Canada (Commissioner of Competition) v. Superior Propane Inc., docket A-533-00

Date: 20000919

Docket: A-533-00/A-539-00

PRESENT:      THE HONOURABLE MR. JUSTICE LINDEN

BETWEEN:

     THE COMMISSIONER OF COMPETITION

     Applicant

     - and -

     SUPERIOR PROPANE INC. and ICG PROPANE INC.

     Respondents

Heard at Ottawa, Ontario, on Friday and Saturday, September 8 and 9, 2000 and on Monday and Tuesday, September 18 and 19, 2000

ORDER delivered from the Bench at Ottawa, Ontario, on Tuesday,

September 19, 2000

REASONS FOR ORDER BY:      LINDEN J.A.

Date: 20000919

Docket: A-533-00/A-539-00

PRESENT:      THE HONOURABLE MR. JUSTICE LINDEN

BETWEEN:

     THE COMMISSIONER OF COMPETITION

     Applicant

     - and -

     SUPERIOR PROPANE INC. and ICG PROPANE INC.

     Respondents

     REASONS FOR ORDER

     (Delivered orally from the Bench at

     Ottawa, Ontario, on Tuesday, September 19, 2000)

LINDEN J.A.

Introduction

[1]      These four motions have been brought in order to obtain a stay of two decisions of the Competition Tribunal pending the determination of the appeals that have been launched in both cases, as well as for an order expediting both appeals and seeking directions.

[2]      One of the decisions being appealed, dated August 30, 2000, dismissed the Commissioner's application pursuant to section 92 of the Competition Act R.S.C. 1985 c. C-34. The other decision being appealed found that an interim Hold Separate Order dated December 11, 1998 (H.S.O.) made pursuant to section 104 automatically terminated with the decision of August 30, 2000 (and denying a stay).

[3]      The factual background is too complicated to set out in detail, but suffice it to say that the Respondent Superior Propane Inc. on December 7, 1998 agreed to merge with ICG Propane Inc., which was challenged and investigated by the Commissioner of Competition. At the 48-day hearing in which 91 witnesses were called, including 17 expert witnesses, the Tribunal, in a 108 page, 516 paragraph decision, allowed the merger to proceed, even though there was a finding of substantial lessening of competition, on the ground that section 96(1) provided a defence.

[4]      Soon after the Commissioner's challenge was undertaken, an interim order to "hold separate" (H.S.O.) was entered on consent of both parties on December 11, 1998, which order was held to have expired automatically on August 30, 2000.

[5]      The Commissioner wishes to keep this order in effect pending the determination of this appeal, but the Respondents wish to proceed with the merger pending the appeal. The Respondents are confident of success but, if they are not successful, they are of the view that the steps toward merger taken in the meantime can be undone. They are frustrated, not only by the delay, but by the fact that they are losing $2,500,000 per month in efficiencies because of it.

[6]      These motions began as an urgent motion for a temporary stay on Friday, September 8, 2000, immediately following the decision of the Tribunal; the argument proceeded on Saturday, September 9, 2000, and was adjourned to be continued on September 18 and 19, 2000 so that the Court would have all the written reasons of the Tribunal and better material could be prepared for the hearing. This Court must now decide whether it will dismiss the stay motions and let the merger proceed pending the appeal, or whether it will issue a stay continuing in force the H.S.O. dated December 11, 1998. In either event, the parties are agreed that both appeals should be expedited and have indicated a willingness to cooperate in order to facilitate an early hearing.

Analysis

[7]      Both parties agree that the three element test set out in RJR-MacDonald v. Canada, [1994] 1 S.C.R. 311, even though it was a Charter case, is the applicable one, that is,

     1) there must be a serious question raised by the appeal

     2) irreparable harm must be suffered by the applicant, and

     3) the balance of convenience must favour a stay.

Upon an appeal, the burden on an applicant may be somewhat heavier than before a trial, but it is still not a heavy one; there must be a serious question raised but, according to Justice Sopinka in RJR-MacDonald, supra, "the threshold is a low one", the applicant being required to show only that the application was not "vexatious or frivolous". Even if the appeal is unlikely to succeed, the motions Judge should consider the second and third elements because a prolonged examination of the merits is "neither necessary nor desirable".

[8]      In this case there is a disagreement between the parties about whether the standard of review is correctness or reasonableness in a case like this. There is discord about whether the issues here are questions of law or questions of fact or mixed questions of law and fact. Some deference may well have to be accorded to certain aspects of the decision, but, in my view, there are other issues which are of great legal significance and may well have to be decided on the basis of correctness. (See Harvard College case August 3, 2000 (F.C.A.)). The Court cannot abdicate completely to the Tribunal its task of monitoring the development of competition law.

[9]      Thus, despite the valiant effort of Mr. Finkelstein to persuade me that there are absolutely no serious issues raised in this appeal, to my mind, there is at least one major legal issue involved in this appeal (Applicant's one and two) that must be resolved by this Court and which amounts by itself to a serious legal question, whatever the standard of review. That issue is the meaning of section 96 of the Act in light of the purposes of the Act as set out in section 1.1 of the Act. It is a key issue of enormous importance in the administration of the Act. The majority of the Tribunal employed one method of interpreting that section, but a dissenting member of the Tribunal completely disagreed. The Commissioner has taken inconsistent positions on its meaning in the past in the MEG's and elsewhere. A former Chair of the Tribunal, Justice Reed, in Canada (Director of Investigation and Research) v. Hillsdown Holdings (Canada) Ltd. (1992), 41 C.P.R. (3d) 289 (C.T.) at 339, expressed herself, in an obiter dictum perhaps, in terms that may be taken to be inconsistent with the majority decision in this case, even though she only raised the question and did not finally decide it. It seems to me quite clear that this complex and significant issue, the meaning of s. 96, is so fundamental a legal question, that the decision of the Tribunal must be evaluated by this Court, even though in the final analysis the Court might well give deference to it.

[10]      It is not necessary, therefore, for me to consider the seriousness of the other two issues raised by the Applicant concerning the onus matter nor the situation of "merger to monopoly". Neither is it necessary for me to comment on the section 104 issue concerning whether the Tribunal is functus in relation to the hold separate order following the issuance of its decision. As there is at least one serious issue raised here, the first hurdle has been met.

[11]      I must now consider the second hurdle that must be overcome by the Applicant, irreparable damage. Counsel for the Commissioner, basing himself on U.S. authorities, argued eloquently that once the eggs are scrambled, they cannot be unscrambled. In other words, if the two companies are allowed to proceed with the merger pending the appeal, it will be almost impossible to undo the damage caused by this in the event of success in the Court of Appeal. He referred to one Judge's description of a similar circumstance as potential "chaos", if one had to undo the situation following the completion of this merger. (See International Corona Resources Ltd. v. Lac Minerals Ltd. (1987), 21 C.P.R. (2d) 260).

[12]      In his report for the Commissioner attached to his affidavit, Professor Richard Schwindt of Simon Fraser University, British Columbia, concluded that the "integration of Superior Propane Inc. and ICG operations would at best impede, and at worst jeopardize an effective divestiture", that is, the "relatively rapid restoration of vigorous competition in the industry". This is hardly proof that the harm "could not be remedied". (See RJR-Macdonald at 341). It is argued that, since interim integration will "diminish or practically destroy ICG as a divestible entity", the "public interest" will be "irreparably harmed" if a stay is refused. In other words, it is said that consumers would be subjected to the anti-competitive effect of this merger during the period awaiting the decision on the appeal. There is no doubt that divestiture would be difficult and costly if the merger proceeded, but the Respondents are aware of that fact and willing, if necessary, to bear the cost of it. These costs have been expertly estimated, and it is clear that the money saved will more than offset the cost.

[13]      In my view, the metaphor of scrambled eggs is dramatic, but not entirely apt. When one scrambles eggs it is impossible to unscramble them, but a merged company is not exactly like scrambled eggs. It can be broken up, though it is maybe difficult to do so. Competition can be restored. It is not enough for it to be hard or inconvenient to do so. To obtain a stay, the damage must be truly irreparable and proved to be so.

[14]      In the past great corporations, like AT & T and Standard Oil have been divided up in the U.S. The U.S. Department of Justice is currently seeking to split up Microsoft. It can be done according to unchallenged evidence produced by the Respondents. Bob Briggs, a senior partner in a Washington D.C. anti-trust firm that he claims is the largest private anti-trust practice in the world, in a report attached to an affidavit, states that "there is no reason, in principle, why post-acquisition divestitures cannot be as effective a remedy as divestiture before a merger". He gave examples of many divestitures (100 in the last 3 years), some that have taken place even 25 years (Dupont) and 17 years (El Paso Natural Gas) after the original mergers took place. He states that there are agencies and Courts capable of supervising the divestitures needed to enhance competition. He claims that this type of ex post facto remedy "permits society to reap the benefits of highly desired efficiencies, while providing a powerful incentive for management not to engage in opportunistic conduct that could trigger later calls for divestiture".

[15]      The evidence of Stephen Cole produced by the Respondents is most persuasive. He spent hundreds of hours on this matter and supervised thousands of hours of research by his associates to conclude as follows:

Part of his reasons for this is that 85 per cent of the people, trucks and tanks will be maintained in the integration process. Even though more of the attrition may come from ICG resources, that is still a significant fact here. Another fact to consider is that, if required, it might be possible to find a buyer for the remnants of ICG which could form the basis of a new stand alone competitor. Amerigas was mentioned as a possible purchaser, even though its interest was originally expressed as a buyer for ICG as a going concern. Other possible bidders were identified. Cole relied on the prior example of the C.P. divestiture that was undertaken in this country. He opines that it is "feasible to create two propane distribution competitors by divestiture of the integration". And he says that the Respondents can handle any costs associated with that mainly out of the savings they will achieve in the period of the appeal process.

[16]      Consequently, the evidence, in my view, is overwhelming that the Applicant has not been able to establish, as it must, that there will be irreparable harm suffered if the stay is not granted.

[17]      The third element is the balance of convenience, but I need not deal with that issue since I have concluded that the second requirement has not been met. The motion succeeds only if all three requirements are proved, and one of the elements has not been established. It is, however, clear that the financial costs to the Respondents of the delay are large, 30 million dollars per year. The absence of an undertaking as to damages by the Applicant is also significant here. In fact, the Respondents have voluntarily undertaken in this Court to refrain from divesting themselves of the trucks, tanks and realty, other than in the normal course of business, pending the appeal, a wise course to follow, but not one that I would impose on them, the Commissioner appearing to be uninterested in it.

[18]      It has been said that the operations of the 2 companies cannot be merged during the winter months, that is until April 1, 2001, but the planning aspects of this complicated project could proceed in the next few months. It is in merging operation where the major savings can be achieved, two-thirds of them. It may be that by April 1, 2001, the Court of Appeal will have decided this appeal and, if the Commissioner is successful, the preliminary steps taken in the merger can be halted at that time. If unsuccessful, depending on the Reasons of the Court, the Supreme Court of Canada might be asked by the Commissioner for a stay of further steps in the merger pending an appeal there.

[19]      This motion for a stay will be dismissed with costs in the cause.

[20]      As for the motion expediting the hearing of both appeals, and for directions, the parties have agreed to the following timetable leading to a hearing of both appeals on Tuesday, Wednesday and Thursday, January 9, 10 and 11, 2001:                     

     1) Appeal Books will be served and filed by October 27, 2000;

It will be so ordered.

     "A.M. Linden"

     J.A.