the unusual circumstances of this case”, Tervita was not prejudiced by the Commissioner’s failure to quantify the anti-competitive effects of the merger.

Tervita was still able to effectively attack the Commissioner’s expert’s findings and assert the s. 96 defence (para. 246).

The Tribunal accepted, on a balance of probabilities, the Commissioner’s expert’s estimate of a minimum annual deadweight loss (paras. 301-3). [ 19 ] The Tribunal also accepted what it found to be qualitative anti-competitive effects — namely environmental effects related to price reduction on-site clean-up and “value propositions”, or offers Tervita would have made in a competitive environment to certain customers resulting in lower total cost for overall waste services used by such customers (paras. 306-7). [ 20 ] The Tribunal rejected most of Tervita’s claimed efficiencies gains because they would likely be achieved even if the divestiture order were made (para. 265).

The Tribunal also rejected the claimed “order implementation efficiencies” (“OIEs”) — those transportation and market expansion efficiencies resulting from delays associated with the implementation of a divestiture order. The Tribunal held that OIEs are not cognizable under s. 96 , because to give merging parties the benefit of these efficiencies would be contrary to the purposes of the Act (para. 270).

The Tribunal did accept “overhead” efficiencies claimed by Tervita (para. 275). [ 21 ] The Tribunal weighed the proven quantifiable efficiency gains against the quantifiable anti-competitive effects it accepted and found that the combined quantitative and qualitative efficiency gains were not likely to be “greater than” the combined quantitative and qualitative anti-competitive effects (paras. 313-14).

The Tribunal further supported this conclusion on the basis that, in the absence of a s. 92 order, the merger would maintain a monopolistic structure in the relevant market, thus precluding “benefits of competition that will arise in ways that will defy prediction” (para. 317). [ 22 ] In his concurring reasons, Chief Justice Crampton [1] held that for non-quantified effects, where there is not sufficient evidence to provide even a rough quantification of an effect that is ordinarily quantifiable, the Tribunal is still able to accord this factor some qualitative weight (para. 408). B.

Federal Court of Appeal, 2013 FCA 28 , [2014] 2 F.C.R. 352

[ 23 ] Tervita appealed to the Federal Court of Appeal, challenging the divestiture order made by the Tribunal. [ 24 ] The Federal Court of Appeal first determined that the Tribunal’s findings on questions of law should be reviewed on a standard of correctness, while its findings on questions of fact or of mixed law and fact should be reviewed on a standard of reasonableness (paras. 52-68).

(1) Section 92 [ 25 ] The Federal Court of Appeal confirmed the Tribunal’s approach that the analysis required under s. 92 of the Act is “necessarily forward-looking” (para. 87) and therefore the Tribunal was correct in “look[ing] into the future to ascertain whether the [Babkirk site entering] the market would have occurred within a reasonable period of time” (para. 88).

While recognizing that what constitutes a reasonable period of time will “necessarily vary from case to case and will depend on the business under consideration” (para. 89), the court set out two guidelines for determining what constitutes a “reasonable period of time”: (1) “the time frame must be discernible” (para. 90), and (2) “the time frame for market entry should normally fall within the temporal dimension of the barriers to entry into the market at issue” (para. 91). [ 26 ] Applying those guidelines, the Federal Court of Appeal held that the Tribunal “discerned a clear time frame under which the Babkirk site would enter the market for secure landfills” (para. 92) and that this discernible timeframe “was also well within the temporal framework of the barriers to market entry” (para. 94). [ 27 ] The Federal Court of Appeal upheld the Tribunal’s conclusion that the proposed merger would likely substantially prevent competition.

(2) Section 96 [ 28 ] The Federal Court of Appeal found that the Tribunal had erred in allowing the Commissioner to discharge her burden of proving the quantifiable anti-competitive effects through a reply expert report setting out a “rough estimate” of the deadweight loss arising from the merger (para. 128). Tervita had suffered prejudice because the Tribunal had accepted the methodology of the Commissioner’s expert which was “clearly deficient” (para. 124) as the methodology used was not capable of calculating the deadweight loss (paras. 123-25).

Although Tervita has the ultimate burden of establishing that the efficiency gains are greater than and offset the anti- competitive effects, this “does not relieve the Commissioner of her burden to prove the anti-competitive effects and to quantify those effects where possible” (para. 127). [ 29 ] The Federal Court of Appeal agreed with the Tribunal that to recognize the OIEs would be contrary to the overall scheme of the Act (para. 135).

Further, because Tervita had still not started to build or operate at the Babkirk site, those gains had not been and never would be realized (para. 138). [ 30 ] Respecting the final balancing under s. 96, the Federal Court of Appeal found that the Tribunal had generally set out the right test (para. 146), except that its methodology was overly subjective. Efficiencies and anti-competitive effects should be quantified wherever reasonably possible, and the weight given to unquantifiable qualitative effects must be reasonable (para. 148).

The court held that the Tribunal erred in a number of respects, including considering qualitative environmental effects that were not cognizable under s. 96 (paras. 155-56), double-counting the reduced site clean-up as both a qualitative effect and as part of the deficient deadweight loss analysis (para. 157) and considering Tervita Corp.’s monopoly as a distinct anti-competitive effect (paras. 159-61). [ 31 ] In the Federal Court of Appeal’s fresh assessment of the matter, it concluded that the quantitative anti-competitive effects of the merger which were not quantified by the Commissioner should be afforded an “undetermined” weight (paras. 167-68), as opposed to a weight of zero.

In this case, the merger only provided marginal gains in efficiency while at the same time strengthening the market monopoly in the area (para. 169). The court held that an anti-competitive merger cannot be approved under s. 96 if only marginal or insignificant gains in efficiency result from it (paras. 170-72). In this case, the conclusion was strengthened because “a pre-existing monopoly, such as is the case here, will usually magnify the anti-competitive effects of a merger” (para. 173). [ 32 ] The Federal Court of Appeal dismissed Tervita’s appeal. V. Issues [ 33 ] This appeal raises three issues: 1.

What is the appropriate standard of review? 2. What is the proper legal test to determine when a merger gives rise to a substantial prevention of competition under s. 92(1) of the Act ? 3. What is the proper approach to the efficiencies defence under s. 96 of the Act and, in this respect:

a. Can order implementation efficiencies be included as efficiency gains in the balancing analysis? b. What is the proper approach to the requirement that efficiency gains be greater than and offset the anti-competitive effects? VI. Analysis A. Standard of Review [34] The parties agree that the Federal Court of Appeal properly applied a correctness standard of review to theTribunal’s determinations of questions of law.

I agree that correctness is the applicable standard in this case. [35] The questions at issue are questions of law arising under the Tribunal’s home statute and therefore a standard ofreasonableness presumptively applies (Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, at para. 54; Smith v. AlliancePipeline Ltd., 2011 SCC 7, [2011] 1 S.C.R. 160, at para. 28, per Fish J.; Alberta (Information and Privacy Commissioner) v. AlbertaTeachers’ Association, 2011 SCC 61, [2011] 3 S.C.R. 654, at para. 30).

However, the presumption of reasonableness is rebutted in thiscase. [36] A decision or order of the Tribunal on a question of law is appealable as of right as if “it were a judgment of theFederal Court” with the proviso that leave is required for appeals on questions of fact (Competition Tribunal Act, R.S.C. 1985, c. 19 (2ndSupp.), s. 13(1)). The Federal Court of Appeal has consistently held that questions of law arising from decisions of the Tribunal shouldbe reviewed on a correctness standard (see Canada (Commissioner of Competition) v.

Superior Propane Inc., 2001 FCA 104, [2001] 3F.C. 185 (“Superior Propane II”), at paras. 59-91; see also Air Canada v. Canada (Commissioner of Competition), 2002 FCA 121,[2002] 4 F.C. 598, at para. 43; Canada (Commissioner of Competition) v. Canada Pipe Co., 2006 FCA 233, [2007] 2 F.C.R. 3, at para.34; Canada (Commissioner of Competition) v. Labatt Brewing Co., 2008 FCA 22, 64 C.P.R. (4th) 181, at para. 5). [37] In finding that the presumption of reasonableness is not rebutted, Justice Abella acknowledges that the statutorylanguage in the appeal provisions in Pezim v.

British Columbia (Superintendent of Brokers), (SCC), [1994] 2 S.C.R.557; McLean v. British Columbia (Securities Commission), 2013 SCC 67, [2013] 3 S.C.R. 895; and Smith differs from the language atissue here, but is of the opinion that “it is not sufficiently different to undermine the established principle of deference to tribunalexpertise in the

interpretation of the tribunal’s own statute” (para. 179). [38] With respect, the difference in statutory language between the Competition Tribunal Act and the legislation reliedupon by Justice Abella is significant. The appeal provision at issue in Pezim and McLean provided that individuals affected by decisionsof the B.C. Securities Commission “may appeal to the Court of Appeal with leave of a justice of that court” (Securities Act, S.B.C. 1985,c. 83, s. 149(1), which later became Securities Act, R.S.B.C. 1996, c. 418, s. 167(1)).

The appeal provision in Smith provided that, underthe National Energy Board Act, R.S.C. 1985, c. N-7, “[a] decision, order or direction of an Arbitration Committee may, on a question oflaw or a question of jurisdiction, be appealed to the Federal Court” (s. 101).

By contrast, the Competition Tribunal Act provides that “anappeal lies to the Federal Court of Appeal from any decision or order . . . of the Tribunal as if it were a judgment of the Federal Court” (s.13(1)). [39] The statutes at issue in Pezim, McLean, and Smith did not contain statutory language directing that appeals oftribunal decisions were to be considered as though originating from a court and not an administrative source.

The appeal provision in theCompetition Tribunal Act evidences a clear Parliamentary intention that decisions of the Tribunal be reviewed on a less than deferentialstandard, supporting the view that questions of law should be reviewed for correctness and questions of fact and mixed law and fact forreasonableness. The presumption that questions of law arising under the home statute should be reviewed for reasonableness is rebuttedhere. [40] I also agree with the Federal Court of Appeal that the standard of review for mixed questions of fact and law andquestions of fact is reasonableness.

Reasonableness is normally the “governing standard” for questions of fact or mixed fact and law(Smith, at para. 26). In this case, there is nothing to indicate that this presumption should be rebutted. B. Merger Review Analysis Under

Section 92 of the Act [41] At the outset, it will be helpful to provide a brief overview of the merger review process under the Act.

(1) Merger Review: An Overview [42] Merger review is conducted under s. 92 of the Act. A merger is “an acquisition of control or a significant interest inall or part of the business of another” (B. A. Facey and D. H. Assaf, Competition and Antitrust Law: Canada and the United States (4thed. 2014), at p. 205).

Section 91 of the Act defines merger as follows: 91. [Definition of “merger”] In sections 92 to 100, “merger” means the acquisition or establishment, direct or indirect, by one or morepersons, whether by purchase or lease of shares or assets, by amalgamation or by combination or otherwise, of control over or significantinterest in the whole or a part of a business of a competitor, supplier, customer or other person. [43] A merger review is designed to identify those mergers that will have anti-competitive effects (Facey and Assaf, at p.209).

Section 92 identifies these anti-competitive effects as either substantially lessening competition or substantially preventingcompetition. Section 92(1) provides for remedial orders to be made when a merger is found to either lessen or prevent competitionsubstantially. [44] Generally, a merger will only be found to meet the “lessen or prevent substantially” standard where it is “likely tocreate, maintain or enhance the ability of the merged entity to exercise market power, unilaterally or in coordination with other firms” (O.

Wakil, The 2014 Annotated Competition Act (2013), at p. 246). Market power is the ability to “profitably influence price, quality, variety,service, advertising, innovation or other dimensions of competition” (Canada (Commissioner of Competition) v. Canadian WasteServices Holdings Inc., (CT), 2001 Comp. Trib. 3, 11 C.P.R. (4th) 425, at para. 7, aff’d 2003 FCA 131, 24 C.P.R.(4th) 178, leave to appeal refused, [2004] 1 S.C.R. vii).

Or, in other words, market power is “the ability to maintain prices above thecompetitive level for a considerable period of time without such action being unprofitable” (Canada (Director of Investigation andResearch) v. Hillsdown Holdings (Canada) Ltd. (1992), (CT), 41 C.P.R. (3d) 289 (Comp. Trib.), at p. 314); where“price” is “generally used as shorthand for all aspects of a firm’s actions that have an impact on buyers” (J. B. Musgrove, J. MacNeil andM. Osborne, eds., Fundamentals of Canadian Competition Law (2nd ed. 2010), at p. 29).

If a merger does not have or likely have marketpower effects, s. 92 will not generally be engaged (B. A. Facey and C. Brown, Competition and Antitrust Laws in Canada: Mergers,Joint Ventures and Competitor Collaborations (2013), at p. 141). [45] The merger’s likely effect on market power is what determines whether its effect on competition is likely to be“substantial”. Two key components in assessing substantiality under the “lessening” branch are the degree and duration of the exercise ofmarket power (Hillsdown, at pp. 328-29).

There is no reason why degree and duration should not also be considered under the“prevention” branch. [46] What constitutes “substantial” will vary from case to case. The Tribunal has not found it useful to apply rigidnumerical criteria: What will constitute a likely “substantial” lessening will depend on the circumstances of each case. . . .Various tests have been proposed:a likely 5% price rise sustainable for one year; a 5% price rise sustainable over two years; a small but significant and non-transitory pricerise.

The Tribunal does not find it useful to apply rigid numerical criteria although these may be useful for enforcement purposes. (Hillsdown, at pp. 328-29) [47] If the Tribunal concludes that the merger substantially lessens or prevents or is likely to substantially lessen orprevent competition, the Tribunal is empowered to make a remedial order pursuant to s. 92(1)(

e) and (f). The Tribunal “may prohibit theparties from proceeding with all or part of the merger, or it may order the dissolution of a completed merger or divestiture of assets orshares” (Musgrove, MacNeil and Osborne, at p. 185). [48] The ability to make a remedial order is subject to exceptions (see ss. 94 to 96 of the Act). For the purposes of thisappeal, only s. 96, the so-called efficiencies defence, is relevant. After a finding that a merger engages s. 92(1), s. 96 may be invoked bythe parties to the merger to preclude a s. 92 remedial order.

Section 96 will preclude such an order if it is found that the merger is likelyto bring about efficiencies that are greater than and will offset the anti-competitive effects resulting from the merger.

(2) Determining Whether a Substantial Lessening or Prevention Will Likely Occur (a) “But For” Analysis Should Be Used [49] The Tribunal, relying on Canada Pipe, used the “but for” test to assess the merger in this case. [50] Canada Pipe was a case involving abuse of dominance under s. 79(1)(

c) of the Act. The words of s. 79(1)(c) — “ishaving or is likely to have the effect of preventing or lessening competition substantially in a market” — are very close to the words of s.92(1) — “likely to prevent or lessen” — and convey the same ideas. In Canada Pipe, the Federal Court of Appeal employed a “but for”test to conduct the inquiry: . . . the Tribunal must compare the level of competitiveness in the presence of the impugned practice with that which would exist in theabsence of the practice, and then determine whether the preventing or lessening of competition, if any, is “substantial”. . . . The comparative

interpretation described above is in my view equivalent to the “but for” test proposed by the appellant. [paras. 37-38] [51] A similar comparative analysis is conducted under s. 92(1). A merger review, by its nature, requires examining acounterfactual scenario: “. . . whether the merger will give the merged entity the ability to prevent or lessen competition substantiallycompared to the pre-merger benchmark or ‘but for’ world” (Facey and Brown, at p. 205). The “but for” test is the appropriate analyticalframework under s. 92. (

b) The “But For” Analysis Under Section 92(1) Is Forward-Looking [52] The words of the Act and the nature of the “but for” merger review analysis that must be conducted under s. 92 ofthe Act require that this analysis be forward-looking. [53] The Tribunal must determine whether “a merger or proposed merger prevents or lessens, or is likely to prevent orlessen, competition substantially”. While the tense of the words “prevents or lessens” indicates existing circumstances, the ordinarymeaning of “is likely to prevent or lessen” points to events in the future.

To the same effect, the French text of s. 92(1) states “qu’unfusionnement réalisé ou proposé empêche ou diminue sensiblement la concurrence, ou aura vraisemblablement cet effet”. Both theEnglish and French text allow for a forward-looking analysis. This proposition is not controversial. Both parties to this appeal agree thata forward-looking analysis is appropriate.

(

c) Similarities and Differences Between the “Lessening” and “Prevention” Branches of

Section 92 [54] In his concurring reasons at the Tribunal, Crampton C.J. found that the assessment of a merger review under eitherthe “prevention” or “lessening” branch is “essentially the same” (para. 367). Both focus on “whether the merged entity is likely to beable to exercise materially greater market power than in the absence of the merger” (ibid.). Under both branches, the lessening orprevention in question must be “substantial” (Canada (Commissioner of Competition) v. Superior Propane Inc., 2000 CACT 15, 2000 Comp. Trib. 15, 7 C.P.R. (4th) 385 (“Superior Propane I”), at paras. 246 and 313).

And the analysis under both the“lessening” and “prevention” branches is forward-looking. [55] However, there are some differences between the two branches. In determining whether competition is substantiallylessened, the focus is on whether the merged entity would increase its market power. Under the “prevention” branch, the focus is onwhether the merged entity would retain its existing market power.

As explained by Chief Justice Crampton in his concurring reasons: In determining whether competition is likely to be lessened, the more particular focus of the assessment is upon whether the merger islikely to facilitate the exercise of new or increased market power by the merged entity, acting alone or interdependently with one or morerivals.

In determining whether competition is likely to be prevented, that more particular focus is upon whether the merger is likely topreserve the existing market power of one or both of the merging parties, by preventing the erosion of such market power that otherwiselikely would have taken place if the merger did not occur. [Emphasis in original.] (Tribunal decision, at para. 368) C. The “Prevention” Branch of Section 92(1) [56] While this Court has had occasion to consider the “lessening” branch of s. 92(1) in Canada (Director of Investigationand Research) v.

Southam Inc., (SCC), [1997] 1 S.C.R. 748, this is the first case in which we have had the opportunityto focus on the “prevention” branch of s. 92(1). [57] Tervita seeks clarity as to the appropriate legal test under the “prevention” branch. In Tervita’s view, the “Tribunalerred in its application of the legal test for a substantial prevention of competition” (A.F., at para. 59). Tervita argues that “the Actrequires that the Tribunal focus its analysis on the merger under review” (ibid.).

Tervita acknowledges that s. 92 does involve a forward-looking approach, but submits that what should be projected into the future is the merging parties as they are, with their assets, plans andbusinesses at the time of the merger.

Tervita argues that the Act does not permit the Tribunal to speculate, as it says it did in this case,and that its “fundamental error” is that it focused “not on the merger between Tervita and [the Vendors], but rather on how competitionmight have developed looking years into the future” (A.F., at para. 71). [58] My understanding of Tervita’s argument is that the wording of s. 92 essentially limits the inquiry to whether theBabkirk site was a viable competitive entrant into the secure landfill market at the time it was acquired by Tervita.

That is, in order toestablish that the merger is likely to substantially prevent competition, a party to the merger must be a potential competitor based on theassets, plans and businesses of the party at the time of the merger. [59] For the reasons that follow, I am unable to agree with Tervita. Rather, I agree with the Commissioner that thewording of s. 92 generally supports the analysis and conclusions of the Tribunal and the Federal Court of Appeal with respect to s. 92.

(1) The Law [60] The concern under the “prevention” branch of s. 92 is that a firm with market power will use a merger to preventcompetition that could otherwise arise in a contestable market. The analysis under this branch requires looking to the “but for” marketcondition to assess the competitive landscape that would likely exist if there was no merger. It is necessary to identify the potentialcompetitor, assess whether but for the merger that potential competitor is likely to enter the market and determine whether its effect onthe market would likely be substantial. (

a) Identify the Potential Competitor [61] The first step is to identify the firm or firms the merger would prevent from independently entering the market, i.e.identifying the potential competitor. In the competition law jurisprudence “entry” is considered “either the establishment of a new firm inthe market whether entirely new to the industry or new to the geographic area . . ., or local firms which previously did not offer theproduct in question commencing to do so” (Hillsdown, at p. 325). [62] Typically, the potential competitor will be one of the merged parties: the acquired firm or the acquiring firm.

Thepotential entry of the acquired firm will be the focus of the analysis when, but for the merger, the acquired firm would likely haveentered the relevant market.

The potential entry of the acquiring firm will be the focus of the analysis when, but for the merger, theacquiring firm would have entered the relevant market independently or through the acquisition and expansion of a smaller firm, a so-called “toehold” entry. [63] I would also not rule out the possibility that, as suggested by Chief Justice Crampton in his concurring reasons, alikely substantial prevention of competition could stem from the merger preventing “another type of future competition” (para. 386).

Iinterpret this to mean that it is possible that a third party entrant, one not involved in the merger, may be prevented from entering themarket as a result of the merger. (

b) Examine the “But For” Market Condition [64] The second step in determining whether a merger engages the “prevention” branch is to examine the “but for”

market condition to see if, absent the merger, the potential competitor (usually one of the merging parties) would have likely entered the market and if so whether that entry would have decreased the market power of the acquiring firm. If the independent entry has no effect on the market power of the acquiring firm then the merger cannot be said to prevent competition substantially. [ 65 ] Tervita argues that the intention of s. 92 is “to establish a merger test that provides certainty to Canadian businesses” (A.F., at para. 66).

However, the term “likely” in s. 92 does not require certainty. “Likely” reflects the reality that merger review is an inherently predictive exercise, but it does not give the Tribunal licence to speculate; its findings must be based on evidence. [ 66 ] There is only one civil standard of proof: proof on a balance of probabilities ( F.H. v. McDougall , 2008 SCC 53 , [2008] 3 S.C.R. 41, at paras. 40 and 49 ). This means that in order for s. 92 of the Act to be engaged, the Tribunal must be of the view that it is more likely than not that the merger will result in a substantial prevention of competition.

Mere possibilities are insufficient to meet this standard. And, as will be discussed, as events are projected further into the future, the risk of unreliability increases such that at some point the evidence will only be considered speculative. (

i) Likelihood of Entry by One of the Merging Parties [ 67 ] In determining whether one of the merging parties would, in the absence of the merger, be likely to enter the market independently, any factor that in the opinion of the Tribunal could influence entry upon which evidence has been adduced should be considered.

This will include the plans and assets of that merging party, current and expected market conditions, and other factors listed in s. 93 of the Act . [ 68 ] Where the evidence does not support the conclusion that one of the merging parties or a third party would enter the market independently, there cannot be a finding of likely prevention of competition by reason of the merger. To the same effect, where the evidence is only that there is a possibility of the merging party entering the market at some time in the future, a finding of likely prevention cannot be made.

In this respect, I agree with Justice Mainville that the timeframe for entry must be discernible (F.C.A. decision, at para. 90). While timing does not need to be a “precisely calibrated determination” ( ibid. ), there must be evidence of when the merging party is realistically expected to enter the market in absence of the merger. Otherwise the timing of entry is simply speculative and the test of likelihood of prevention of competition is not met. Even where there is evidence of a timeframe for independent entry, the farther into the future predictions are made, the less reliable they will be.

The Tribunal must be cautious in declaring a lengthy timeframe to be discernible, especially when entry depends on a number of contingencies. [ 69 ] My understanding of Tervita’s argument is that it seeks to limit the Tribunal’s ability to look into the future to what can be discerned from the merging parties’ assets, plans and business at the time of the merger.

However, in my view, there is no legal basis to restrict the evidence the Tribunal can look at in this way. [ 70 ] Justice Mainville held that how far into the future the Tribunal can look when assessing whether, but for the merger, the merging party would have entered the market should normally be determined by the lead time required to enter a market due to barriers to entry, which he referred to as the “temporal dimension” of the barriers to entry: “. . . the time frame for market entry should normally fall within the temporal dimension of the barriers to entry into the market at issue” (F.C.A. decision, at para. 91). [ 71 ] Barriers to entry relate to how easily a firm can commence business in the relevant market and establish itself as a viable competitor ( Canada (Director of Investigation and Research) v.

Laidlaw Waste Systems Ltd. (1992), 40 C.P.R. (3d) 289, at p. 330) . The lead time required to enter a market due to barriers to entry (“lead time”) refers to the inherent time delay that a new entrant, facing certain barriers and acting diligently to overcome them, could be expected to experience when trying to enter the market. [ 72 ] In setting lead time as the appropriate length of time to consider, Justice Mainville relied on the American case BOC International Ltd. v.

Federal Trade Commission , 557 F.2d 24 (2d Cir. 1977), which considered whether a merger violated s. 7 of the Clayton Act , 15 U.S.C. § 18, under the “actual potential competition” doctrine, the U.S. equivalent of the “prevention” branch of s. 92 of the Act . BOC International turned on whether the evidence was sufficient to meet the requirements under the “actual potential competition” doctrine. The U.S.

Federal Trade Commission found that there was a “reasonable probability” that the acquiring firm would have “eventually entered” the U.S. market but for its acquisition of the acquired company ( BOC International , at p. 28). [ 73 ] The Second Circuit Court of Appeals held that the language “eventual entry” made the overall test based largely on “ephemeral possibilities” ( BOC International , at pp. 28-29). An actual potential entrant should be expected to enter in the “near” future, with “near” being defined in relation to the barriers to entry relevant in that particular industry: . . . it seems necessary under

Section 7 that the finding of probable entry at least contain some reasonable temporal estimate related to the near future, with “near” defined in terms of the entry barriers and lead time necessary for entry in the particular industry, and that the finding be supported by substantial evidence in the record. ( BOC International , at p. 29) [ 74 ] Neither Justice Mainville nor BOC International expressly explain why the lead time should establish the length of time the Tribunal can look into the future when assessing whether, absent the merger, there would have been likely independent entry of one of the merging parties.

Though Justice Mainville notes that lead time should be treated “as a guidepost and not as a fixed temporal rule” (para. 91), it is important to emphasize that lead time should not be used to justify predictions about the distant future. In some contexts, relevant lead time may be short, and thus a determination of whether market entry is likely within that timeframe may be sufficiently definite to meet the “likely” test.

However, in other contexts — for example, those where product development or regulatory approval processes may extend for some years — the lead time may be so lengthy that a determination of the probability of market entry at the far end of that timeframe would be influenced by so many unknown and unknowable contingencies as to render such a prediction largely speculative.

[ 75 ] The timeframe that can be considered must of course be determined by the evidence in any given case. The evidence must be sufficient to meet the “likely” test on a balance of probabilities, keeping in mind that the further into the future the Tribunal looks the more difficult it will be to meet this test. Lead time is an important consideration, though this factor should not support an effort to look farther into the future than the evidence supports. [ 76 ] Business can be unpredictable and business decisions are not always based on objective facts and dispassionate logic; market conditions may change.

In assessing whether a merger will likely prevent competition substantially, neither the Tribunal nor courts should claim to make future business decisions for companies.

Factual findings about what a company may or may not do must be based on evidence of the decision the company itself would make; not the decision the Tribunal would make in the company’s circumstances. [ 77 ] If the Tribunal determines that the identified merging party would, absent the merger, be likely to enter within a discernible timeframe, the next question is whether this entry would likely result in a substantial effect on competition in the market. (ii) Likely to Have a Substantial Effect on the Market [ 78 ] It is not enough that a potential competitor must be likely to enter the market; this entry must be likely to have a substantial effect on the market.

As discussed above, assessing substantiality requires assessing a variety of dimensions of competition including price and output. It also involves assessing the degree and duration of any effect it would have on the market. [ 79 ]

Section 93 provides a non-exhaustive list of factors that may be considered when assessing whether a merger substantially lessens or prevents competition or is likely to do so, including whether a party is a failing business, the availability of acceptable substitutes, barriers to entry into the relevant market, the extent to which effective competition remains or would remain after a merger, and whether the merger would result in the removal of a vigorous and effective competitor.

(2) Application to the Present Case [ 80 ] The Tribunal’s analytical framework and conclusion that the merger will likely substantially prevent competition are, in my view, correct. The Tribunal correctly applied the analytical framework set out above. It used a forward-looking “but for” analysis to determine whether the merger was likely to substantially prevent competition. The Tribunal identified the acquired party, the Vendors, as the focus of the analysis.

The Tribunal then assessed whether, but for the merger, the Vendors would have likely entered the relevant product market in a manner sufficient to compete with Tervita. [ 81 ] The Tribunal concluded that the merger “is more likely than not to maintain the ability of [Tervita] to exercise materially greater market power than in the absence of the [m]erger, and that the [m]erger is likely to prevent competition substantially” (para. 229(iv)).

In coming to this conclusion the Tribunal assessed a number of the s. 93 factors including the following: • barriers to entry were “at least 30 months” and there was “no evidence of any proposed entry in the Contestable Area” (para. 222; see s. 93 ( d )); • there is an absence of acceptable substitutes and effective remaining competition (para. 223; see s. 93( c )); • there would be sufficient demand for secure landfill services to make transforming the Babkirk site to a secure landfill profitable as demand has “been projected to increase as new drilling is undertaken in the area north and west of Babkirk” (para. 207; see s. 93 ( f )); • the permitted capacity of the Babkirk site was sufficient to allow it to “compete effectively” with Tervita (para. 208; see s. 93 ( f )); and • “the [m]erger preserves a monopolistic market structure, and thereby prevents the emergence of potentially important competition” (para. 297; see s. 93( e )). [ 82 ] I agree with the Commissioner that “the Tribunal did not speculate on what would happen to the Babkirk site . . . .

It made findings of fact based on the abundant evidence before it” (R.F., at para. 61). The reasonableness of the factual findings were reviewed by the Federal Court of Appeal and found to be supported by sufficient evidence.

While, as will be discussed, I question the Tribunal’s treatment of the asserted 10 percent reduction in prices that would allegedly have been realized in the absence of a merger (para. 229(iii)), it is evident that there was sufficient other evidence upon which the Tribunal could find a substantial prevention of competition as a result of the merger. [ 83 ] Accordingly, the Tribunal’s conclusion that the merger is likely to substantially prevent competition was correct. As s. 92 is engaged, it is necessary to determine whether the s. 96 defence applies to prevent the making of an order under s. 92. D.

The Efficiencies Defence [ 84 ] Tervita raises two issues with respect to the Tribunal’s assessment of the s. 96 efficiencies defence. First, should OIEs, or efficiencies that would arise because of the time necessary to implement the Tribunal’s divestiture order under s. 92, be taken into account in the balancing test under s. 96 ? Second, what is the proper approach to the balancing analysis under s. 96 ? Before

addressing the issues raised on appeal, it will be useful to review the history of the statutory efficiencies defence and the adjudicativetreatment of the defence prior to this case.

(1) History of the Efficiencies Defence [85]

Section 96 was included as part of the new Competition Act, proclaimed into force on June 19, 1986. The process ofreforming Canada’s competition laws began in 1966 when the federal government requested a study from the Economic Council ofCanada. The Council’s 1969 report “identified economic efficiency as the overriding policy objective” of legislative reform (A. N.Campbell, Merger Law and Practice: The Regulation of Mergers Under the Competition Act (1997), at p. 21).

After a number ofattempts to amend the legislation and following a lengthy and extensive consultative process, the new Competition Act was introduced.This amendment process reflected concerns raised about the number of significant mergers taking place in Canada (Facey and Assaf, atp. 9; see also W. T. Stanbury and G. B. Reschenthaler, “Reforming Canadian Competition Policy: Once More Unto the Breach” (1981),5 Can. Bus. L.J. 381, at p. 388).

In early 1981, the federal Minister of Consumer and Corporate Affairs solicited the views of hisprovincial counterparts, trade associations, consumer groups and academics with respect to proposals for amending the CombinesInvestigation Act, R.S.C. 1970, c. C-23 (ibid., at p. 381). This process “yielded valuable experience laying the groundwork for what wasto become the Competition Act” (Facey and Assaf, at p. 10). [86] Bill C-91,

An Act to establish the Competition Tribunal and to amend the Combines Investigation Act and the Bank Act and other Acts in consequence thereof, was introduced in the House of Commons in 1985 (1st Sess., 33rd Parl., first reading Dec. 17,1985, assented to June 17, 1986, S.C. 1986, c. 26).

This bill included comprehensive amendments to the Combines Investigation Act,including the creation of a new expert adjudicative body, the Competition Tribunal, and the inclusion of the efficiencies defence (Faceyand Assaf, at pp. 9-10). [87] A stand-alone statutory efficiencies defence was considered “particularly appropriate for Canada because a smalldomestic market often precludes more than a few firms from operating at efficient levels of production and because Canadian firms needto be able to exploit scale economies to remain competitive internationally” (Campbell, at p. 152; see also House of Commons Debates,vol.

VIII, 1st Sess., 33rd Parl., April 7, 1986, at p. 11962; Minister of Consumer and Corporate Affairs, Competition Law Amendments:A Guide (1985), at p. 4). In the context of the relatively small Canadian economy, to which international trade is important, theefficiencies defence is Parliamentary recognition that, in some cases, consolidation is more beneficial than competition (ibid., at pp. 15-17).

(2) Jurisprudential History of

Section 96 [88] The leading case law on the

interpretation of the efficiencies defence remains the Superior Propane series of cases,which began when the Commissioner applied to the Tribunal seeking an order to prevent a merger between the two largest nationaldistributors of propane (Superior Propane I, rev’d on other grounds in Superior Propane II, leave to appeal dismissed, [2001] 2 S.C.R.xiii; redetermination in Canada (Commissioner of Competition) v. Superior Propane Inc., 2002 CACT 16 , 2002 Comp. Trib.16, 18 C.P.R. (4th) 417 (“Superior Propane III”), aff’d 2003 FCA 53, [2003] 3 F.C. 529 (“Superior Propane IV”)).

Although this Courtis not bound by these decisions, the Superior Propane cases considered a number of factors relevant to the efficiencies defence and itsapplication. [89] The Superior Propane I case confirmed that s. 96 is a defence to the application of s. 92 (paras. 398-99).

As such,the onus of alleging and proving that efficiency gains from the merger will be greater than and will offset the effects of any prevention orlessening of competition resulting from the merger falls upon the merging parties (Superior Propane I, at para. 399; Superior Propane II,at para. 154; Superior Propane IV, at para. 64). [90] The s. 96 efficiencies defence requires an analysis of whether the efficiency gains of the merger, which result fromthe integration of resources, outweigh the anti-competitive effects, which result from the decrease in or absence of competition in therelevant geographic and product market.

As the Federal Court of Appeal explained in Superior Propane II, “This is, in substance, abalancing test that weighs efficiencies on one hand, against anti-competitive effects on the other” (para. 95).

(3) Methodological Approaches to

Section 96 [91] There are different possible methodologies for the comparative exercise under s. 96 (Facey and Brown, at pp. 256-57). In Canada, two main standards have been the subject of judicial consideration: the “total surplus standard” and the “balancingweights standard”. For both standards, two types of economic surplus are relevant: producer surplus and consumer surplus. [92] Producer surplus “measures how much more producers are able to collect in revenue for a product than their cost ofproducing it” (Facey and Brown, at p. 256). Producer surplus therefore represents the wealth that accrues to producers.

Consumersurplus is “a measure of how much more the consumers of a product would have been willing to pay to purchase the product compared tothe prevailing market price” (ibid.). Consumer surplus therefore represents the savings that accrue to consumers from what they wouldhave been willing to pay. [93] The term “total surplus” refers to the sum of producer and consumer surplus (see Facey and Br

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