5) SECTION
75 OF THE ACT 20
6) THE
DECISION UNDER APPEAL 21
7) ISSUES
IN THE APPEAL 42
8) ANALYSIS 49
a) Did the Tribunal err in
finding that Nadeau failed to establish that it was unable to obtain adequate
supplies of live chickens because of insufficient competition among the
suppliers of the product in the market? 49
i)
The
Tribunal erred in concluding that the Quebec Chicken Marketing Board would not
intervene to limit inter-provincial trade in chickens if Nadeau’s replacement
efforts resulted in a significant increase in the volume of chickens being exported
from Quebec. 51
ii)
The
Tribunal erred in concluding that the limit on aggregate supply, resulting from
the supply management system, was the overriding reason why Nadeau could not
obtain adequate supplies of live chickens following a refusal to deal by the
respondents. 61
iii)
The
Tribunal erred in finding that Nadeau failed to establish that there was
insufficient competition between suppliers of live chickens when it accepted
that the poultry supply management system created a state-mandated cartel among
chicken producers. 64
iv)
The
Tribunal erred in applying the wrong legal test to determine if there was
insufficient competition among suppliers. 67
b)
Did the Tribunal err in finding that live chickens were not in ample supply?
71
c) Did the Tribunal err in
finding that Nadeau had failed to establish that the respondents’ refusal to
deal was likely to have an adverse effect on competition in the market? 93
i)
The
Tribunal erred in limiting the relevant market, for purposes of paragraph
75(1)(e), to the “downstream” market. 95
ii)
The
Tribunal erred in not identifying the market for air-chilled chicken as a
separate product market. 100
iii)
The
Tribunal erred in failing to properly appreciate the
adverse effect of the respondents’ refusal to deal on the quality or
availability of products.
108
iv)
The Tribunal erred in failing to properly consider the
effect of the elimination of an efficient competitor. 113
d) Did the Tribunal err in
finding that Nadeau was substantially affected in its business due to its
inability to obtain adequate supplies anywhere in a market on usual trade
terms? 117
9) CONCLUSION 119
1) INTRODUCTION
[1]
Between
January and September 2008, each of the respondents advised the appellant,
whose business consists of slaughtering chickens, that they would cease
supplying it with live chickens within a matter of months. The respondents’
collective action, if carried into effect, would deprive the appellant of
approximately 50% of its supply of live chickens. The appellant commenced a
private prosecution under section 75 of the Competition Act, R.S.C. 1985,
c. C-34 [the Act], which makes a refusal to deal a reviewable practice under
certain conditions. The Competition Tribunal (the Tribunal) issued an interim
supply order to preserve the status quo while it considered the appellant’s
complaint.
[2]
On
June 8, 2009, in a decision reported as Nadeau Poultry Farm Limited v.
Groupe Westco Inc. et al., 2009 Comp. Trib. 6 [Reasons or Tribunal’s
Reasons], the Tribunal dismissed the
appellant’s complaint that the respondents’ refusal to deal was a breach of
section 75 of the Act. The Tribunal found that the appellant had failed to establish
that:
a. it was unable to obtain
adequate supplies of live chickens because of insufficient competition among
the suppliers of the product in the market;
b. the product was in ample
supply; and
c. the respondents’ refusal to
deal was likely to have an adverse effect on competition in the market.
[3]
The
appellant appeals from the Tribunal’s decision. Because all of the conditions
set out in section 75 must be present before the appellant can succeed, the
appellant must persuade the Court that the Tribunal erred with respect to each
of these conclusions. For the reasons which follow, I am of the view that it
has not done so and I would, therefore, dismiss the appeal with costs.
2) THE PARTIES
[4]
The
appellant, Nadeau Ferme Avicole Limitée/Nadeau Poultry Farm Limited (Nadeau) is
a wholly owned subsidiary of Maple Lodge Holding Corporation (Maple Lodge), one
of Canada’s largest
chicken processors. Nadeau operates a large, modern chicken processing plant
located at St. François de Madawaska in northern New Brunswick. Nadeau’s
plant has been the only chicken processing plant in New Brunswick since 1992.
[5]
The
respondent Groupe Westco Inc. (Westco) is a highly integrated chicken producer.
It owns or controls egg hatching production quota, farms, chicken production
quota, and chicken production farms. Directly or indirectly, Westco owns or
controls approximately 50% of New Brunswick’s chicken production
quota.
[6]
The
respondent Groupe Dynaco, Coopérative Agroalimentaire (Dynaco) is a Quebec co‑operative
with interests in chicken production facilities in New Brunswick. Dynaco owns
6.22% of New
Brunswick’s
chicken production quota. The respondents Volailles Acadia S.E.C. and Volailles
Acadia Inc./Acadia Poultry Inc. (collectively Acadia) are extra-provincial
entities registered to do business in New Brunswick. Acadia owns or
controls 16% of the New Brunswick’s chicken production quota.
[7]
The
respondents are interrelated. For present purposes, it is sufficient to know
that Westco is a member of the Dynaco cooperative. Dynaco owns 30% of the
shares in Acadia while Westco owns 25%.
[8]
Another
important participant in the poultry production system is Co-op Fédérée, the
largest firm in the chicken sector in Canada. Dynaco is a member of
Co-op Fédérée which owns 60% of Olymel, a Quebec based
processor and Nadeau’s primary competitor in Quebec and the
eastern provinces. Co-op Fédérée also owns 30% of Acadia.
3) THE POULTRY
SUPPLY MANAGEMENT SYSTEM
[9]
The
production of poultry in New Brunswick, as in the rest of Canada, is subject to
an elaborate supply management scheme established by the Government of Canada
and administered in each province by a provincial marketing board in so far as
it concerns producers within the province. The scheme is complex and all
encompassing. A full description of the operation of this system is found at paragraphs
9 to 18 and 254 to 269 of the Tribunal’s Reasons. For the purposes of this
decision, the relevant features of the scheme are as follows.
[10]
The
amount of poultry which a producer may produce and bring to market is
determined by a quota set by the provincial marketing board. A producer may not
exceed its production quota. The quota is fixed every eight weeks or so through
a process tied to consumer demand for poultry. In most provinces, increases in the
total quota are allocated proportionately between existing producers.
[11]
The
minimum price for which producers may sell their live chickens is also set by
the provincial marketing board (the board price). The Ontario board price
serves as bench mark for several other provinces, including Quebec and New
Brunswick.
The New Brunswick board price is $.065 per kilogram live weight higher than the
Ontario board price
while the Quebec board price is the same as the Ontario board price.
[12]
Although
the poultry marketing scheme allows for imports of poultry from outside Canada, imports are
tightly controlled and, as a result, they play no role in the present dispute.
[13]
While
the production of poultry and the price to be paid for it is highly regulated,
the slaughter and processing of the poultry thus produced is not subject to the
same degree of regulation. With some exceptions, producers may sell their
production to the processor of their choice, even if that processor is located
in another province. Processors, such as Nadeau, may pay producers a premium in
order to obtain their product. Nadeau has done so on a number of occasions (Reasons
at paras. 37-40). Quebec processors regularly pay their suppliers a
premium over the Quebec board price (Reasons at para. 153).
[14]
While
the poultry supply management system attempts to maintain equilibrium between
poultry production and consumer demand, it does not seek to regulate the
activities of the processors. Thus processors’ decisions to add or reduce
processing capacity have no impact on poultry producers’ quotas. As a result,
the equilibrium between consumer demand and production quotas is not
necessarily reflected in the relationship between production quotas and the
processing industry’s capacity. There is no shortage of processing capacity in
the sense that all producers’ quotas are taken up by processors. But it is open
to individual processors to increase their processing capacity faster than
production quotas are increased, or for new processors to enter a market in
which supply and demand are already closely matched.
4) THE DISPUTE
BETWEEN THE PARTIES
[15]
Westco
is a highly integrated player in the poultry industry. It lacks only a
processing plant in order to be a fully vertically integrated operation. In
January 2007, Westco advised Nadeau of its interest in acquiring an interest in
its plant, or in buying it outright. Maple Lodge, Nadeau’s parent company,
advised Westco that it was not interested in selling the St. François plant. Maple
Lodge was of the view that an arrangement by which Westco owned a portion of
Nadeau while retaining 100% of its production assets would lead to an
undesirable non-alignment of shareholder interests.
[16]
After
consideration of the situation by its board of directors, Maple Lodge indicated
its interest in an arrangement in which Maple Lodge and Westco would each own a
portion of the combined operations of Westco and Nadeau. Westco did not respond
to this proposal.
[17]
In
the meantime, Westco was engaged in discussions with Olymel with a view to
forming a partnership to implement its vertical integration strategy. The course
of events is set out in the Reasons at paragraphs 46-47 and 49-50:
The purpose of the partnership
was to acquire the assets or shares of [Nadeau] or to acquire property and
construct, start up, own and operate a new chicken processing plant. Westco and
Olymel thus worked out a business plan envisaging the acquisition of the
St-François Plant or, in the event that negotiations failed with [Nadeau], the
construction of a new processing plant in New Brunswick. The partnership between Olymel and Westco
is the Sunnymel Limited Partnership (“Sunnymel”)…
Thomas Soucy, Chief Executive Officer of
Westco, contacted Mr. Tavares [President and Chief Executive Officer of Maple
Lodge] in mid-August 2007 and said that he wanted Mr. Tavares to meet with him
and Réjean Nadeau, President and Chief Executive Officer of Olymel. At the
meeting, Mr. Tavares was advised that Westco and Olymel wanted to buy the
St-François Plant. He was told that if [Nadeau] was not willing to sell the
St-François Plant, all of the chickens produced by Westco would be diverted to
Quebec and Sunnymel would then build its own plant in New Brunswick.
…
Following [a subsequent meeting], Mr.
Tavares advised Mr. Soucy that although its first choice was to maintain the
status quo, Maple Lodge’s Board of Directors had, given the circumstances,
instructed him to assemble a negotiating team.
On November 6, 2007, the parties started
negotiations for the sale of the St-François Plant. The purchase price offered
by Sunnymel was less than 25% of the value attributed to the St-François Plant
by [Nadeau]. The negotiations therefore broke down and, on January 17, 2008,
Westco gave written notice that it would cease supplying its live chickens to
[Nadeau], effective July 20, 2008, and that its chickens would be diverted to
Olymel in Quebec pending Sunnymel’s construction of a new slaughterhouse in New
Brunswick.
[18]
Following
the breakdown of negotiations between Westco and Nadeau, Dynaco gave Nadeau
notice on March 6, 2008, that it would cease supplying it effective September
15, 2008. Acadia gave notice
of its intention to cease supplying Nadeau, effective September 15, 2008, by
means of a letter dated February 28, 2008.
[19]
Nadeau
puts a different cast on the facts. It argues that Olymel and Westco conspired
to reduce competition by putting one of Olymel’s biggest competitors out of
business. It points to evidence which shows that Olymel and Westco were in
touch long before any approach was made to Nadeau or Maple Lodge. The Tribunal
decided that it did not have to determine the nature of Westco’s conduct
because, on the view which it took of the relevant principles, such a
characterization would not change the legal result (Reasons at para. 292). I
agree with the Tribunal and do not propose to cast my analysis more broadly
than required by the terms of subsection 75(1) of the Act.
5) SECTION
75 OF THE ACT
[20]
At
this point, it may be useful to reproduce section 75 of the Act:
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75. (1) Where, on
application by the Commissioner or a person granted leave under section
103.1, the Tribunal finds that
(a) a person is
substantially affected in his business or is precluded from carrying on
business due to his inability to obtain adequate supplies of a product
anywhere in a market on usual trade terms,
(b) the person
referred to in paragraph (a) is unable to obtain adequate supplies of
the product because of insufficient competition among suppliers of the
product in the market,
(c) the person
referred to in paragraph (a) is willing and able to meet the usual
trade terms of the supplier or suppliers of the product,
(d) the product
is in ample supply, and
(e) the refusal
to deal is having or is likely to have an adverse effect on competition in a
market,
the Tribunal may order
that one or more suppliers of the product in the market accept the person as
a customer within a specified time on usual trade terms unless, within the
specified time, in the case of an article, any customs duties on the article
are removed, reduced or remitted and the effect of the removal, reduction or
remission is to place the person on an equal footing with other persons who
are able to obtain adequate supplies of the
article in Canada.
|
75. (1) Lorsque, à la
demande du commissaire ou d’une personne autorisée en vertu de l’article
103.1, le Tribunal conclut :
a) qu’une
personne est sensiblement gênée dans son entreprise ou ne peut exploiter une
entreprise du fait qu’elle est incapable de se procurer un produit de façon
suffisante, où que ce soit sur un marché, aux conditions de commerce normales;
b) que la
personne mentionnée à l’alinéa a) est incapable de se procurer le
produit de façon suffisante en raison de l’insuffisance de la concurrence
entre les fournisseurs de ce produit sur ce marché;
c) que la
personne mentionnée à l’alinéa a) accepte et est en mesure de
respecter les conditions de commerce normales imposées par le ou les
fournisseurs de ce produit;
d) que le
produit est disponible en quantité amplement suffisante;
e) que le
refus de vendre a ou aura vraisemblablement pour effet de nuire à la
concurrence dans un marché,
le Tribunal peut
ordonner qu’un ou plusieurs fournisseurs de ce produit sur le marché en
question acceptent cette personne comme client dans un délai déterminé aux
conditions de commerce normales à moins que, au cours de ce délai, dans le
cas d’un article, les droits de douane qui lui sont applicables ne soient
supprimés, réduits ou remis de façon à mettre cette personne sur un pied
d’égalité avec d’autres personnes qui sont capables de se procurer l’article
en quantité suffisante au Canada.
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6) THE DECISION
UNDER APPEAL
[21]
The
Tribunal’s decision is very long, 484 paragraphs, and extremely detailed. For
the purposes of this part of my reasons, it is only necessary to summarize the
substance of the Tribunal’s decision on the elements of section 75, subject to
a more detailed review when dealing with the grounds of appeal raised by the
appellant.
[22]
In
order to deal with paragraph 75(1)(a), the Tribunal was required to
define a number of terms used by economists in their analysis of competition
issues. The first was the relevant product market, which it defined as the
market for live chickens, without reference to any weight restrictions. The
Tribunal found that Nadeau had failed to show that live chickens within the weight
range it had specified (1.71 to 2.4 kilograms) could not be replaced by chickens
outside that range.
[23]
The
Tribunal defined the relevant geographic market as New Brunswick, Prince
Edward Island,
those parts of Quebec within a 500 kilometre radius of Nadeau’s plant, and Nova Scotia.
[24]
The
Tribunal dealt at some length with the definition of “usual trade terms”, inquiring
whether price was included among the “usual trade terms”. It noted that “usual
trade terms” is defined at subsection 75(3) of the Act as referring to “terms
in respect of payment, units of purchase and reasonable technical and servicing
requirements”. The Tribunal found that usual trade terms are not the specific
terms in effect between the parties prior to the refusal to deal, but rather
those terms which are considered usual from the perspective of all processors
competing for the product in the relevant market.
[25]
The
Tribunal went on to find that “terms in respect of payment” include price,
expressed as a range of prices.
[26]
Having
defined the relevant terms, the Tribunal then considered whether Nadeau had
established that its business would be substantially affected because it could
not obtain adequate supplies of live chickens on the usual trade terms in the
relevant geographic market. For the purposes of this analysis, the Tribunal
considered whether Nadeau could replace the live chickens it receives from the
respondents by live chickens from Quebec on the usual trade
terms. The Tribunal concluded that Nadeau would be required to pay Quebec producers a
premium in order to induce them to deal with it and, further, that the premiums
it would have to pay would be outside the range of prices which constitute the
usual trade terms.
[27]
The
Tribunal then considered whether this inability to obtain live chickens on the
usual trade terms would substantially affect Nadeau’s business. It used
earnings as the relevant indicator of a business’ performance. The Tribunal
found that replacing the live chickens that Nadeau receives from the
respondents with live chickens from Quebec would result in a
significant reduction of earnings relative to earnings in the appropriate
reference period. In the Tribunal’s view, this meant that Nadeau would be
substantially affected in its business if it had to replace the respondents’ supply
of live chickens with live chickens from Quebec.
[28]
As
a result, the Tribunal concluded that Nadeau had satisfied the conditions set
out in paragraph 75(1)(a) of the Act.
[29]
The
Tribunal then addressed paragraph 75(1)(b) of the Act, specifically whether
Nadeau’s inability to obtain adequate supplies of live chickens from Quebec on the usual
trade terms was the result of insufficient competition among suppliers of live
chickens in the relevant geographic market.
[30]
The
Tribunal accepted that, for the purposes of this analysis, the relevant product
and geographic markets were the same as those considered in the analysis with
respect to paragraph 75(1)(a).
[31]
In
addressing the question of “insufficient competition”, the Tribunal referred to
a previous Competition Tribunal decision with respect to refusal to deal, Canada
(Director of Investigation and Research) v. Xerox Canada Inc. (1990), 33
C.P.R. (3d) 83, [1990] C.L.D. 1146 [Xerox], in which the Tribunal
commented that a market composed of numerous suppliers acting independently
would not be considered a market in which there was insufficient competition. The
Tribunal also reviewed the effect of the poultry supply management system on
competition between suppliers of live chickens. It concluded that Nadeau had
failed to establish that there was insufficient competition among suppliers in
the relevant market because of the number of suppliers and the absence of any
evidence that they were not acting independently.
[32]
The
Tribunal went on to say that, even if it had found that there was insufficient
competition among suppliers, it would nonetheless have concluded that Nadeau
had not discharged its burden under paragraph 75(1)(b). The Tribunal
expressed its reasoning on this point as follows at paragraph 247 of its
Reasons:
There is inadequate
evidence to establish that the competitive conditions of the market are the
overriding reason why the Applicant is unable to obtain adequate supplies of
the product. The overwhelming evidence indicates that the limit on aggregate
supply which results from the supply management system is essentially the
reason why the Applicant is unable to obtain adequate supplies of live
chickens.
[33]
The
Tribunal then turned its attention to whether Nadeau met the conditions set out
at paragraph 75(1)(c) of the Act; it had no difficulty in coming to the
conclusion that Nadeau was indeed willing and able to meet the usual trade
terms of suppliers of live chickens.
[34]
The
next issue which the Tribunal considered was whether the product, live chickens,
was in ample supply in the relevant geographic market, as required by paragraph
75(1)(d) of the Act. The Tribunal began by asking itself what was meant
by “ample supply”. It concluded that “ample supply” means a situation in which
suppliers are not obliged to choose between serving new customers and
continuing to supply existing customers at historic rates. Next, the Tribunal
examined the operation of the poultry supply management system and found that the
production quotas and the pro-rata distribution of increases in the overall
quota for live poultry meant that producers were not able to increase their
production to supply new or growing markets. Producers were thus constrained in
their ability to serve new customers while continuing to serve existing
customers at historic levels. The product, therefore, was not in ample supply.
[35]
The
last element in the analysis, paragraph 75(1)(e), is whether the refusal
to deal is likely to have an adverse effect on competition in a market. The
Tribunal began by recognizing that the market in issue under paragraph 75(1)(e)
is not the market considered under paragraphs 75(1)(a) and (b), it
is the “downstream” market.
[36]
The
Tribunal was required to define the relevant product and geographic markets,
this time in relation to the downstream market. It found that the relevant
product market was processed chicken, including further processed chicken. Processed
chicken is chicken which has been boned, cut up or cooked while further
processed chicken was defined by one witness as “basically anything that
happens to the chicken after it’s been killed and possibly cut up” (Reasons at para.
300).
[37]
After
reviewing a number of factors, the Tribunal defined the relevant geographic
market as New
Brunswick,
Nova Scotia, Prince
Edward Island,
Quebec and Ontario.
[38]
As
to the meaning of “adverse effect on competition in a market”, the Tribunal
accepted, at paragraph 366 of its Reasons, the finding in a prior decision of
the Tribunal, B-Filer Inc. et al. v. The Bank of Nova Scotia, 2006 Comp.
Trib. 42 at para. 208, that:
[F]or a refusal to deal
to have an adverse effect on a market, the remaining market participants must
be placed in a position, as a result of the refusal, of created, enhanced or
preserved market power.
[39]
The
Tribunal noted that neither Westco, nor any of the other respondents, had any
share in the downstream market and therefore could not have market power in
that market. Market power “is generally accepted to mean an ability to set
prices above competitive price levels for a considerable period”, Canada (Director of
Investigation and Research) v. NutraSweet Co. (l990), 32 C.P.R. (3d)
1 at 28, [1990] C.L.D. 1078. However, the Sunnymel partnership formed between
Olymel and Westco would participate in the downstream market. For that reason,
the Tribunal found that the adverse effects of the refusal to deal could be
analysed by measuring its impact on the market power of the partnership.
[40]
After
examining a number of indicators of market power, the Tribunal concluded that
no one participant in the relevant market currently has market power. Its
examination of the same factors led the Tribunal to conclude that the
respondents’ refusal to deal with Nadeau would not create, enhance or preserve
the market power of any of the current participants in the relevant market. The
Tribunal noted that the refusal to deal would not change the total volume of
chicken available to the downstream market so there should be little effect on
consumers. To the extent that further processors might experience some form of
competitive disadvantage as a result of Nadeau’s inability to supply them, the
Tribunal was unable to conclude that this would constitute an adverse effect on
competition in the relevant market as a whole.
[41]
Since
Nadeau failed to establish three of the five conditions required by subsection
75(1), the Tribunal dismissed its application for an order requiring the
respondents to continue providing it with a supply of live chickens.
7) ISSUES IN THE
APPEAL
[42]
In
order to succeed, Nadeau must persuade this Court that all of the conditions set
out in subsection 75(1) have been satisfied. Since the Tribunal found that
Nadeau had established that it met the requirements of paragraphs 75(1)(a)
and (c), this appeal turns on the Tribunal’s decision with respect to
paragraphs 75(1)(b), (d), and (e) of the Act.
[43]
There
are two limits to this Court’s ability to review the Tribunal’s conclusions:
the restricted right of appeal from the Tribunal’s findings of fact, and the
standard of review.
[44]
Section
13 of the Competition Tribunal Act, R.S.C. 1985, c. 19 (2nd
Supp.), imposes a limitation on Nadeau’s right of appeal:
|
13. (1) Subject to subsection (2), an appeal
lies to the Federal Court of Appeal from any decision or order, whether
final, interlocutory or interim, of the Tribunal as if it were a judgment of
the Federal Court.
(2) An appeal on a question of fact lies under
subsection (1) only with the leave of the Federal Court of Appeal.
|
13. (1) Sous réserve
du paragraphe (2), les décisions ou ordonnances du Tribunal, que celles-ci
soient définitives, interlocutoires ou provisoires, sont susceptibles d'appel
devant la Cour d'appel fédérale tout comme s'il s'agissait de jugements de la
Cour fédérale.
(2) Un appel sur une
question de fait n’a lieu qu’avec l’autorisation de la Cour d’appel fédérale
|
[45]
A
party may only appeal the Tribunal’s conclusion on a question of fact with
leave of this Court. As no such application for leave has been made, Nadeau is
precluded from attacking the Tribunal’s conclusions of fact. While Nadeau has
an unfettered right of appeal on questions of law, subject only to the question
of the appropriate standard of review, it has no right of appeal with respect
to questions of fact.
[46]
This
leaves the issue of appeals on questions of mixed fact and law. The distinction
between questions of fact, questions of law, and questions of mixed fact and
law, was laid out in the Supreme Court of Canada’s decision in Canada
(Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748
at para. 35, 71 C.P.R. (3d) 417:
Briefly stated,
questions of law are questions about what the correct legal test is; questions
of fact are questions about what actually took place between the parties; and
questions of mixed law and fact are questions about whether the facts satisfy
the legal tests.
[47]
For
purposes of appealing a question of mixed fact and law, Nadeau must take the
facts as the Tribunal found them. It cannot, under cover of challenging a
question of mixed fact and law, revisit the Tribunal’s factual conclusions.
[48]
It
follows from this that the question of the standard of review on a question of
fact does not arise in this case, since leave has not been granted to appeal a
question of fact. The parties are agreed that the standard of review for questions
of law is correctness and the jurisprudence of this Court is also to that
effect (see Canada (Commissioner of Competition) v. Superior Propane Inc.,
2001 FCA 104 at paras. 39-72, [2001] 3 F.C.185 (F.C.A.) at paras. 59-92). The
parties are also agreed that the standard of review of questions of mixed fact
and law is reasonableness.
8) ANALYSIS
a) Did the Tribunal err in
finding that Nadeau failed to establish that it was unable to obtain adequate
supplies of live chickens because of insufficient competition among the
suppliers of the product in the market?
[49]
Nadeau
raises four issues, which it describes as errors of law, with respect to the
Tribunal’s findings in relation to paragraph 75(1)(b). I will deal with
these four issues but not in the same order as they were raised by Nadeau:
i.
The
Tribunal erred in concluding that the Quebec Chicken Marketing Board would not
intervene to limit inter-provincial trade in chickens if Nadeau’s replacement
efforts resulted in a significant increase in the volume of chickens being
exported from Quebec;
ii.
The
Tribunal erred in concluding that the limit on aggregate supply, resulting from
the supply management system, was the overriding reason why Nadeau could not
obtain adequate supplies of live chicken following a refusal to deal by the
respondents;
iii.
The
Tribunal erred in finding that Nadeau failed to establish that there was
insufficient competition between suppliers of live chicken when it accepted
that the poultry supply management system created a state-mandated cartel among
chicken producers; and
iv.
The
Tribunal erred in applying the wrong legal test to determine if there was
insufficient competition among suppliers.
[50]
I
turn now to consider each of these issues.
i) The Tribunal erred in concluding that the
Quebec Chicken Marketing Board would
not intervene to limit inter-provincial trade in chickens if Nadeau’s
replacement efforts resulted in a significant increase in the volume of
chickens being exported from Quebec.
[51]
The
Tribunal heard evidence from Dr. Ware, an economist retained by Nadeau, that
the Quebec Chicken Marketing Board would intervene to limit inter-provincial
trade in chicken if Nadeau succeeded in persuading a substantial number of Quebec producers to
divert their product to its plant. The Tribunal set out the substance of Dr.
Ware’s evidence on this point as follows (Reasons at para. 115):
Dr. Ware,
however, expressed the opinion that, if the Applicant were to replace the
Respondents’ supply with Quebec-grown chickens, an intervention by Quebec governmental
agencies would be likely. In his view, the resulting increase in
interprovincial trade will have a direct impact on Quebec’s VAG
(“volume d’approvisionnement garanti”). The Quebec Chicken Marketing Board,
under the VAG, fills interprovincial demands of processors located outside the
province, before allocating live chicken supply to Quebec processors under the Quebec processor
allocation system. Therefore, the greater the volume of supply sold to
processors located outside Quebec is, the smaller the volume available to
Quebec-based processors will be. In Dr. Ware’s view, it is unlikely that a high
level of interprovincial trade, around 14%, would be permitted by the Quebec governmental
agencies in the long run.
[52]
The
Tribunal then considered the evidence in support of Dr. Ware’s hypothesis and
rejected it (Reasons at para. 118):
We find that there are no
regulatory impediments to interprovincial trade and that while processing
associations have expressed concerns about interprovincial trade, the evidence
is insufficient to conclude, on the balance of probabilities, that an increase
in interprovincial trade between Quebec
and New Brunswick would induce a drastic intervention by Quebec governmental agencies.
[53]
Having
found that there was no barrier to interprovincial trade in live chickens, and
that this was not likely to change, the Tribunal went on to find that Quebec was part of
the relevant geographic market.
[54]
On
appeal, Nadeau argues that the Tribunal erred in law in concluding as it did. Nadeau
argued that this Court must take judicial notice of a regulation adopted by the
Régie des marchés agricoles et alimentaires du Québec, after the Tribunal’s
decision was issued, which imposed a moratorium on sales of live chickens to
out-of-province buyers. According to Nadeau, this demonstrates that the
Tribunal erred in law in including Quebec in the geographic
market for the purposes of paragraphs 75(1)(a) and (b).
[55]
The
difficulty with this argument is that it turns on the effect to be given to the
evidence of Dr. Ware who was testifying as to
regulatory context. He was offering an opinion as to a possible regulatory
response in the event that certain events occurred. In effect, he was offering
an opinion as to the probable course of events in the future. In her reasons in
Operation Dismantle Inc. v. Canada, [1985] 1 S.C.R. 441 at
478, 18 D.L.R. (4th) 481 [Operation Dismantle], Wilson J. described such
evidence as evidence of “intangible facts”:
What we are concerned
with for purposes of the application of the principle is, it seems to me,
"evidentiary" facts. These may be either real or intangible. Real
facts are susceptible of proof by direct evidence. Intangible facts, on the
other hand, may be proved by inference from real facts or through the testimony
of experts. Intangible facts are frequently the subject of opinion. The
question of the probable cause of a certain result is a good illustration and
germane to the issues at hand.
[56]
Dr. Ware’s evidence did not raise a
question of law, even though the change in the regulatory context would take
the form of a change in the regulation or other instrument having legal effect.
Nadeau’s attempt to undermine the Tribunal’s conclusions with respect to Quebec’s response
to increased exports of live chickens is an attack on a finding of fact, a
course which is not open to it in this appeal. While this Court may take
judicial notice of changes in the law of a province, and while a Court should
not shut its eyes to the real world in which its decision will be implemented,
it would be unfair to the respondents for this Court to simply take judicial
notice of one or more regulatory changes without giving the respondents the
opportunity to put those changes in context by leading evidence of their own.
This is particularly so since the regulations which Nadeau put to us appeared
to have their origins in a dispute between the Quebec and Ontario marketing
boards, which was not at all the basis upon which Dr. Ware offered his opinion.
In short, I decline to take judicial notice of the changes in the Quebec regulatory
scheme because they amount to a challenge to one of the Tribunal’s findings of
fact and to do so would be unfair to the respondents.
[57]
Nadeau
cited, in support of its position, jurisprudence from the Supreme Court of Canada.
In Cusson v. Robidoux, [1977] 1 S.C.R. 650 at 656, 10 N.R. 592 [Cusson],
the Supreme Court held:
As Duff J. accepted in [Boulevard Heights v. Veilleux (1915), 52
S.C.R. 185] (at p.192), a court of appeal must decide on the basis of the
situation existing when it renders its judgment, and not necessarily on the
basis of the situation that existed when the trial judge ruled.
[58]
The
decision in Cusson was reaffirmed in the Supreme Court of Canada’s
decision in Devine v. Quebec (Attorney General), [1988] 2 S.C.R.
790 at 805, (sub nom. Allan Singer Ltd. v. Quebec (Attorney
General))
90 N.R. 48 [Devine]. Nadeau provided the Court with a number of other
authorities to the same effect.
[59]
The jurisprudence relied upon by Nadeau deals
with a different question than that raised by the evidence of subsequent
changes to the Quebec
regulatory context. The cases relied on by Nadeau deal with the effect of a
change in the law to be applied to a case where that law has changed between
the time of trial and the hearing of the appeal. In Cusson, the issue
was the retroactive application of a change in limitation periods. In Devine,
the issue was the effect to be given to a constitutional override. In both
cases, and the many others to the same effect cited by Nadeau, the issue was
the law to be applied by the Court to the facts of the case before it. That is
not the case here.
[60]
As a result, this argument fails.
ii) The Tribunal erred in
concluding that the limit on aggregate supply, resulting from the supply
management system, was the overriding reason why Nadeau could not obtain
adequate supplies of live chickens following a refusal to deal by the
respondents.
[61]
At
the start of its analysis with respect to paragraph 75(1)(b), the
Tribunal noted that the disposition had two branches. An applicant must show,
first, that there is insufficient competition in a market and, second, that its
inability to obtain adequate supplies is due to that insufficient competition. The
second branch involves a conclusion as to causation, a question of fact: see Housen
v. Nikolaisen, 2002 SCC 33 at paras. 70 and 159, [2002] 2 S.C.R. 235; Operation
Dismantle, supra at para. 79; Athey v. Leonati, [1996] 3 S.C.R. 458
at para. 16, 140 D.L.R. (4th) 235.
[62]
In
this case, the Tribunal found that Nadeau failed to show that there was
insufficient competition but went on to say that even if it had, the Tribunal
was persuaded that “the overwhelming evidence indicates that the limit on
aggregate supply which results from the supply management system is essentially
the reason why the applicant is unable to obtain adequate supplies of live
chickens” (Reasons at para. 247). In other words, the Tribunal’s conclusion on
insufficient competition was overtaken by its findings as to the cause of Nadeau’s
inability to obtain adequate supplies.
[63]
Nadeau
seeks to challenge the Tribunal’s determination of the cause of its inability
to obtain adequate supplies by arguing the facts: see Appellant’s Memorandum of
Fact and Law at paras. 55-57. However, since the appellant did not obtain leave
to appeal any question of fact, it is bound by the Tribunal’s conclusion as to
the cause of its inability to obtain adequate supplies of chicken. This ground
of appeal fails.
iii) The Tribunal erred in finding
that Nadeau failed to establish that there was insufficient competition between
suppliers of live chicken when it accepted that the poultry supply management
system created a state-mandated cartel among chicken producers.
[64]
Nadeau
also argues that the Tribunal erred in not giving effect to its own statement
that the poultry supply management program amounted to a state-mandated cartel
among chicken producers. According to Nadeau, cartels, by their nature, are
anti-competitive, whether they are large or small. The Tribunal ought to have
followed its statement on the nature of the poultry supply management system to
its logical conclusion and found that there was insufficient competition among
poultry producers.
[65]
This
ground of appeal has no merit. The reference to a cartel in the Tribunal’s Reasons
was simply a report of a statement made by others which the Tribunal did not
endorse. Specifically, the Tribunal wrote, at paragraph 10 of its Reasons:
It [the poultry supply
management system] has been described as being, in effect, a state-mandated
cartel arrangement.
[66]
There
is no basis for the assertion that the Tribunal adopted this statement as its
own.
iv) The Tribunal erred in applying
the wrong legal test to determine if there was insufficient competition among
suppliers.
[67]
Nadeau
argues that the Tribunal erred in law holding that the number of producers in
the market, and the absence of any evidence that they were not acting
independently, was the appropriate test for insufficient competition under
paragraph 75(1)(b) of the Act. The correct test, according to Nadeau, is
to compare the terms upon which live chickens are available from alternative
sources to the terms upon which they were available from the parties who are
refusing to deal. Nadeau bases this argument upon the dictionary definition of
competition adopted by the New Brunswick Court of Appeal in McMillan (J.
& A.) Ltd. v. McMillan Press Ltd. (1989), 99 N.B.R. (2d) 181 at para.
16, 27 C.P.R. (3d) 390, as “…the effort of two or more parties acting
independently to secure the business of their party by offering the most
favourable terms.”
[68]
Nadeau
cites, in support of its argument, passages from the Tribunal’s decisions in Canada
(Director of Investigation and Research) v. Chrysler Canada Ltd., 27 C.P.R.
(3d) 1, [1989] C.C.T.D. No. 49 [Chrysler Canada], and Xerox, supra. In Chrysler Canada, Nadeau
says, the Tribunal found that there was insufficient competition because the
alternative sources of supply were inferior sources, essentially because their
price was substantially higher than the price previously charged by Chrysler Canada. Similarly,
Nadeau argues that in Xerox, the Tribunal decided that there was
insufficient competition because the alternative sources of supply were neither
adequate nor economically viable.
[69]
Whatever
the merits of Nadeau’s argument on this point, it too has been overtaken by the
Tribunal’s conclusion that the supply management system was the cause of
Nadeau’s inability to obtain adequate supplies of live chicken. Insufficient
competition in a market is relevant only to the extent that it can be shown to
be the cause of Nadeau’s inability to obtain adequate supplies. Here, the
Tribunal found that insufficient competition among producers was not the cause
of Nadeau’s supply difficulties.
[70]
As
a result, I conclude that Nadeau’s appeal from the Tribunal’s decision with
respect to the application of paragraph 75(1)(b) to the facts of its
case fails.
b) Did the
Tribunal err in finding that live chickens were not in ample supply?
[71]
The
Tribunal began its analysis of the requirements of paragraph 75(1)(d) by
distinguishing between “adequate supply”, the term used in paragraphs 75(1)(a)
and (b), and “ample supply”, the term used in paragraph 75(1)(d).
It referred to various dictionaries, both French and English, and concluded
that while an “adequate supply” was essentially a sufficient supply, no more
than enough, an “ample supply” was a “supply available in abundance or to the
point that it is considered to be excessive” (Reasons at para. 276).
[72]
The
Tribunal then considered this definition in light of the objects and purposes
of the Act, which are to promote and to maintain competition. It concluded that
supply was not ample “when suppliers generally would be inhibited from growing
or even changing the nature of their business or be forced to ration supplies
between current and potential future customers because supply is limited”. It
went on to find that a product was in ample supply when “its availability is
not in issue when a supplier considers whether to develop its business by
seeking new customers and/or new distribution channels…” (Reasons at para. 280).
[73]
The
Tribunal referred to the transcripts of parliamentary committee hearings in
support of its position that the product was not in ample supply when there was
a shortage of supply for reasons such as strikes, scarcity of raw materials, or
the failure of upstream suppliers. The Tribunal relied on the following
exchange from the Parliamentary committee hearings (Reasons at para. 281):
Mr. Frank: Mr. Chairman, Mr. Minister,
unfortunately I do not have the legal mind that most members of this committee
apparently have and this disturbs me to some degree, to the effect that, when
this bill gets passed, if it ever does, just what in actual fact may happen.
To clarify one particular
area, which, no doubt, you can adjust to suit other areas: in the fertilizer
business back in the winter, there was some degree of concern at the lack of
products for dealers to sell. As a specific example, a company that supplied
dealers went out of business and the dealers that were supplied by them
naturally could not have the product unless they were able to acquire it from
other manufacturers.
At that particular time,
the other manufacturers felt that they wanted to protect their dealers and make
sure they were not shorting them. Consequently, they refused to sell to those
dealers that had unfortunately found themselves customers of this other
company. Now, would this particular area here change that particular picture?
In other words, would it make it necessary for these manufacturers to sell to
dealers that they not supplied before?
Mr. Gray: No, because in the
situation you have outlined it would appear that the product in question was
not in ample supply, and in order for the Commission to make an order requiring
a supplier to supply somebody, it would have to find that the product was in
ample supply.
[74]
Commenting
on this exchange, the Tribunal made two observations: first, that this exchange
supported the view that the provision was intended to apply only when there was
evidence of ample supply of the product in the market; and, second, that a
supplier would not be required to ration limited supplies of a product and so
prevent existing customers from obtaining the same quantity of the product they
had received in the past.
[75]
In
coming to its final conclusion on the meaning of ample supply, the Tribunal
referred to a prior Tribunal decision dealing with ample supply, Quinlan’s
of Huntsville Inc. v. Fred Deeley Imports Ltd., 2004 Comp. Trib. 28 [Quinlan’s].
In that case, Quinlan’s, a long standing vendor of Harley Davidson Motorcycles,
was advised that its dealership agreement would not be renewed. Quinlan’s invoked
the private prosecution provisions of the Act and applied for an interim supply
order against Fred Deeley Imports Ltd., (Deeley) the Canadian distributor of
Harley Davidson motorcycles.
[76]
The
evidence before the Tribunal was that Deeley obtained its supply of Harley
Davidson motorcycles from the U.S. factory, the sole supplier of Harley
Davidson motorcycles in the world. At the time of the application, Deeley had a
confirmed number of units available to it, which it had fully allocated to
members of its dealer network. Consequently, motorcycles which it might be
ordered to supply to Quinlan’s would have to be taken from the units previously
allocated to other dealers. The Tribunal framed the issue before it as follows
(Quinlan’s, supra at para. 17):
The question raised by
these facts is whether, in the present situation, in which all of the 2005 H-D
motorcycles have been allocated to dealers and in which dealers have been
advised of their allocations and have picked the specific motorcycles they
want, it is possible to conclude that the 2005 year H-D motorcycles are in
ample supply.
[77]
The Tribunal was of the view that section
75 of the Act was intended to deal with situations “in which the product is
readily available and unencumbered in the sense that it has not been sold or
promised to another purchaser” (Quinlan’s, supra at para. 19). On
the evidence before it, the Tribunal concluded that the only time Harley
Davidson motorcycles were in ample supply was before Deeley placed its order
with the factory. The Tribunal went on to find that, while it had been shown
that Harley Davidson motorcycles were in ample supply at some times of the
year, they were not in ample supply at the time the application was made.
[78]
In the present case, the Tribunal held that
it should define “ample supply” in a manner consistent with the Tribunal’s
decision in Quinlan’s. It concluded that the words “ample supply” were
meant to deal with “situations in which the product is in ample supply, in the
sense that suppliers are not obliged to choose between serving new customers
and continuing to supply historic quantities to existing customers” (Reasons at
para. 283).
[79]
The Tribunal then applied that definition
to the facts of the market for live chickens. The Tribunal noted that the
poultry supply management system is designed to meet consumer demand for
poultry products. There are mechanisms for adjusting the level of supply to
respond to changes in consumer demand but those mechanisms do not allow for a
timely response to changes in market conditions. In addition, these mechanisms
operate at the “macro” level with increases in quota being allocated
provincially and then, pro-rata, to existing producers. This leaves no room for
individual producers to increase production to meet increased demand from
processors. In light of all these factors, the Tribunal decided that the
product, live chickens, could not be said to be in ample supply in the sense
that it was “available on a timely basis to individuals wishing to expand or
develop their businesses” (Reasons at para. 288).
[80]
Finally, the Tribunal addressed Nadeau’s
argument that the respondents should not be permitted to take advantage of their
conduct, intended to force the sale of the Nadeau plant at an improvident price.
The Tribunal found that it did not have to deal with the respondents’ motives
because of its conclusion that live chickens were not in ample supply.
[81]
Nadeau argues that the Tribunal
misinterpreted the Act. It says that “ample supply” deals only with the
situation in which there is a shortage of supply as a result of factors beyond
the supplier’s control. This must be the case, it says, because a supplier who
refuses to deal with a particular customer must have another market for the
product it refuses to sell to the complainant.
[82]
Nadeau makes the point that the respondents
should not be allowed to divert their product from one processor to another
and, by so doing, create a lack of ample supply with respect to the first
processor which shelters them from prosecution under section 75 of the Act. Nadeau
argues that the scheme between the respondents and Olymel to drive it out of
business is profoundly anti-competitive and should be treated as such.
[83]
Nadeau further argues that the facts of
this case are not comparable to the facts in Quinlan’s. In this case,
the respondents had no other pre-existing customer in the sense that they had
historically sold all of their New
Brunswick production to Nadeau. No one else had a
prior claim on the product which they sold to Nadeau. As a result, the product
was readily available and in ample supply.
[84]
In summary, Nadeau’s argument is predicated
on the fact that, as between itself and the respondents, there is an ample
supply of chicken. The fact that the respondents have chosen to divert that
supply does not reduce the amount of the supply. The number of chickens being
produced has not changed. There are still enough chickens being produced to
meet consumer demand. The product is therefore in ample supply.
[85]
The question whether or not a product is in
ample supply is a question of mixed fact and law. The definition of ample supply
is a question of law; it consists of interpreting the words “in ample supply”
in paragraph 75(1)(d) of the Act.
[86]
The jurisprudence on the meaning of “ample
supply” is sparse. The subject was considered explicitly in Quinlan’s
and was mentioned in Chrysler Canada and Xerox, cited above. Both
of the latter cases deal with sole suppliers. In each case it was assumed,
without more, that the product was in ample supply. Presumably, this flows from
the fact that in each case, there was no suggestion that the supplier lacked
the means to supply both the complainant and the balance of the market for the
products in issue. Quinlan’s was another sole supplier case in that
Deeley was the exclusive Canadian distributor of Harley Davidson motorcycles.
[87]
This case differs from the jurisprudence in
that it deals with a refusal to supply in the context of a multi-supplier
market for a commodity product, in that any live chicken can be substituted for
any other live chicken (subject to certain weight parameters which are not
relevant here). Where there are multiple sources of supply, one would expect
that a customer who is refused supply by one supplier could obtain replacement
supplies from other suppliers at competitive prices because other suppliers
either have the product in inventory or can increase production to meet
increased demand. This capacity to increase production to meet increased demand
appears to me to be an indicator of a market in which a product is in ample
supply.
[88]
I agree with the Tribunal’s conclusion on
the issue of ample supply but I would formulate the test in terms of what
constitutes ample supply rather than what constitutes a lack of ample supply. I
would say that a product is in ample supply when producers of that product have
the capacity to increase production in a timely way to meet increases in demand
for the product. Where there is a lack of capacity to increase production to
meet increases in demand, the result is product shortage, which requires
suppliers to choose between supplying existing customers at historic levels and
supplying new customers. Product shortage also results in price increases
which, as the Tribunal found, was likely to occur (at least in the market for
live chickens) if the respondents’ refusal to deal were allowed.
[89]
In my view, the Tribunal did not err in law in
defining ample supply as it did, though I would reformulate the test in
positive terms.
[90]
When it came to apply the definition of ample
supply to the facts of the present case, the Tribunal found that, in the context
of the poultry supply management system, producers cannot increase their
production to meet new demand from processors. Quotas are fixed by reference to
consumer demand, not processor demand, so that the quota system is essentially
unresponsive to changes in demand by processors.
[91]
Producers can only respond to increases in
processor demand by diverting their production from one processor to another in
exchange for a premium. A market in which increased demand for a product can
only be accommodated by diverting supplies from one customer to another is not
a market in which the relevant product is in ample supply. The Tribunal’s
conclusion on this point is reasonable.
[92]
As a result, I would not give effect to this
ground of appeal.
c) Did
the Tribunal err in finding that Nadeau had failed to establish that the respondents’ refusal to
deal was likely to have an adverse effect on competition in the market?
[93]
In the course of dealing with this element
of subsection 75(1), the Tribunal considered a number of issues, only some of
which were challenged by Nadeau before us. The issues raised by Nadeau are the
following:
(i) The Tribunal
erred in limiting the relevant market, for purposes of paragraph 75(1)(e),
to the “downstream” market;
(ii) The
Tribunal erred in not identifying the market for air-chilled chicken as a
separate product market;
(iii) The
Tribunal erred in failing to properly appreciate the adverse effect of the
respondents’ refusal to deal on the quality or availability of products; and
(iv) The
Tribunal erred in failing to properly consider the effect of the elimination of
an efficient competitor.
[94]
I will now consider each of these issues in
turn.
i) The
Tribunal erred in limiting the relevant market, for purposes of paragraph 75(1)(e),
to the “downstream” market.
[95]
The Tribunal began by defining the market
in issue in paragraph 75(1)(e) as the “downstream” market, that is, the
market into which Nadeau sells. Nadeau challenges this definition and argues
that the Act permits the Tribunal to consider adverse effects in “a” market
which, it says, means any market, including the market in which Nadeau buys
live chickens. It argues that the evidence shows that the respondents’ refusal
to sell will result in an increase in the premiums paid to Quebec
producers in order to persuade them to sell to Nadeau, resulting in an increase
in prices in the “upstream” market. This, it says, is evidence of an adverse
effect on competition in “a” market.
[96]
In my view, this analysis is flawed. Paragraph
75(1)(e) is one of a number of elements which must be satisfied before a
supply order will be made. Paragraph 75(1)(a) requires the complainant
to show that it is unable to obtain adequate supplies of a product on usual
trade terms due to insufficient competition. Paragraph 75(1)(b) requires
the complainant to establish that insufficient competition is the reason for its
inability to obtain adequate supplies. Since paragraphs 75(1)(a) and (b)
deal with the complainant’s supply problems, both must refer to the upstream market
- the market in which the complainant is a buyer.
[97]
It would be redundant for the legislation
to require, as a condition for the granting of a supply order, that the
complainant show a further distortion of the upstream market for live chickens
- a market which is, hypothetically, already marked by insufficient competition.
In my view, the statutory reference to “a” market is a reference to any
relevant product or geographical market into which the complainant sells. As a
result, I am of the view that the Tribunal did not err in law in considering
only the “downstream” market in this portion of its analysis.
[98]
This is consistent with the fact that
paragraph 75(1)(e) was introduced into subsection 75(1) at the same time
as the right to pursue a private prosecution. In my view, the requirement that
the complainant show an adverse effect in a market was designed to avoid
private prosecutions based on injury to an individual market participant
without any impact on the relevant markets themselves. B.A. Facey and D.H.
Assaf, the authors of Competition & Antitrust Law, 3rd ed.
(Markham, Ont.: LexisNexis Butterworths, 2006) at 336, expressed a similar
view, based on materials issued by the Competition Bureau:
Originally,
section 75 did not contain a competition test requirement that the refusal to
deal “is having or is likely to have an adverse effect on competition in a
market.” This element was added in connection with the amendment to permit
private actions in order to filter out specious claims and address legitimate
stakeholder concerns over the risks of strategic litigation by private parties.
[99]
The object of competition legislation is to
protect consumers, and to protect market participants only to the extent that
doing so can be shown to protect consumers.
ii) The
Tribunal erred in not identifying the market for air-chilled chicken as a
separate product market.
[100] In
its submissions to the Tribunal, Nadeau identified the relevant product market
for the purposes of subsection 75(1) as follows (Affidavit of Roger Ware, sworn
September 22, 2008, at para. 10, Confidential Appeal Book, vol. 4, p. 1437
[emphasis added]):
There
are potentially three product markets at issue in this case. If we start at
the level of the purchasers of processed chicken and move back down the
chain of production, they are:
i.
the market for processed chicken;
ii.
the market for purchasing live chicken; and
iii.
the market for selling chicken.
[101] Nadeau’s
expert, Dr. Ware, qualified this assertion somewhat with his subsequent
statement that “the technique of air-chilling, practiced by Nadeau and Olymel
in producing their processed chicken may have created a distinct product market
for higher quality, higher priced product” (Affidavit of Dr. Ware, supra
at para. 11).
[102] In
his evidence in chief, Dr. Ware referred to the fact that anti-trust economists
have a precise definition of product markets and that some sub-products in the
processed chicken market could satisfy those definitions. Dr. Ware gave two
examples of such sub-products, air-chilled chicken and chicken below a certain
weight. He concluded, however, “…we didn’t have even close enough to adequate
data that would allow us to make that identification” (Confidential Transcript
vol. 2, p. 672).
[103] The
Tribunal accepted Dr. Ware’s evidence at face value and concluded that there
was insufficient evidence on the record to support the conclusion that
air-chilled chicken constituted a separate product market (Reasons at para. 298).
[104] In
this Court, Nadeau argued that the Tribunal erred in failing to find that
air-chilled chicken constituted a separate product market for purposes of
paragraph 75(1)(e) of the Act. It says the Tribunal erred in law in not
considering other evidence of a separate product market in air-chilled chicken.
[105] Nadeau
then cites the decision of this Court in Canada (Director of Investigation
and Research) v. Southam Inc., [1995] 3 F.C. 557, 185 N.R. 321 rev’d [1997]
1 S.C.R. 748, 209 N.R. 20, as authority for the proposition that certain
factors ought to be considered in determining whether products are in separate
markets. Nadeau then examines the facts in the light of these factors and
concludes that the Tribunal ought to have concluded that air-chilled chicken
constituted a separate product market.
[106] The
approach adopted by Nadeau is curious to say the least. Its own expert was of
the view that the data was insufficient to allow an anti-trust economist to
determine whether air-chilled chicken constituted a separate product market. Dr.
Ware was no doubt aware of evidence upon which Nadeau bases its argument on
this point. Nadeau asks this Court to come to a different conclusion than did
its own expert.
[107] The
Tribunal heard Dr. Ware and it heard all of the evidence to which Nadeau now
makes reference. It concluded that Dr. Ware was correct and that there was
insufficient evidence to support the conclusion that air-chilled chicken was a
separate product market. Given that this is a question of mixed fact and law, I
am unable to see how the Tribunal’s decision on this issue could be said to be
unreasonable. This ground of appeal fails.
iii) The
Tribunal erred in failing to properly appreciate the adverse effect of the
respondents’ refusal to deal on the quality or availability of products.
[108] Nadeau
argues that the Tribunal erred in failing to give effect to the evidence of a
number of its customers that the disappearance of Nadeau from the market would
result in a decrease in the quality and availability of products in the market.
Nadeau then reviews excerpts of the evidence of these customers in an attempt to
illustrate its point.
[109] This
line of argument is, it seems to me, an attack upon the Tribunal’s findings of
fact, territory upon which this Court cannot tread. The Tribunal carefully set
out the testimony of the various witnesses called by Nadeau and noted their
comments with respect to quality and availability of products. In the end, the
Tribunal did not give this evidence the effect which Nadeau wished, for the
reasons which it set out at paragraphs 455 to 461 of its Reasons. Nadeau seeks
to have this Court reweigh this evidence in the hope we will come to a
different conclusion than did the Tribunal. This is simply an appeal on a
question of fact for which leave was not granted.
[110] In
any event, the premise of this argument is that, absent a supply order, Nadeau
will cease to exist. The Tribunal came to no such conclusion. It found that
Nadeau would be unable to obtain adequate supplies of live chickens on the
usual trade terms, meaning that it would have to pay a premium in excess of
that which it was currently paying in order to source live chickens from Quebec
producers. This would likely result in a significant loss of earnings but it
does not mean that Nadeau would not be profitable or that it would necessarily
operate at a loss. As a result, the premise underlying this line of argument is
unproven.
[111] The
Tribunal did not accept the hypothesis that Nadeau would disappear from the market
if no supply order was made, as it pointed out at paragraph 458 of its Reasons:
[M]any
customer complaints focus on a limited set of scenarios, to wit, the
possibility of the [Nadeau’s] closing or being acquired by Olymel. There are
many other possible scenarios. A likely scenario is that [Nadeau] will be able
to replace some but not all the Respondents’ birds from Quebec
sources. It could be business as usual on a reduced scale. …
[112] For
both of these reasons, this ground of appeal cannot succeed.
iv) The
Tribunal erred in failing to properly consider the effect of the elimination of
an efficient competitor.
[113] This
argument has already been addressed in the preceding section. The Tribunal did
not accept that the respondents’ refusal to sell would necessarily result in a
closure of Nadeau’s plant. As the Tribunal stated “… we find it unlikely that
[Nadeau] would close” (Reasons at para. 467).
[114] That
said, this line of argument is another attempt to have this Court reconsider
and reweigh the evidence in the hope that it will come to a different
conclusion than did the Tribunal. The effect of the closure of Nadeau’s plant
is a pure question of fact, perhaps an “intangible fact”. There is no legal
component to this question. Nadeau cannot finesse this problem by saying that
the Tribunal committed an error of law in failing to consider all relevant
facts. The issue is not whether the Tribunal considered all the evidence, but rather
the conclusions the Tribunal drew from that evidence. The Tribunal’s findings
of fact cannot be challenged in this appeal.
[115] It
is worth repeating, however, that the premise underlying this line of argument
is one which the Tribunal did not accept.
[116] In
the result, I am of the view that the Tribunal’s conclusion that the
respondents’ refusal to supply would not have an adverse effect on a market is
reasonable. Nadeau has not persuaded me that there is a basis on which this
Court could interfere with the Tribunal’s decision.
d) Did the Tribunal err in
finding that Nadeau was substantially affected in its business due to its
inability to obtain adequate supplies anywhere in a market on usual trade
terms?
[117] This
issue was
raised by the respondents in their memorandum of fact and law. The respondents
did not cross-appeal since they do not seek any change in the Tribunal’s
disposition of Nadeau’s application. However, they take the position that if
Nadeau is able to persuade us to set aside the Tribunal’s conclusions with
respect to paragraphs 75(1)(b), (d) and (e), then they
seek to persuade us that the Tribunal erred in its conclusions with respect to
paragraph 75(1)(a). Since all five elements of subsection 75(1) must be
satisfied before a supply order will be made, the respondents’ success on this
issue would require us to dismiss the appeal even though Nadeau had succeeded
with respect to the grounds of appeal which it had raised.
[118] In
light of
the
conclusion to which I have come with respect to paragraphs 75(1)(b), (d)
and (e), it is not necessary for me to address this issue.
9)
CONCLUSION
[119] In
order to succeed on this appeal, Nadeau must persuade us that the Tribunal
committed a reviewable error in its treatment of each of paragraphs 75(1)(b),
(d) and (e) of the Act. Subsection 75(1) requires that each of
its elements be satisfied before the Tribunal may issue a supply order. I have
not been persuaded that the Tribunal erred in law or came to an unreasonable
conclusion with respect to any of the elements which it considered in deciding
that Nadeau had not established that:
a)
its inability to obtain adequate supplies
of live chicken on usual trade terms was due to insufficient competition;
b) live
chicken was in ample supply at the relevant times; and
c) the
respondents’ refusal to supply had an adverse effect on competition in a
market.
[120] As
a result, I would dismiss the appeal with costs.
“I
agree
M. Nadon J.A.”
“I
agree
Johanne Trudel J.A.”
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