Date:
20130211
Docket: A-302-12
A-457-12
Citation: 2013 FCA 28
CORAM: EVANS
J.A.
STRATAS
J.A.
MAINVILLE
J.A.
BETWEEN:
TERVITA CORPORATION, COMPLETE
ENVIRONMENTAL INC. and
BABKIRK LAND SERVICES INC.
Appellants
and
COMMISSIONER OF COMPETITION,
KAREN LOUISE BAKER, RONALD JOHN
BAKER,
KENNETH SCOTT WATSON, RANDY JOHN
WOLSEY
and THOMAS CRAIG WOLSEY
Respondents
PUBLIC
REASONS FOR JUDGMENT
MAINVILLE J.A.
[1]
These
reasons concern two appeals challenging a divestiture order of the Competition
Tribunal (“Tribunal”) dated May 29th, 2012 made pursuant to section
92 of the Competition Act, R.S.C. 1985, c. C-34 for reasons cited as
2012 Comp. Trib. 14 (“Reasons”).
[2]
Appeal
A-302-12 was brought under subsection 13(1) of the Competition Tribunal Act,
R.S.C. 1985, c. 19 (2nd Supp.), while appeal A-457-12, dealing with
questions of fact, was brought with leave of this Court under subsection 13(2)
of that same statute. The appeals were consolidated and heard together. These
reasons apply to both appeals, and a copy thereof shall be included in each
appeal file.
CONTEXT AND
BACKGROUND
[3]
A
detailed and precise description of the factual and contextual background to
these proceedings can be found in the Tribunal’s lengthy decision. For the
purposes of this appeal, it is sufficient to highlight some salient aspects.
[4]
Oil
and gas operations in North-Eastern British Columbia (“NE British Columbia”) produce
hazardous waste which must be disposed of in accordance with a regulatory
framework. One preferred method of disposal is to truck the waste to a secure
landfill. Operators of secure landfills in British Columbia must hold permits
and operate under British Columbia’s Environmental Management Act,
S.B.C. 2003, c. 53 and the Hazardous Waste Regulation, B.C. Reg. 63/88.
[5]
Oil
and gas developers typically pay third-party trucking companies to transport
the hazardous waste to a secure landfill, and these transportation costs
usually represent a substantial portion of the developers’ overall cost of
disposal. Secure landfill owners also charge the developers what is usually
designated as a “tipping fee” to accept the waste.
[6]
Four
permits for dedicated landfill operations have been issued for NE British Columbia.
[7]
Two
permits are held for landfills owned or operated by the appellant, Tervita
Corporation (“Tervita”), formerly known as CCS Corporation. These landfills are
the Silverberry and Northern Rockies landfill sites, which have permitted
capacities of 6,000,000 and 3,344,000 tonnes of waste respectively, and at
which [omitted] and [omitted] tonnes of hazardous waste were tipped in 2010.
[8]
A
third permit was issued for the Peejay site located in a relatively
inaccessible area near the Alberta border. This site was developed by an
aboriginal community to serve nearby drilling operations. However, that secure
landfill has not yet been constructed, and the Tribunal was of the view that
the project may be encountering financial difficulties.
[9]
The
fourth permit was issued for the Babkirk Site located in NE British Columbia approximately
81 km northwest (or one and a half hours by road) of Tervita’s Silverberry
secure landfill. It is the acquisition of the Babkirk Site by Tervita which has
triggered the Commissioner’s intervention and which is at the heart of the
Tribunal’s decision. It is thus appropriate to briefly focus on the Babkirk
Site and on the events which lead to its acquisition by Tervita.
[10]
Babkirk
Land Services Inc. (“BLS”) was founded in 1996 by Murray and Kathy Babkirk. For
approximately 6 years, BLS operated the Babkirk Site as a facility for the
treatment and short-term storage of hazardous waste. However, in 2004 BLS
stopped accepting waste at that site.
[11]
In
2006, BLS retained the services of SNC Lavalin, an engineering and project
development firm, to prepare the documents required to apply for permits regarding
a secure landfill at the Babkirk Site. At approximately the same time, a group
composed of the individual respondents in this appeal (Karen Louise Baker, Ronald
John Baker, Kenneth Scott Watson, Randy John Wolsey and Thomas Craig Wolsey, collectively
referred to in these reasons as the “Vendors”) negotiated a handshake agreement
to purchase all the shares of BLS from Murray and Kathy Babkirk. Following the
issuance of an Environmental Assessment Certificate for the secure landfill at
the Babkirk Site in December of 2008, the Vendors acquired in April of 2008 all
the shares of BLS through a new corporation, Complete Environmental Inc.
(“Complete”). BLS thus became a wholly owned subsidiary of Complete, which was
itself owned and controlled by the Vendors.
[12]
The
Vendors intended to operate the Babkirk Site primarily as a bioremediation
facility. Bioremediation is a method for treating contaminated soil by using
micro-organisms to reduce contamination.
[13]
Oil
and gas drilling operations produce two principal types of hazardous waste:
contaminated soil and drill cuttings. The soil may be contaminated with
hydrocarbons, both heavy and light end, as well as with salts and metals:
Reasons at paras. 30 to 32. The Tribunal found that soil contaminated with
heavy-end hydrocarbons is not amenable to cost effective bioremediation because
it is difficult, unpredictable, and very time consuming. Further, the Tribunal
also found that waste contaminated with metals and salts cannot be effectively
bioremediated with the technology currently approved for use in Canada: Reasons at para. 44.
[14]
The
Vendors were nevertheless confident that they could succeed with their
bioremediation facility at the Babkirk Site if they could complement this service
with a secure landfill facility allowing for the storage of waste which was not
amenable to bioremediation. It was for this purpose that a permit for a limited
capacity secure landfill facility operating alongside the bioremediation
service was sought for the Babkirk Site. Following the issue of the Environmental
Assessment certificate for the secure landfill, the Vendors received an
operating permit. That permit was issued on February 26, 2010, and authorized a
secure landfill at the Babkirk Site with a maximum storage capacity of 750,000
tonnes.
[15]
Shortly
afterwards, a company known as Integrated Resources Technologies Ltd. (“IRTL”) offered
to purchase Complete for [omitted]. Before accepting that offer, the Vendors
explored the possibility of selling to other third parties. Secure Energy
Services (“SES”) showed some limited interest, but at a lower sales price. The
Vendors thus decided to accept the offer from IRTL; however, that offer was
withdrawn in early June of 2010 due to lack of financing. The Vendors decided
to try to sell one last time, and pursued various discussions with SES and
Tervita, then known as CCS Corporation. They reached an understanding with CCS
Corporation (Tervita) in July of 2010, and signed a letter of intent on July
14, 2010. The sale of the Vendors’ shares in Complete (comprising its wholly
owned subsidiary BLS and the Babkirk Site) eventually closed on January 7,
2011.
[16]
Prior
to the closing, the Commissioner informed the parties that she opposed the
transaction on the ground that it was likely to prevent competition
substantially in secure landfill services in NE British Columbia. Shortly after
the closing, the Commissioner applied to the Tribunal pursuant to section 92 of
the Competition Act seeking an order that the transaction be dissolved
or, in the alternative, requiring that Tervita divest itself of Complete or
BLS.
RELEVANT
LEGISLATION
[17]
The
relevant extracts of the Competition Act are reproduced in the Schedule
to these reasons. A brief overview of these provisions is set out below.
[18]
When
reviewing a merger under section 92 of the Competition Act, the Tribunal
primarily determines whether the merger is likely to prevent or lessen
competition substantially. For this purpose, the Tribunal must determine
whether the merger will create, enhance or facilitate the exercise of market
power. The factors considered for this purpose include, but are not limited to,
defining the relevant product and geographic market, determining market shares
and industry concentration levels, identifying effects that could result from
the merger, and determining the likelihood of countervailing bargaining power
by customers.
[19]
Some
mergers are not driven by the desire to increase profits through greater market
power, but rather seek to allow greater profits through gains in efficiency. These
gains can be beneficial to the Canadian economy. Subsection 92(2) of the Competition
Act provides that the Tribunal cannot find that a merger prevents or lessens
competition substantially solely on the basis of concentration or market share.
Further, section 96 specifically provides for a defence based on gains in
efficiency. If it can be established that the gains in efficiency resulting
from the merger are greater than and offset its anti-competitive effects, the
Tribunal is prohibited from making an order under section 92.
[20]
The
main sources of gains in efficiency in mergers “are reductions in costs through
the realization of economies of scale, such as the sharing of fixed costs or
greater efficiency in the deployment of some types of capital; reduced
transportation costs through rationalization of shipping and distribution
networks; savings attributable to the transfer of superior production
techniques, know-how, or intellectual property rights from one merging party to
the other; and gains in efficiency accruing to buyers from the ability to
choose from a wider variety of products and services”: M. Trebilcock, R.A.
Winter, P. Collins, and E.W. Iacobucci, The Law and Economics of Canadian
Competition Policy (Toronto: University of Toronto Press, 2002) at
pp. 145-146. The analysis of productive and dynamic gains in efficiency is
usually the distinguishing feature of merger analysis: B.A. Facey and D.H.
Assaf, Competition & Antitrust Law: Canada & the United States,
3rd ed. (Toronto: LexisNexis Butterworths, 2006) at p. 201.
THE TRIBUNAL’S
DECISION
(a) The section
92 analysis
[21]
The
Tribunal defined the relevant product market as “solid hazardous waste
generated by oil and gas producers and tipped into secure landfills in [NE British Columbia]”: Reasons at para. 91. The Tribunal has traditionally considered it
necessary to also define a relevant geographic market before assessing
the competitive effects of a merger. In this case, the Tribunal found that, at
a minimum, the area of 11,000 square kilometres identified by Tervita’s expert,
Dr. Kahwaty, and designated the “Contestable Area”, was part of the relevant
geographic market. It was satisfied that a hypothetical monopolist supplying
secure landfill services in that area would have the ability to impose a small
but significant price increase (typically 5%) and sustain it for a
non-transitory period of time (typically one year): Reasons at para. 98.
[22]
The
Tribunal was also of the view that this Contestable Area likely understated the
geographic market. However, it found that it was not necessary in this case to
define precisely the geographic scope of the relevant market beyond the
Contestable Area since Tervita “would remain the sole supplier of Secure
Landfill services to any reasonably defined broader group of customers”:
Reasons at paras. 92, 93, 117 and 118.
[23]
The
Tribunal noted that “prevention” of competition cases have been rare: Reasons
at para. 121. Consequently, no detailed analytical framework had previously been
determined for the “prevention” branch of section 92 of the Competition Act.
The Tribunal thus set out at paras. 122 to 125 of its Reasons the analytical
framework it intended to apply to “prevention” cases in general, and to the
merger at hand specifically. This framework will be reviewed and discussed in
the analysis section of these reasons.
[24]
The
Tribunal focused on the period during which the merger occurred, i.e. the
period between July 2010, when the letter of intent was signed, and January
2011, when the merger transaction closed. It concluded that only two realistic
scenarios existed during this period for the Babkirk Site absent the merger:
(a) the Vendors would have sold to SES which would have operated a secure
landfill on the site; or (b) the Vendors would have operated a bioremediation
facility together with a half-cell secure landfill: Reasons at para. 132.
[25]
After
extensively reviewing the large amount of evidence submitted on these two scenarios,
the Tribunal found that, on a balance of probabilities, SES would not have made
an acceptable offer for Complete at the end of July 2010 or at any time in the
summer of 2010: Reasons at para. 154. It further found that the Vendors would
have moved forward with their own plan to develop the Babkirk Site as a
bioremediation facility for hazardous waste with a small incidental half cell
(125,000 tonnes) secure landfill in which to move the soil that was not
successfully treated: Reasons at para. 197. The Tribunal also found that this
bioremediation facility at the Babkirk Site would have been fully operational
by October 2011: Reasons at para. 200. This facility would not have been serious
competition for Tervita’s secure landfills, since bioremediation does not
compete in the same market as the supply of secure landfill services, and
exercises no constraining influence on price and non-price competition in that
market: Reasons at paras. 223-224.
[26]
The
Tribunal then expanded its analysis further into the future. It found that the
bioremediation facility offered at the Babkirk Site would have been
unprofitable since (a) it would have attracted few customers and (b) the
tipping fees it would have charged for bioremediation would have been
substantially higher than Silverberry’s tipping fees for a secure landfill:
Reasons at paras. 201 to 204. It further found that the Vendors would not have
been prepared to operate an unprofitable bioremediation facility beyond one
year, i.e. from October 2011 to October 2012: Reasons at paras. 205 and 206.
[27]
Consequently,
the Tribunal concluded that by October 2012 the Vendors would have sought to
generate additional revenues by accepting more waste into the half-cell secure
landfill which would have been part of their facility. It further concluded
that by the spring of 2013, the Vendors would have either (a) started to
operate a full service secure landfill operation; or (b) sold the facility to
someone who would have operated it as a full service secure landfill. In either
scenario, the Tribunal was of the view that the Babkirk Site and Tervita’s
secure landfills would have become direct, serious and substantial competitors
by no later than the spring of 2013: Reasons at paras. 207 to 209 and 215.
[28]
The
Tribunal found that there were no other proposed new entrants in the
Contestable Area, and that the barriers to entry into the relevant market were
significant, as it would take a new entrant at least 30 months to open a new
secure landfill: Reasons at paras. 216 to 222. Finally, it also found that the
customers of Tervita did not have significant countervailing power in order to significantly
lower tipping fees in the absence of competition for secure landfill services:
Reasons at paras. 226 to 228.
[29]
The
Tribunal concluded its section 92 analysis by finding that the impugned merger
was likely to prevent competition substantially in the supply of secure
landfill services in at least the Contestable Area, and by no later than the
spring of 2013. The Tribunal was also satisfied that prices likely would have
been at least 10% lower in the Contestable Area in the absence of the impugned
merger. It further concluded that the merger would more likely than not maintain
the ability of Tervita to exercise materially greater market power than if it
did not occur: Reasons at para. 229.
(b) The section
96 analysis
[30]
The
Tribunal noted that under section 96 of the Competition Act, it is
necessary to: (a) identify and, if possible, quantify the gains in efficiency resulting
from the merger; (b) identify and, if possible, quantify the effects resulting
from the merger; and (c) determine if these gains in efficiency exceed and
offset these effects. The Tribunal further noted that the Commissioner bore the
burden of proving the extent of the anti-competitive effects resulting from the
merger where they are quantifiable, even if only roughly so, as well as any
non-quantifiable or qualitative anti-competitive effects. On the other hand,
Tervita bore the burden of establishing that the gains in efficiency resulting
from the merger are likely to be greater than, or to offset, these effects: Reasons
at paras. 232-233.
(i)
Gains in efficiencies
[31]
The
Tribunal eliminated most of the gains in efficiency claimed by Tervita on the
basis that these would likely be attained through (a) alternative means if the
Tribunal were to make the order necessary to ensure that the merger does not
prevent competition, or (b) the merger, even if the order were made: Reasons at
para. 264.
[32]
The
only three gains in efficiency which remained after applying this filter were:
(1) one year of transportation gains in efficiency; (2) one year of market
expansion gains in efficiency, and (3) overhead gains in efficiency: Reasons at
para. 265.
[33]
The
Tribunal found, as a matter of law, that the one year transportation gains in
efficiency and the one year market expansion gains in efficiency were not
cognizable under section 96 of the Competition Act. The Tribunal found these
to be the result of delays in the implementation of its order, and concluded
that it would be contrary to the purposes of the Competition Act to
recognize them. Consequently, the Tribunal only recognized the overhead gains
in efficiency: Reasons at paras. 268, 270 and 279.
[34]
The
overhead gains in efficiency are the savings that Tervita would likely have
achieved by its ability to draw on its existing administrative staff in
operating a secure landfill at the Babkirk Site: Reasons at para. 253. These
overhead gains in efficiency were marginal, and estimated to represent no more
than approximately [omitted] per year: Reasons at para. 279.
(ii)
Effects
[35]
The
Tribunal recognised that there were no socially adverse effects: Reasons at
para. 284. Consequently, the only effects which were to be considered were
quantitative and qualitative anti-competitive effects resulting from the merger.
[36]
The
total economic efficiency loss resulting from a monopoly is commonly described
as the “deadweight loss”: The Law and Economics of Canadian Competition
Policy, above at p. 53. The Merger Enforcement Guidelines define the
“deadweight loss” as the “reduction in total consumer and producer surplus in Canada”: Competition Bureau, Merger Enforcement Guidelines (October 2011) (“MEGs”) at
para. 12.25. The Tribunal defined the “deadweight loss” as “the loss to the
economy as a whole that results from the inefficient allocation of resources
which may occur when (i) customers reduce their purchases of a product as its
price rises, and shift their purchases to other products that they value less,
and (ii) suppliers produce less of the product”: Reasons at para. 244.
[37]
Though
the Tribunal recognized that the Commissioner had failed to meet her burden of
quantifying the “deadweight loss” (Reasons at para. 246), it nevertheless
allowed the Commissioner to submit an expert reply report setting out a
calculation of the “deadweight loss” resulting from the merger. Tervita objected
to the use of a reply report for this purpose. The Tribunal rejected this
objection on the ground that Tervita’s own expert witness had been able to
effectively attack the reply report in his oral testimony, and that
consequently Tervita had not been prejudiced: Reasons at paras. 246 and 288.
[38]
The
Tribunal then proceeded to adopt the approach to the calculation of the
“deadweight loss” proposed by the Commissioner’s expert in his reply report,
namely: (i) that competition in the provision of secure landfill services
between Silverberry and Babkirk would likely result in prices being, on
average, at least 10% lower; (ii) that this price reduction would apply as a
minimum in the Contestable Area; and (iii) that market expansion gains in
efficiency would result from this lower price, i.e. the reduction in
price would attract more hazardous waste to both the Babkirk Site and the
Silverberry secure landfill than would otherwise have been the case without the
price reduction: Reasons at paras. 297 to 300.
[39]
The
Tribunal was thus persuaded, on a balance of probabilities, that the approach
adopted by the Commissioner’s expert and the numbers he used in reaching his
estimate of the likely “deadweight loss” were reasonable for the purposes of
the Tribunal’s assessment of effects under section 96 of the Competition Act.
It added that this approach and the numbers submitted were sound, reliable and
conservative: Reasons at para. 301.
[40]
The
Tribunal thus accepted the estimate of [omitted] presented by the
Commissioner’s expert in his reply report as being the minimum annual “deadweight
loss” resulting from the merger: Reasons at para. 303.
[41]
The
Tribunal acknowledged that this approach to calculating the “deadweight loss” was
deficient, but it found nevertheless that the “rough” estimate produced by this
approach was sufficiently reliable for its purposes:
[302] The Tribunal
acknowledges Dr. Kahwaty’s [the expert for Tervita] testimony that, to
calculate the DWL [“deadweight loss”], it is necessary to know the shape of the
demand curve, and that, when prices are likely to differ across customers, it
is necessary to have customer-specific elasticity data. However, the Tribunal
is persuaded that, in the absence of such information, a reliable “rough”
estimate of the likely DWL can be obtained based on information such as that
which was used by Dr. Baye in reaching his estimated annual welfare loss of
approximately [omitted].
[42]
Turning
to the qualitative effects resulting from the merger, the Tribunal recognized
that the reduction in tipping fees resulting from competition between
Silverberry and Babkirk would induce waste generators to more actively clean up
legacy sites in NE British Columbia. It identified this qualitative effect as
reduced site clean-up and the benefits that such remediation would confer on
area residents, wildlife, and the overall environment: Reasons at paras. 306
and 316. The Tribunal did not discuss why this effect had not already been captured
in the “rough” “deadweight loss” calculation it had approved, and which was
itself based on market expansion.
[43]
Second,
the Tribunal also recognized as a qualitative effect the reduction in “value propositions”.
It found that competition from the Babkirk Site would lead Tervita to offer
certain of its customers link prices on some of its other services, which would
in turn lead to a lower total cost for overall waste services used by such
customers. Though these “value propositions” had not been quantified by the
Commissioner’s expert, the Tribunal was satisfied, on a balance of
probabilities, that competition from the Babkirk Site would lead to important
non-price benefits to waste generators in the form of such “value propositions”:
Reasons at para. 307.
(iii)
The offset
[44]
The
Tribunal then set out its methodology for determining whether the gains in
efficiency resulting from the merger would offset its anti-competitive effects.
It stated that the appropriate method was to compare the magnitude of the gains
in efficiency to the magnitude of the effects within the framework of a
subjective balancing exercise: Reasons at para. 309.
[45]
In
this case, the quantified anti-competitive effects exceeded the quantified gains
in efficiency: Reasons at paras. 310 to 313.
[46]
As
an alternative conclusion, the Tribunal was further persuaded, on a balance of
probabilities, that even if no weighting at all were give to the quantitative
anti-competitive effects, and even if it were to accept and give full weight to
the one year transportation and market expansion gains in efficiency it had
discarded, the qualitative anti-competitive effects taken together would
outweigh the merger gains in efficiency under any reasonable approach: Reasons
at paras. 314 to 316.
[47]
The
Tribunal closed its section 96 analysis by adding that the merger would maintain
a monopolistic structure in the relevant market and also preclude benefits that
may arise from competition in ways that defy prediction: Reasons at para. 317.
[48]
The
Tribunal then turned to whether dissolution or divestiture was the appropriate
remedy. It found that, in this case, dissolution would be intrusive, overbroad
and would not necessarily lead to a timely opening of the Barkirk Site as a
full service secure landfill: Reasons at para. 341. It consequently ordered
Tervita to divest the shares or assets of BLS: Reasons at paras. 342 to 344.
ISSUES
RAISED IN THIS APPEAL
[49]
Tervita
and the other appellants submit that the Tribunal committed at least seven
important errors. Four of these alleged errors concern the Tribunal’s analysis
under section 92 of the Competition Act, while the remaining three
concern its analysis under section 96.
[50]
The
alleged errors in the analysis under section 92 may be stated as follows:
1. By extending the
analysis to include the feasibility of the Vendor’s bioremediation service, its
eventual failure and its consequential transformation into a full service
hazardous landfill operation by the spring of 2013, the Tribunal acted on an
theory of the case that had not been pleaded, thus breaching the appellants
right to a fair hearing.
2. The Tribunal erred in
law by extending the analysis of potential entry beyond the time of the
impugned merger through an analysis of the feasibility of the Vendor’s
bioremediation service extending to the spring of 2013.
3. This led the Tribunal
to err in its assessment of the facts by engaging in speculation regarding
possible future events.
4. The Tribunal compounded
these errors by reversing the onus and shifting the burden of proof by
requiring Tervita and the Vendors to prove the economic viability of the
Babkirk Site bioremediation operation.
[51]
The
alleged errors in the analysis under section 96 may be stated as follows:
5.
The
Tribunal erred in law by considering the Commissioner’s “deadweight loss”
quantification in the face of a finding that the Commissioner had failed to
meet her burden to prove such quantification. The Tribunal compounded this
error by allowing the Commissioner to submit a “rough estimate” of the “deadweight
loss” in a reply report, by failing to provide the appellants with a formal
opportunity to respond to this report, and by failing to recognize that the
appellants’ right to a fair hearing was seriously prejudiced as a result.
6.
The
Tribunal erred in law by not considering the one year transportation and market
expansion gains in efficiency resulting from the merger.
7.
The
Tribunal erred in law by applying an offset methodology which tipped the scale
in favour of anti-competitive effects on the basis of an unreasoned and
subjective assessment of unquantifiable qualitative effects which could not, in
any event, be considered under the scheme of the Competition Act.
THE STANDARD OF
REVIEW
[52]
The
Tribunal’s findings on questions of law are to be reviewed in this appeal on a
standard of correctness, while its findings on questions of fact or of mixed
law and fact are to be reviewed on a standard of reasonableness.
(a) Questions of
law
[53]
This
Court has consistently held that questions of law raised in an appeal from a
decision of the Tribunal are to be reviewed on a standard of correctness: Canada (Commissioner of Competition) v. Superior Propane Inc., 2001 FCA 104, [2002] 3
F.C. 185 (“Superior Propane #2”) at para. 68; 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, 289 D.L.R. (4th) 500 at para. 5; Canada
(Commissioner of Competition) v. Premier Management Group, 2009 FCA 295;
[2010] 4 F.C.R. 413 at para.67; Nadeau Poultry Farm Ltd. v. Groupe Westco
Inc., 2011 FCA 188; 419 N.R. 333 at para. 48.
[54]
A
full standard of review analysis on this issue was carried out by our Court in Superior Propane # 2. Where the jurisprudence has already determined, in a
satisfactory manner, the degree of deference to be accorded with regard to a
particular category of question, this should normally be the end of the
standard of review inquiry on that matter: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 (“Dunsmuir”), at paras. 57 and 62.
However, the Supreme Court of Canada jurisprudence post-Dunsmuir has
shifted towards greater deference to adjudicative tribunals when they are interpreting
their enabling legislation or statutes closely connected to their functions.
[55]
The
Supreme Court of Canada has found that, since Dunsmuir, the
interpretation by an adjudicative tribunal of its enabling statute or of
statutes closely related to its functions should be presumed to be a question
of statutory interpretation subject to deference on judicial review: Alberta
(Information and Privacy Commissioner) v. Alberta Teachers’ Association,
2011 SCC 61; [2011] 3 S.C.R. 654 (“Alberta Teachers’ Association”), at
paras. 34 and 41. That presumption may however be rebutted if it can be found
that Parliament’s intent is inconsistent with its application: Rogers
Communication Inc. v. Society of Composers, 2012 SCC 35 at para. 15.
[56]
In
this case, Parliament has specifically provided that the decisions of the Competition
Tribunal are subject to an appeal rather than judicially reviewed. Accordingly,
the presumption set out in Alberta Teachers’ Association may not apply,
but it is not necessary to decide this issue in this appeal. Indeed, I am of
the view that if that presumption applies, it has been rebutted. Consequently,
in my view, Superior Propane # 2 determined in a satisfactory manner
that the standard of correctness is the appropriate standard of review on
questions of law arising in an appeal from the Competition Tribunal.
[57]
Without
repeating here the entire analysis carried out in Superior Propane # 2,
it is useful to point out that questions of law which arise in the course of
proceedings before the Tribunal are determined only by the judicial members of
the Tribunal sitting in those proceedings: paragraph 12(1)(a) of
the Competition Tribunal Act. These judicial members are appointed from
among the members of the Federal Court: paragraph 3(2)(a) of the Competition
Tribunal Act. These decisions on questions of law are themselves subject,
as of right, to appeal to this Court as if they were a judgment of the Federal
Court: subsection 13(1) of the Competition Tribunal Act. As noted by
Evans J.A. in Superior Propane # 2 at para. 68, “the existence of
an unrestricted right of appeal on questions of law, and of a modified right of
appeal on questions of fact, must be entered into as a factor indicative of
Parliament’s intention that the Tribunal’s determinations on questions of law
should be reviewable on appeal on a correctness standard.”
[58]
To
underline this point, it is useful to point out that subsection 28(2) and
section 18.5 of the Federal Courts Act, R.S.C. 1985, c.
F-7
specifically
exclude judicial review when an Act of Parliament expressly
provides for an appeal to the Federal Court of Appeal, in which case the
decision is to be reviewed or otherwise dealt with in accordance with that Act.
In subsection 13(1) of the Competition Tribunal Act, Parliament has
clearly and unambiguously provided for an appeal as of right to this Court from
a decision of the Tribunal on a question of law “as if it were a judgment of
the Federal Court.” I do not believe that it is possible for Parliament to use
any clearer language as to its intent. Since judgments of the Federal Court on
questions of law are reviewed in appeal on a standard of correctness, decisions
from the Tribunal on such questions are also to be reviewed on the same
standard.
[59]
The
determination of the appropriate standard of review is essentially a search for
legislative intent: Pezim v. British Columbia
(Superintendent of Brokers), [1994] 2 S.C.R. 557 at pp. 589-590; Pushpanathan v. Canada (Minister of Citizenship and Immigration),
[1998] 1 S.C.R. 982 at para. 26; Dr. Q v. College of Physicians and Surgeons of British Columbia,
2003 SCC 19, [2003] 1 S.C.R. 226 at para. 21, Dunsmuir, at para. 30. Where,
as here, that intent is clear, the judiciary should comply unless this offends
the rule of law or some other constitutional principle.
(b) Questions of fact and of mixed
law and fact
[60]
Since
the decision of the Supreme Court of Canada in Canada
(Director of Investigations and Research) v. Southam Inc.,
[1997] 1 S.C.R. 748 (“Southam”), it is clear that the findings of
the Tribunal on questions of fact and on questions of mixed law and fact from
which a question of law cannot be extricated are owed particular deference on
appeal: Southam at paras. 34 and 54. This is so notably because
Parliament has provided for a limited right of appeal on questions of fact by
requiring that an appeal on such questions only lies with leave of this Court: subsection
13(2) of the Competition Tribunal Act.
[61]
The
Tribunal holds expertise in the economic and commercial issues which are at the
heart of its mandate under the Competition Act. This Court sitting in
appeal of its decisions should thus defer to its findings on these issues,
including the inferences it draws from the evidence. Contrary to most trial
courts, which are essentially concerned with ascertaining the facts relating to
past events, the Tribunal’s role under sections 92 and 96 of the Competition
Act requires it to project into the future various events in order to
ascertain their potential economic and commercial impacts. The role of the
Tribunal is thus to identify and remedy market problems that have not yet
occurred. This is a daunting exercise steeped in economic theory and requiring
a deep understanding of the economic and commercial factors at issue. Because
an appellate court may encounter difficulties in fully understanding the
economic and commercial aspects of the Tribunal’s decision, it must defer to
its findings of fact and of mixed law and fact on these issues.
[62]
Some
controversy has however developed in the case law as to the appropriate
standard of deference owed to the Tribunal over questions of fact and of mixed
law and fact from which a question of law cannot be extricated: is it the “reasonableness”
standard of deference used in judicial review or the standard of deference
which applies in an appeal as described in Housen v. Nikolaisen, 2002
SCC 33, [2002] 2 S.C.R. 235 (“Housen”)?
[63]
Both
the Commissioner and the appellants submit that the appropriate standard of
deference in this case on questions of fact, and of mixed law and fact from
which a question of law cannot be extricated, is the one which applies in
appellate review as set out in Housen: Commissioner’s memorandum in
appeal file A-302-12 at paras. 30-31; Commissioner’s memorandum in appeal file
A-457-12 at paras. 8-9; appellants’ memorandum in appeal file A-457-12 at para.
43. This approach has also been adopted by our Court in Canada (Commissioner of Competition) v. Premier Career Management Group Corp.,
above. In that case, at paras. 67 and 71, Sexton J.A. applied the Housen standard
on the ground that subsection 13(1) of the Competition Tribunal Act
states that an appeal from the Tribunal is treated as if the original decision
were a judgment of the Federal Court, and consequently “it makes more sense to
apply the standard used to review decisions of lower courts rather than those
used to review administrative tribunals.”
[64]
There
is much merit to the approach adopted by Sexton J.A. and supported by the
parties in this appeal. However, in Southam Iacobucci J., writing for a
unanimous Supreme Court of Canada, found that the applicable standard in such
circumstances was that of reasonableness simpliciter, which he also found
to be closely akin to the standard applied in reviewing findings of fact by
trial judges: Southam at paras. 54 to 59. The reasonableness simpliciter
standard has since been subsumed into the reasonableness standard, and it has
consequently been considerably redefined: Dunsmuir at paras. 45 to 49. I
am bound by these decisions of our highest court: Canada v. Craig, 2012 SCC 43 at para. 21. Consequently, the findings of
fact, and of mixed law and fact from which a question of law cannot be
extricated, made by the Tribunal shall be reviewed in this appeal under the
standard of reasonableness. For the purposes of this appeal, it is not
necessary to decide the extent to which this standard of reasonableness differs
from that of overriding and palpable error as applied to questions of fact or
of mixed law and fact.
(c) The distinction
between questions of law and questions of mixed law and fact
[65]
Though
the Commissioner acknowledges in this appeal that questions of law are to be
reviewed on a standard of correctness, he submits that the issues raised by the
appellants in this case are actually questions of mixed law and fact:
Commissioner’s memorandum at para. 30. Consequently, it is important in this
appeal to review the distinction between questions of law and questions of mixed
law and fact within the context of a decision of the Tribunal under sections 92
and 96 of the Competition Act. The reasons of the Supreme Court of
Canada in Southam, which dealt with section 92 of the Competition Act,
are most useful for this purpose.
[66]
As
aptly noted by Iacobucci J. in Southam, questions of law and questions
of mixed law and fact in the context of a determination under section 92 (and
by implication under section 96) of the Competition Act may be
distinguished as follows:
(a) when the Tribunal determines what the correct
legal test is under the pertinent provisions of the Competition Act, or
when the Tribunal forges a new legal principle or legal test, then the matter is
to be treated as a question of law; however, questions about whether the facts
satisfy that legal test are deemed questions of mixed law and fact (Southam at
paras. 35 and 45);
(b) if the Tribunal ignores items of the evidence
that the law requires it to consider, then it errs in law; however when the
Tribunal considered all the mandatory kinds of evidence, then its conclusion
will be reviewed on a standard of reasonableness (Southam at para. 41);
(c) where the Tribunal fails to consider certain
factors that the law requires it to consider then it errs in law; however, the
weight accorded by the Tribunal to each factor, especially if the legal
principle being applied involves a balancing test, will be reviewed on a
standard of reasonableness (Southam at paras. 43-44).
[67]
The
questions raised in this appeal and involving procedural fairness are also to
be dealt with on a standard of correctness.
[68]
It
is with these considerations and distinctions in mind that I will proceed with
the analysis of each of the grounds of appeal raised by the appellants.
ANALYSIS
Alleged errors
in the Tribunal’s analysis under section 92
(1) Did the Tribunal
base its decision on a theory of the case that had not been pleaded?
[69]
The
Tribunal found that Tervita’s acquisition of the Babkirk Site would
substantially prevent competition since the Vendors would have turned the site
into a competing secure landfill once their bioremediation operation would have
failed.
[70]
The
appellants allege that the Commissioner did not plead this theory, and that it
was consequently an impermissible error of law for the Tribunal to have determined
the case based on this theory. They add that they had no reason to believe that
the future viability of the bioremediation operation was at issue, and that
they were thus precluded from adducing evidence regarding this matter.
[71]
In
the normal course of judicial proceedings, parties are entitled to have their
disputes adjudicated on the basis of the issues joined in the pleadings. This
is because when a trial court steps outside the pleadings to decide a case, it
risks denying a party a fair opportunity to address the related evidentiary
issues: Rodaro v. Royal Bank of Canada (2002), 59 O.R. (3d) 74 (C.A.) at paras. 60 to 63; Nunn v. Canada, 2006 FCA 403, 367 N.R. 108 at paras. 23 to
26; Labatt Brewing Company Ltd. v. NHL Enterprises Canada, L.P., 2011 ONCA 511, 106 O.R. (3d) 677 at paras. 4 to 9 and 21.
[72]
However,
this does not mean that a trial judge can never decide a case on a basis other
than that set out in the pleadings. In essence, a judicial decision may be
reached on a basis which does not perfectly accord with the pleadings if no
party to the proceedings was surprised or prejudiced: Lubrizol Corp. v.
Imperial Oil Ltd., [1996] 3 F.C. 40 (C.A.) at paras. 14 to 16; Barker v.
Montfort Hospital, 2007 ONCA 282, 278 D.L.R. (4th) 215 at paras.
18 to 22; Colautti Construction Ltd. v. Ashcroft Development Inc., 2011
ONCA 359, 1 C.L.R. (4th) 138 at paras. 42 to 47.
[73]
A
trial judge must decide a case according to the facts and the law as he or she finds
them to be. Accordingly, there is no procedural unfairness where a trial judge,
on his or her own initiative or at the initiative of one of the parties, raises
and decides an issue in a proceeding that does not squarely fit within the
pleadings, as long as, of course, all the parties have been informed of that
issue and have been given a fair opportunity to respond to it: Pfizer Canada
Inc. v. Mylan Pharmaceuticals ULC, 2012 FCA 103, 430 N.R. 326 at para. 27;
Murphy v. Wyatt, [2011] EWCA Civ. 408, [2011] 1
W.L.R. 2129 at paras. 13 to 19; R. v. Keough, 2012
ABCA 14, [2012] 5 W.W.R. 45.
[74]
These
principles also apply to contested proceedings before the Tribunal. It acts as
a judicial body: section 8 and subsection 9(1) of the Competition Tribunal
Act. Though the proceedings before the Tribunal are to be dealt with
informally and expeditiously, they are nevertheless subject to the principles
of procedural fairness: subsection 9(2) of the Competition Tribunal Act.
Accordingly, the Competition Tribunal Rules, SOR/2008-141(“Rules”)
provide that an application to the Tribunal must be made by way of a notice
of application setting out, inter alia, a concise statement of the
grounds for the application and of the material facts on which the applicant
relies, as well as a concise statement of the economic theory of the case: Rules
at paras. 36(2)(c) and (d). Similar provisions apply to a
response and to a reply: Rules at paras. 38(2)(a)(b) and (c)
and subsection 39(2). The Rules also set out a detailed and complete system
of pre-hearing disclosures: Rules at sections 68 to 74 and 77-78.
[75]
In
order to resolve the first ground of appeal raised by the appellants, it must be
first determined whether the pleadings encompassed the eventual failure of the
bioremediation service and the subsequent transformation of the Babkirk Site into
a full service secure landfill. If the pleadings did not encompass these matters,
we must determine whether the appellants’ right to a fair hearing was
prejudiced by the manner in which the Tribunal proceeded.
[76]
In
its notice of application filed with the Tribunal, the Commissioner alleged
that Complete had obtained the regulatory approvals to operate a secure landfill
at the Babkirk Site, that it was a “poised entrant” into the market for
hazardous waste disposal into secure landfills, and that it would have competed
directly with Tervita had it not been for the merger: paras. 1, 19 and 21 of
the notice of application reproduced at AB vol. 1, pp. 112, 115 and 116. The
Commissioner added that “[i]f the Merger is dissolved, Complete will likely
capitalize on its regulatory approvals by either converting and operating
Babkirk as a Secure Landfill, or selling Babkirk to another operator who will
complete the conversion and operate Babkirk as a Secure Landfill”: para. 21 of
the notice of application reproduced at AB vol. 1, p. 116.
[77]
In
their response submitted to the Tribunal, Tervita and the other appellants
challenged the Commissioner’s assertion that Complete was a “poised entrant”.
They submitted that the Vendors had decided to sell to a third party and had no
intention to develop the Babkirk Site. They added that even if the Vendors did
eventually develop the site, this would not have occurred for at least two
years. They also submitted that, in any event, the development would not have provided
effective competition with Tervita, since the contemplated service at the
Babkirk Site was a mix of both disposal and bioremediation: paras. 3, 28 and 29
of the appellants’ response reproduced at AB vol. 1, pp. 124-125 and 131.
[78]
The
Vendors submitted their own separate response. They also took the position that
Complete was not a “poised entrant” since the intended use of the Babkirk Site was
primarily for bioremediation: paras. 2, 18 and 35 of the Vendors’ response reproduced
at AB vol.1, pp. 146, 149-50 and 153.
[79]
The
Commissioner challenged these responses, notably on the basis that
bioremediation was not technically feasible or profitable in NE British
Columbia, and that Complete or another company would have capitalized on the
valuable regulatory approval for a secure landfill at the Babkirk Site:
Commissioner’s reply at paras. 2, 8 and 9 reproduced at AB vol. 1, pp. 164 and
166.
[80]
The
issue of whether or not Complete was a “poised entrant” was clearly raised in
the pleadings. The temporal dimension of “poised entry” in the context of a
prevention of competition case was thus plainly an issue before the Tribunal.
That issue led the Tribunal to define a “poised entry” - under the analytical
framework it had developed for a “prevention” of competition case - as an
“entry or expansion [that] likely would occur within a reasonable period of
time”: Reasons at para. 123.
[81]
As
a result of the respective positions of the parties set out in the pleadings,
and taking into account the temporal dimension of “poised entry”, the
feasibility and profitability of the operation at the Babkirk Site of a
bioremediation facility was dealt with extensively before the Tribunal.
Substantial evidence was adduced on the technical and financial feasibility of
bioremediation: see notably the Witness Statement of Robert Andrews, AB vol. 22
at pp. 7388 to 7393 (in particular paras. 23 to 26); Witness Statement of Devin
Scheck, AB vol. 22 at pp. 7497 to 7499 (in particular paras. 25 to 27 and 33);
Expert Report of Mark Polet, AB vol. 22 at pp. 7558 to 7565; Reply Report of
Mark Polet, vol. 22 at pp. 7580-7581.
[82]
The
thrust of the Commissioner’s position before the Tribunal was that the Vendors
would be pursuing from the start a secure landfill operation at the Babkirk
Site in light of the permits they had secured. However, the Commissioner also
addressed early on in the proceedings the issue of the lack of feasibility for
bioremediation at the Babkirk Site. Though aware that the Commissioner was
pursuing this matter, at any point during the entire proceedings the appellants
or the Vendors did not object or raise any form of concern whatsoever. On the
contrary, they submitted evidence concerning the feasibility of bioremediation
at the Babkirk Site, and forcefully disputed the submissions of the
Commissioner to the contrary.
[83]
Taking
into account the pleadings as a whole, and after reviewing the evidentiary
record before the Tribunal, I am of the view that the feasibility of a
bioremediation facility at the Babkirk Site was squarely before the Tribunal,
as was the issue of whether Complete was a “poised entrant” in the market for
secure landfills once it ceased to pursue bioremediation.
[84]
Accordingly,
the appellants’ argument must fail. In any event, even if these issues were not
included in the pleadings, the appellants have failed to convince me that they
were prejudiced by the fact that these issues were considered and decided by
the Tribunal.
(2) Could
the Tribunal extend the section 92 analysis beyond the date of the merger?
[85]
In
its Reasons, the Tribunal set out an analytical framework for prevention of
competition merger reviews under section 92 of the Competition Act. That
framework is described at paras. 121 to 126 of the Tribunal’s Reasons, and may
be summarized as follows:
a. In determining whether
competition is likely to be prevented, the Tribunal assesses whether a merger
is more likely than not to maintain the ability of the merged entity to
exercise greater market power than in the absence of the merger, acting alone
or interdependently with one or more rival. This is a form of “but for” analysis.
In the case at hand, this requires comparing a world in which Tervita owns the
relevant secure landfills (Silverberry, Northern Rockies and Babkirk) with a
world in which Babkirk is independently operated as a secure landfill;
b. In assessing cases
under the “prevention” branch, the Tribunal focuses on the new entry, or the
increased competition from within the relevant market, that the Commissioner
alleges was, or would be, prevented by the merger in question. This requires
the Tribunal to assess whether it is likely the new entry or expansion would be
sufficiently timely, and occur on a sufficient scale, to result in:
i.
a
material reduction of prices, or in a material increase in non-price
competition, relative to prevailing price and non-price levels of competition;
ii.
in
a significant (i.e. non-trivial) part of the relevant market;
iii.
for
a period of approximately two years.
If so, and if the entry or
expansion likely would occur within a reasonable period of time, the Tribunal
will usually conclude that the prevention of competition is likely to be
substantial.
c. The Tribunal will also
consider whether other firms would be likely to enter or expand on a scale
similar to that which was prevented or forestalled by the merger, and in a
similar timeframe. Where the Tribunal finds that such entry or expansion would
probably occur, it is unlikely to conclude that the merger is likely to prevent
competition substantially.
[86]
The
appellants challenge the Tribunal’s view that the entry or expansion must
likely occur within a “reasonable period of time”. Rather, they suggest that the
Tribunal’s analysis of potential entry or expansion must be confined to the
time the merger occurred. This ground of appeal must be reviewed on a standard
of correctness since the correct legal test for a section 92 prevention of
competition merger review is a question of law.
[87]
The
analysis required for the review of a merger under section 92 of the Competition
Act involving the prevention of competition is necessarily forward-looking.
This flows, inter alia, from:
a. The very terms of
section 92 which require the Tribunal to determine whether a merger “prevents
or lessens, or is likely to prevent or lessen competition substantially”
(emphasis added).
b. Para. 93(b) of the Competition
Act. That paragraph includes as a factor to consider in the section 92
analysis the question of “whether the business...has failed or is likely to
fail.” Though this concerns the failing firm defence - i.e. the merger
will not result in the removal of an effective competitor since the acquired
business would have exited the market anyway – and does not apply to the circumstance
reviewed here – i.e. the failure of the bioremediation business will result
in the introduction of an effective competitor – the temporal concept is
analogous.
c. Moreover, an important
factor in merger review is whether timely future entry by potential competitors
would likely occur to constrain a material price increase in the relevant market:
Competition Bureau Canada, Merger Enforcement Guidelines, 2004, section
7.1.
All these factors require the
Tribunal to take into account future events likely to occur after the date of
the impugned merger.
[88]
The
Tribunal was thus correct in concluding that while “poised entry” should be
considered by taking into account the date of the merger, it need not be
limited to that date. Rather, as set out in the analytical framework adopted by
the Tribunal, the analysis may require that the Tribunal look into the future to
ascertain whether the entry into the market would have occurred within a
reasonable period of time, given the dynamics of the firm at issue and the
characteristics of the market in question.
[89]
But
what is a reasonable period of time? As noted by Crampton C.J. at para. 382 of
his concurring opinion, this will necessarily vary from case to case and will
depend on the business under consideration. However, certain guidelines should
be followed to ascertain an appropriate temporal framework for “poised entry”
in any given “prevention” case.
[90]
First, the
timeframe must be discernable. It will be insufficient to conclude that an
acquired firm could have possibly entered the market at some future date. Rather,
what is required is a clear and discernable timeframe for market entry. This
need not, however, be a precisely calibrated determination.
[91]
Second, the
timeframe for market entry should normally fall within the temporal dimension
of the barriers to entry into the market at issue. As noted in BOC
International Ltd. v. Federal Trade Commission, 557 F.2d 24 (2d Cir. 1977)
at page 29, a case dealing with a similar provision contained in the U.S. Clayton
Act, 15 U.S.C. §18, “it seems necessary... that the finding of probable
entry at least contain some reasonable temporal estimate related to the near
future, with ‘near’ defined in terms of entry barriers and lead time necessary
for entry in the particular industry, and that the finding be supported by substantial
evidence in the record.” I accept this approach insofar as it serves as a
guidepost and not as a fixed temporal rule. There may indeed be rare situations
where it may be appropriate to expand the temporal analysis of poised entry
beyond the temporal dimension of the barriers to market entry. In such
circumstances, the Tribunal will be required to clearly justify why the entry
is still “poised” at this later date. However, in most cases the temporal
dimension of market entry should serve as an appropriate guidepost. Additional
guideposts should not be excluded, but what these are, if any, is better left
to be decided in other appropriate cases.
[92]
In
this case, the Tribunal discerned a clear timeframe under which the Babkirk
Site would enter the market for secure landfills. It identified the chain of
intermediary steps required to determine this within a timeline starting from
the moment the merger took place. It further determined the timeline when each
step would occur based on its assessment of the evidence submitted by the
parties: paras. 197 to 209 of the Reasons.
[93]
The
Tribunal found that had the merger not occurred, the Vendors would have
operated a bioremediation facility with a half-cell secure landfill by October 2011,
but that operation would not have been pursued for more than one year: Reasons
at paras. 200 to 206. The Tribunal further found that by October 2012, the
Vendors would have begun competition with Tervita’s Silverberry secure landfill
by accepting more waste into their half-cell secure landfill. The Tribunal also
concluded that the Vendors would have either (a) transformed and expanded their
operation at the Babkirk Site in order to operate a full service secure landfill
operation at least by the spring of 2013, or (b) sold to a third party who
would have operated such an operation at least by that time: Reasons at paras.
207 to 209 and 215.
[94]
This
discernable timeframe for entry into the market was also well within the
temporal framework of the barriers to market entry. The Tribunal found that it
would take a new entrant at least 30 months to open a new secure landfill:
Reasons at para. 222. The entry of the Babkirk Site into the secure landfill
market would thus have been achieved well within this timeframe. The impugned
merger closed in January of 2011. The Tribunal found that approximately 21
months after the close of the merger – by October 2012 – the Babkirk Site would
have entered the concerned market and started to compete with the Silverberry
secure landfill, and that it would have been transformed into a full service
secure landfill at the latest within 6 months thereafter.
(3)
Did the Tribunal engage in unfounded speculation regarding possible future
events?
[95]
The
appellants add in their appeal A-457-12 (dealing with questions of fact) that
these findings by the Tribunal were not supported by the evidence adduced at
the hearing. The appellants submit that the Tribunal engaged in unbridled speculation
about future events by expanding its analysis to include a review of the
feasibility and profitability of the Vendors contemplated bioremediation
business; concluding that this business would fail; and further concluding that
the Babkirk Site would be operated as a full service hazardous waste secure
storage facility by the spring of 2013. I disagree.
[96]
This
ground of appeal raises questions of fact or of mixed law and fact, and is
therefore to be reviewed on a standard of reasonableness.
[97]
The
Tribunal’s findings concerning the difficulties associated with bioremediation
in NE British Columbia were supported by abundant evidence, not least of which
was the expert evidence of Mark Polet, an environmental biologist with
specialized knowledge and 33 years of experience in environmental assessment,
remediation and reclamation, as well as waste facility management development.
He testified that bioremediation is ineffective in NE British Columbia, and
confirmed that it does not work on salts and metals, the types of contaminants
that are typical of the hazardous waste produced through oil and gas
operations: Expert Report of Mark Polet, AB vol. 22, pp. 7558-7559, paras. 28
to 31. Moreover, a civil servant with the British Columbia Ministry of the
Environment, Del Reinheimer, testified that he “was somewhat skeptical about
the proposed treatment” and “expected that the treatment operations weren’t
going to be as successful as they [the Vendors] had hoped, and that much of the
waste would end up in the landfill”: AB vol. 30 p. 10012.
[98]
The
Vendors’ business plan was based on securing customers and selling treated
waste for use as cover at municipal landfills. Yet, they were unable to
identify customers willing to transport hazardous waste to the Babkirk Site for
bioremediation treatment. Nor could they identify any municipal purchasers willing
to pay them for treated landfill waste. The Vendors recognized that they would
have to charge customers significantly more for bioremediation than Tervita
would charge for disposal in a secure landfill: see Testimony of Karen Baker, AB
vol. 31, pp. 10592 to 10597. The evidence from third party oil and gas
producers was that they would not consider transporting hazardous waste for
bioremediation treatment: see Testimony of [omitted], AB vol. 29 at pp.
9580-9581; Testimony of [omitted], AB vol. 31 at p. 10438.
[99]
The
Tribunal relied on market dynamics and the lack of customers to conclude that
the Vendors’ business plan for bioremediation would fail. There was abundant
evidence before the Tribunal on which it could base this conclusion. The
Tribunal’s expertise lies in economics and commerce, and its assessment of
market dynamics deserve special deference.
[100] The
Tribunal’s 12 month timeline (October 2011 to October 2012) during which the
Vendors would be ready to operate an unprofitable bioremediation operation at
the Babkirk Site was consistent with the Vendor’s own timeline estimates. The
minutes of the meeting of the Vendors held on March 20, 2010, just after the
secure landfill permit for the Babkirk Site had been issued, indicate that the
Vendors “need [a] 12 month season to see how bioremediation works”: Reasons at
para. 171; see also Meeting minutes AB vol. 24, p. 8159.
[101] The
Tribunal’s finding that the Vendors would be able to switch from a bioremediation
operation to a secure landfill operation as of October of 2012 is also
abundantly supported by the evidence. A full service landfill operation can be
developed one cell at a time, and it is common in the business to build a new
cell only once an existing cell is almost full: see Testimony of Rene Amirault,
AB vol. 30 pp. 10161 to 10163; testimony of Dr. Michael Baye, AB vol. 30, p.
9949; testimony of Del Reinheimer, AB vol. 30 pp. 10012-10013. Accordingly, as
of October 2012, the Vendors could have begun their secure landfill operation
with the 125,000 tonne half-cell they would have constructed, and then
continued to expand their secure landfill operation as more capacity was
needed.
[102] Moreover,
there was abundant evidence before the Tribunal to confirm that the market for
hazardous waste disposal in the area was expanding, and that the Babkirk Site
was well situated to service that market. Indeed, Tervita itself stated through
its representatives that it had acquired the Babkirk Site for this very
purpose: see Witness Statement of Richard Lane, AB vol. 25 pp. 8365 and 8367,
paras. 8 and 16; Witness Statement of Daniel Wallace, AB vol 27 p. 8865, para.
7.
[103] Likewise,
there was evidence to support the Tribunal’s inference that the Babkirk Site
could have been sold to a third party secure landfill operator sometime after
October 2012. The Commissioner’s expert, Dr. Michael Baye, testified that the
Babkirk Site would be valuable and attractive to businesses experienced in
operating secure landfills: AB vol. 29 pp. 9857-9858. The President and CEO of
SES stated that Babkirk was an attractive asset: Witness Statement of Rene
Amirault, AB vol. 20 p. 6487, para. 17. Moreover, Tervita itself advocated divestiture
rather than dissolution, an indication that it believed that third party
purchasers would be interested in the Babkirk Site.
[104] In
any event, in light of the Tribunal’s findings that the Babkirk Site was a
valuable asset if operated as a secure landfill, that secure landfill demand
was deemed to be expanding in the area, and that the regulatory barriers for
permitting a secure landfill are high, it was not an unreasonable inference
that the Vendors would have found a buyer for the Babkirk Site had they decided
not to operate themselves a full service secure landfill at that site.
(4)
Reversing the onus and shifting the burden of proof
[105] As a
final ground of appeal challenging the Tribunal’s section 92 merger review
analysis, the appellants submit that the Tribunal placed on them and the
Vendors the burden of proving the economic viability of the bioremediation
operation at the Babkirk Site, thus erroneously reversing the burden of proof
on this matter.
[106] The
appellants principally rely for this ground of appeal on the Tribunal’s
comments in its Reasons at (a) para. 202: “[t]here was no evidence that any
companies are paying to transport waste to offsite remediation facilities in
NEBC...[and] the Vendors did not call evidence from any prospective customers
to say that they would be prepared to truck their waste to the Babkirk Facility
for bioremediation”, and at (b) para. 204: “there was no evidence from any
potential purchasers who might have bought treated waste from Complete for use
as cover for municipal dumps or backfill for excavations.”
[107] The
burden of proving both that a merging firm is a “poised entrant” in a specific
market, and that an impugned merger involving that firm is likely to prevent
competition substantially in that market, rests with the Commissioner. This
flows from the general burden imposed on the Commissioner under section 92 of
the Competition Act.
[108] In
this case, the Tribunal did not extensively discuss the burden of proof under a
section 92 merger review, but implicitly accepted that the burden lay with the
Commissioner: see notably paras. 59 and 125 of the Reasons. Moreover, in his concurring
reasons, Crampton C.J. explicitly and correctly stated that the burden was on
the Commissioner to establish, on a balance of probabilities, that “but for”
the merger, one of the merging parties likely would have entered or expanded
within the relevant market within a reasonable period of time, and on a
sufficient scale, to effect either a material reduction of prices or a material
increase in one or more levels of non-price competition, in a material part of
the market: Reasons at para. 386. It is implicit in the Tribunal’s Reasons that
this approach to the burden of proof was applied by the Tribunal as a whole.
[109] In
addition, the Tribunal’s comments made at paras. 202 and 204 of its Reasons,
reproduced above, do not show that the Tribunal shifted the burden away from
the Commissioner. Placed in context, these comments simply reflect the
conclusions of the Tribunal derived from the evidence, rather than some
nefarious shifting of the burden of proof.
[110] The
simple fact of the matter is that there was no evidence submitted of any
company willing to pay for the transportation of hazardous waste to offsite
bioremediation facilities in NE British Columbia. Rather, the evidence adduced
before the Tribunal was to the contrary. Though the Vendors had provided a list
of potential customers for their bioremediation operation, a representative of
the first potential client on that list testified that its philosophy was to
dispose of hazardous waste in landfills, leading the Tribunal to conclude that
it was not a potential customer for the Vendors’ bioremediation operation:
Reasons at para. 202. Moreover, and as noted above, there was abundant evidence
submitted to the Tribunal showing that bioremediation was not a feasible
alternative to a secure landfill, and that oil and gas producers would not
consider transporting hazardous waste for bioremediation treatment.
[111] The
Tribunal’s comment concerning the lack of evidence from potential municipal
purchasers who might have bought waste treated at the Babkirk Site results from
the fact that the only potential purchaser which the Vendors had identified for
this purpose was shown to be actually unwilling to pay for the treated waste:
see Exhibit D to the Witness Statement of Scott Watson, AB vol. 25 at p. 8453;
Testimony of Randy Wolsey, AB vol. 32 at pp. 11035 to 11038.
[112] Read
in their overall context, the comments of the Tribunal do not demonstrate that
the Tribunal shifted the burden of proof away from the Commissioner.
Alleged errors
in the Tribunal’s analysis under section 96
[113] Section
96 of the Competition Act requires the Tribunal to determine, through a
balancing test, whether the gains in efficiency resulting from a merger are
greater than and offset its anti-competitive effects: Superior
Propane # 2 at para. 75. The Commissioner bears the burden of proving the
effects of any prevention or lessening of competition that will result or is
likely to result from the merger. The party raising the gains in efficiency
defence bears the burden of proving that the gains in efficiency brought about
or likely to be brought about by the merger will be greater than and will
offset these effects: Superior Propane #2 at paras. 149 to 154.
(5)
Did the Tribunal err and breach the rules of procedural fairness by considering
the Commissioner’s “deadweight loss” quantification?
[114] The
Tribunal found that the Commissioner had failed to produce evidence on the
quantification of the anti-competitive effects resulting from the merger, but
nevertheless allowed the Commissioner to provide some calculations relating to
some effects in a reply report. The appellants submit that this amounts to an
error in law and a breach of procedural fairness.
[115] Indeed,
the Tribunal rejected the Commissioner’s submission that the quantification of
the anti-competitive effects need only be submitted once the gains in
efficiency of the merger had been established. It also found that there was no
doubt from the beginning of the proceedings that Tervita was mounting a defence
based on gains in efficiency: Reasons at paras. 236 to 241. The Tribunal then made
the following directions to the Commissioner:
[244] Indeed, where the
necessary data can be obtained, the Commissioner will be expected in future
cases to provide estimates of market elasticity and the merged entity’s
own-price elasticity of demand in her case in chief. These estimates
facilitate the calculation of the magnitude of the output reduction and price
effects likely to result from the merger. They are also necessary to
calculate the deadweight loss (“DWL”) that will likely result from the
output reduction and relevant price effects...
(Emphasis added)
[116] Nevertheless,
the Tribunal allowed the Commissioner to submit a rough estimate and
calculations of the “deadweight loss” which were included in a reply expert
report: see Reply/Responding Report of Michael R. Baye, AB vol. 18 at pp. 5973
to 5976, paras. 10 to 14.
[117] Tervita
was provided no opportunity to formally respond to the Commissioner’s estimate
and calculations set out in that reply report. Tervita argued before the
Tribunal that as a result, and as a matter of substantive and procedural
fairness, it had been effectively denied a right of response to the
quantification of the anti-competitive effects, and that its ability to
properly meet its own burden under section 96 of the Competition Act had
been compromised. Consequently, Tervita asked the Tribunal to conclude that
there were no quantified anti-competitive effects resulting from the impugned
merger: Reasons at para. 234.
[118] The
Tribunal recognized that in this case “the Commissioner failed to meet her burden”:
Reasons at para. 246. Nevertheless, the Tribunal refused to accede to Tervita’s
request that it consider as nil the quantifiable anti-competitive effects. In
the Tribunal’s view, Tervita had not been prejudiced by the Commissioner’s
failure: Reasons at paras. 246 and 288.
[119] Tervita
now appeals to this Court on this ground.
[120] The
issue here is not whether the Tribunal erred in determining who assumed the
burden of proving the anti-competitive effects of the merger, since the
Tribunal was clearly of the view that the burden belonged to the Commissioner:
Reasons at para. 243. Rather, the issue is whether the Tribunal erred in
determining how that burden was to be discharged. In other words, did the
Tribunal err by allowing the Commissioner to discharge her burden through a
reply expert report setting out a “rough estimate” of the “deadweight loss”
resulting from the merger?
[121] I
have difficulty reconciling the apparently contradictory positions taken by the
Tribunal regarding this issue. On the one hand, the Tribunal clearly
acknowledged the prejudicial effect by determining:
a.
that
the failure by the Commissioner to submit her calculations of the
anti-competitive effects “meant that [Tervita] did not have a figure for the
Effects and was obliged to serve its expert report on efficiencies with no
ability to take a position about whether the number it calculated for its total
efficiencies was greater than the Effects”: Reasons at para. 234;
b.
that
“there was insufficient time before the hearing to permit [Tervita] to move to
strike Dr. Baye’s [the Commissioner’s expert] report or to seek leave to file a
further report in response to the Commissioner’s quantification of the
Effects”: Reasons at para. 235;
c.
that
“estimates of market elasticity and the merged entity’s own-price elasticity of
demand...are...necessary in order to calculate the deadweight loss...that will
likely result from the output reduction and related price effects”: Reasons at
para. 244;
d.
that
“prudence dictates that a range of plausible elasticities should be calculated,
to assist the Tribunal to understand the sensitivity of the Commissioner’s
estimates to changes in those elasticities” and that “rough estimates” could only
be submitted, “if the data required to reliably estimate the elasticities
cannot reasonably be obtained”: Reasons at para. 245;
e.
and
that “the Commissioner failed to meet her burden”: Reasons at para. 246.
[122] On
the other hand, the Tribunal swept away all these serious failures. It justified
this approach on two grounds.
[123] First, it
found that Tervita had suffered no prejudice because: (i) “instead of doing the
required independent analysis of elasticities, Dr. Baye relied on his assumed
price decrease of at least 10% and on certain assumptions used by Dr. Kahwaty
[Tervita’s expert] in calculating [Tervita’s] claimed market expansion
efficiencies”; and (ii) “Dr. Kahwaty was able to effectively attack Dr. Baye’s
[“deadweight” loss] calculation on various grounds, including his failure to
base them on conventional calculations of elasticities when he could have
obtained the data necessary to perform those calculations”: Reasons at para.
246.
[124] The
fact that the Commissioner relied on a clearly deficient methodology, which
Tervita’s expert was able to identify as an error, cannot lead to the
conclusion that Tervita was not prejudiced when that admittedly deficient
methodology was nevertheless ultimately accepted by the Tribunal. In this case,
the Tribunal itself found that estimates of market elasticity and the merged
entity’s own-price elasticity of demand are necessary in order to
calculate the “deadweight loss”. The Tribunal also recognized that a range of
plausible elasticities are required in order to understand the
sensitivity of the Commissioner’s estimates. Without those estimates, the “deadweight
loss” could not be properly calculated by the Commissioner, and Tervita could
not adequately challenge the calculations.
[125] Tervita’s
expert clearly highlighted the dilemma in his testimony. Dr. Baye had indeed submitted
estimates of potential market expansion based on Dr. Kahwaty’s calculations.
However, Dr. Kahwaty cogently observed that his calculations were themselves
based on unsupported assumptions which did not necessarily allow for a proper
determination in the absence of an adequate market demand elasticity study:
Testimony of Dr. Kahwaty, AB vol. 34 at pp. 11492 to 11494. The following
exchange between the Tribunal and Dr. Kahwaty is instructive:
JUSTICE CRAMPTON: In the absence of this type of
customer-specific elasticity data, how could one go about calculating a dead
weight loss?
DR. KAHWATY: In the absence of customer-specific
elasticity or good market elasticity, I mean, I just don’t know how you would
do that. You need the shape of the demand curve to figure out dead weight loss.
You need the shape of the demand curve. You need elasticity.
JUSTICE CRAMPTON: You’re saying it can’t be done?
DR. KAWATY: You can’t do it.
(AB vol. 34 at p.
11495)
[126] Second, the
Tribunal found that even if it accepted Tervita’s submission that zero
weighting should be given to the quantitative anti-competitive effects, “it
would not necessarily follow that the offset element of section 96 has
been established on a balance of probabilities” since “the loss of dynamic
competition will always merit some non-trivial qualitative weighting in the
trade-off assessment” and “in this case, the Commissioner adduced evidence of qualitative
effects”: Reasons at paras. 247-248.
[127] The
Tribunal appears to have confused here the offset or balancing analysis
required under section 96 (which is more fully discussed below) with the Commissioner’s
burden to prove the anti-competitive effects of the merger, including the
quantification of the “deadweight loss”. Whether Tervita must still meet its
burden to establish that the gains in efficiency were greater than and offset
the quantitative and qualitative anti-competitive effects has no bearing
whatsoever on the principle that the Commissioner bears the burden of
quantifying the quantitative effects. That Tervita holds the ultimate burden of
establishing the offset between gains in efficiency and anti-competitive
effects does not relieve the Commissioner of her burden to prove the anti-competitive
effects and to quantify those effects where possible.
[128] In
effect, the Tribunal recognized that the Commissioner had failed to meet her
burden of properly quantifying the “deadweight loss”, but nevertheless accepted
an admittedly deficient calculation as a “rough estimate” of the loss resulting
from the reduction in dynamic competition which would result from the merger.
[129] With
respect, the Tribunal’s overall approach to the quantification of the
“deadweight loss” negated the Commissioner’s legal burden to quantify, where
possible, the anti-competitive effects.
[130] In
this case, the Commissioner did not discharge her burden to quantify the “deadweight
loss” resulting from the merger, and the Tribunal erred by allowing her to
correct that failure through a reply report using an admittedly deficient
methodology. The Tribunal compounded that error by not allowing Tervita an
opportunity to formally respond to that report. As a result, the Tribunal
should have concluded that the “deadweight loss” had not been properly quantified,
and that consequently the weight to be attributed to it was not zero, as the
appellants submit, but was rather undetermined.
(6) Did the Tribunal err by not
considering the one year transportation and market expansion gains in
efficiency resulting from the merger?
[131] Transportation
gains in efficiency are productive gains in efficiency realized by the
customers who are closer to the Babkirk Site than to Tervita’s Silverberry
secure landfill. Since Tervita acquired the site allegedly to open a full
service secure landfill operation there, customers located closer to that site would
achieve transportation cost savings: Reasons at para. 251. Tervita asserted
that it could have operated a secure landfill at the Babkirk Site by the spring
of 2012. Under the Tribunal’s divestiture order, it would have been unlikely
that a third party purchaser could have operated the Babkirk Site as a full
service secure landfill before the spring of 2013. Consequently, additional
transportation savings could have been achieved by Tervita for the one year
period it would have operated the site earlier than a purchaser acquiring the
site under a divestiture order, i.e. from the spring 2012 to the spring
2013. The transportation gains in efficiency for that one year period were
estimated as likely to be between [omitted] and [omitted]: Reasons at para.
271.
[132] Market
expansion gains in efficiency result from additional hazardous waste which
would be transported for disposal at the Babkirk Site operating as a secure
landfill. Since there are significant costs and risks associated with
transporting such waste over long distances to the Silverberry secure landfill,
a site requiring a shorter transportation route (such as the Babkirk Site)
would attract more hazardous waste than would otherwise have been disposed of
at Silverberry: Reasons at para. 252. Like the transportation gains in
efficiency, Tervita would have only achieved additional market expansion gains
in efficiency for the one year period it would have operated the Babkirk Site
as a secure landfill earlier than an eventual purchaser under a divestiture
order, i.e. from the spring 2012 to the spring 2013. The market
expansion gains in efficiency for that one year period were estimated as likely
to be [omitted]: Reasons at para. 271.
[133] The
Tribunal found these one year gains in efficiency to be the result of delays in
the implementation of its order, and concluded that it would be contrary to the
purposes of the Competition Act to recognize them: Reasons at paras.
269-270.
[134] In my
view, the Tribunal correctly refused to consider both these gains in efficiency.
[135] Indeed,
the only reason that Tervita could possibly have achieved transportation and
market expansion gains in efficiency with the Babkirk Site for the one year period
extending from the spring 2012 to the spring 2013 - and a purchaser of that site
under the Tribunal’s order could not have achieved similar gains in efficiency
- was the time required for the Tribunal to render a decision and to effect the
actual divestiture of the Babkirk Site into the hands of a third party secure
landfill operator. I agree with the Tribunal that it would be contrary to the
overall scheme of the Competition Act to consider order implementation gains
in efficiency since the results of a merger review under that Act should not be
driven by the delays required to properly implement a divestiture order from
the Tribunal resulting from such a review.
[136] There
is also another reason for which I would not consider these one year gains in
efficiency.
[137] Under
subsection 96(1) of the Competition Act, the Tribunal must find “that
the merger...has brought about or is likely to bring about gains
in efficiencies”. Thus, gains in efficiency claimed for the period preceding
the merger review decision must have been in fact achieved in order to
be recognized (“has brought about”). Gains in efficiency claimed for the period
subsequent to the merger review decision must be likely to be
achieved (“likely to bring about”). Possible gains in efficiency which could
have been brought about prior to the merger review decision, but were not
actually achieved, are consequently not considered. This is because the gains
in efficiency defence rests on the premise that the trade-off between merger gains
in efficiency and anti-competitive effects must actually benefit the Canadian
economy.
[138] Tervita
has admittedly still not started to build or operate a secure landfill
operation at the Babkirk Site. Consequently, the one year transportation and
market expansion gains in efficiency have not in fact been realized by Tervita,
and will now never be realized. As things now stand, these gains in efficiency
are irremediably loss for the Canadian economy. They should therefore not be
considered in the balancing exercise required under section 96 of the Competition
Act.
(7)
Did the Tribunal err in its section 96 offset methodology?
[139] The methodology
adopted by the Tribunal for determining whether the gains in efficiency could
offset the anti-competitive effects was a subjective balancing exercise
comparing the magnitude of the gains in efficiency to the magnitude of the effects.
It explained its methodology as follows at para. 309 of its Reasons:
The Tribunal considers that the terms “greater than”
and “offset” [in section 96 of the Competition Act] each contemplate
both quantifiable and non-quantifiable (i.e. qualitative) efficiencies. In the
Tribunal’s view, “greater than” connotes that the efficiencies must be of a
larger magnitude, or more extensive than, the effects referred to in section
96. This contemplates a balancing of commensurables, even if some of the
efficiencies being balanced are not capable of accurate or rough
quantification. By contrast, the term “offset” is broad enough to connote a
balancing of incommensurables (e.g. apples and oranges) that requires the
exercise of subjective judgment to determine whether the efficiencies
compensate for the likely effects referred to in section 96.
[140] The
Tribunal went even further with this subjective balancing methodology by adding
that even quantitative effects which had not been in fact quantified – because
of shortcomings in the evidence or where the Commissioner had failed to meet
her evidentiary burden – could nevertheless be given qualitative weight in
certain circumstances as a result of the subjective judgment used to determine
whether the gains in efficiency offset the anti-competitive effects:
Where, as in this case, the pre-existing market
situation is characterized by a monopoly and the Tribunal is not provided with
sufficient persuasive evidence to enable it to quantify the Effects associated
with such market power, it will be open to the Tribunal to give qualitative
weight to those Effects.
(Reasons at
para. 287; see also concurring opinion of Crampton C.J. at paras. 408-409)
[141] In
exercising its subjective judgment under the framework it developed, the
Tribunal gave considerable weight to the qualitative anti-competitive effects
of the merger. This allowed the Tribunal to conclude that even if no weighting
were given to the quantitative effects, Tervita would still not have met its
burden of satisfactorily demonstrating the offset requirement of section 96 of
the Competition Act. The Tribunal’s reasoning in this regard is
instructive:
[313] Given the
Tribunal's conclusion that the Merger would result in a number of important qualitative
or other non-quantifiable effects, and that it would not likely bring about
significant qualitative, cognizable, efficiencies, it is also readily apparent
that the combined quantitative and qualitative efficiencies are not likely to
be "greater than" the combined quantitative and qualitative Effects.
[314]
In addition, the Tribunal is persuaded, on a balance of probabilities,
that even if a zero weighting is given to the quantifiable
Effects, as CCS [Tervita] submitted should be done, CCS has not satisfied the
"offset" element of section 96. In short, the Tribunal is satisfied
that the very minor quantitative efficiencies, [omitted]
annually) that are cognizable, together with any qualitative or other
non-quantifiable efficiencies that may be cognizable, would not
"offset" the significant qualitative Effects that it has found are
likely to result from the Merger.
[315] This conclusion would remain the
same even if the Tribunal were to accept and give full weight to the Order
Implementation Efficiencies, which only amount to a maximum of [omitted] (which
represents one year of transportation cost savings) plus [omitted] (which
represents one year of annual market expansion efficiencies).
[316]
This is because, in the Tribunal's view, the qualitative Effects, when
taken together merit substantial weight. That weight is greater than the weight
attributable to the aggregate of the cognizable quantitative and qualitative
efficiencies under any reasonable approach. In brief, those qualitative Effects
are (i) reduced site clean-up and the benefits that such remediation would
confer upon "area residents, wildlife, and the overall environment";
and, more importantly, (ii) reduced "value propositions" than would
likely otherwise emerge in the relevant market, linking prices to various new
or enhanced services.
[317] Most
importantly, in the absence of the Order, the Merger will maintain a
monopolistic structure in the relevant market. In other words, the Merger will
not only give rise to the qualitative effects summarized immediately above, but
it will also preclude benefits of competition that will arise in ways that will
defy prediction.
[142] The
appellants challenge both the choice of methodology and its application by the
Tribunal.
[143] They
submit that it was not open to the Tribunal to develop and use a methodology
which tipped the scale in favour of anti-competitive effects on the basis of an
unreasoned and subjective assessment of qualitative effects. In the appellants’
view, the offset methodology must be reasonable; otherwise the scope of
application of section 96 of the Competition Act would lack
predictability and would be arbitrary.
[144] Turning
to the application of this methodology by the Tribunal, the appellants further
submit that:
(a) the first qualitative effect recognized
by the Tribunal, dealing with qualitative environmental benefits, is not
cognizable under the present structure of the Competition Act;
(b) the second qualitative effect recognized
by the Tribunal, reduced “value propositions”, is in fact a quantitative effect
which the Commissioner had the burden to quantify, but failed to do so; and
(c) by placing important weight to the
monopolistic structure in the concerned market, as it did in para. 317 of its
Reasons reproduced above, the Tribunal erred in law since the creation or
maintenance of a monopoly is not, in itself, a distinct anti-competition effect
under the Competition Act, notably in light of subsection 92(2).
[145] I
will review these grounds in turn.
[146] Dealing
first with the methodology, I agree with the Tribunal that the offset called
for under section 96 of the Competition Act requires the Tribunal to
balance both quantitative and non-quantitative (i.e. qualitative) gains
in efficiency against both the quantitative and non-quantitative (i.e. qualitative)
effects of any prevention or lessening of competition resulting or likely to
result from the merger. I also agree with the Tribunal that the gains in
efficiency must be of a larger magnitude than the effects referred to in
section 96. I further agree that the “offset” element of section 96 requires
that the overall gains in efficiency compensate for the overall anti-competitive
effects, and that in this balancing exercise it is insufficient to simply state
that the quantitative gains in efficiency exceed the quantitative effects. I
also agree that, in light of the qualitative elements, this balancing exercise
cannot be based solely on mathematical quantifications, though such
quantifications are very important in order to ensure, whenever possible, that
proper weight is attributed to any given efficiency or anti-competitive effect.
[147] However,
I part company with the Tribunal when it favours a subjective balancing
exercise for determining whether the gains in efficiency offset the anti-competitive
effects. I agree with the appellants that the offset analysis must not be based
on subjective judgment. The overall offset analysis under section 96 must be as
objective as is reasonably possible, and where an objective
determination cannot be made, it must be reasonable.
[148] An
objective offset analysis means that the quantification of both gains in
efficiency and anti-competitive effects must be carried out whenever it is
reasonably possible to do so. When precise quantification is not reasonably possible
for a given element, a rough estimate is to be preferred to a subjective
judgement call. When neither a precise quantification nor a rough estimate is
reasonably possible for a given element, then of course there will be a certain
degree of discretion in attributing weight to any remaining qualitative gain in
efficiency or effect, but this discretion must be curtailed and limited by the
principles of reasonableness. In other words, any weight given to the remaining
unquantifiable qualitative effects must be reasonable, i.e., it
must be supported by the evidence, and the reasoning behind the Tribunal’s
weighting must be clearly articulated or otherwise discernable.
[149] This
approach flows from the prior jurisprudence. My colleague Nadon J., as he then
was, writing as a judicial member of the Tribunal in Canada (Commissioner of
Competition) v. Superior Propane Inc., 2002 Comp. Trib. 16, 18 C.P.R. (4th)
417 (“Superior Propane # 3”) at para. 233, opined that the degree of
subjective judgment in the section 96 offset analysis should be reduced to the
minimum possible. For that purpose, he found that the anti-competitive effects
that are measurable should be estimated, and that the failure to do so would
not lead the Tribunal to view them qualitatively.
[150] This
approach was approved on appeal by Rothstein J.A., as he then was, writing for our
Court in Canada (Commissioner of Competition) v. Superior Propane Inc.,
2003 FCA 53, [2003] 3 F.C. 529 (“Superior Propane #4) at paras.
34 to 38. The issue there concerned the recognition of wealth transfers as
effects of a merger, and their inclusion in the overall section 96 offset
analysis. Rothstein J.A. notably stated the following at para. 38 of Superior Propane #4:
Including the wealth transfer in the effects
analysis necessarily involves a significant degree of subjective judgment. The
Tribunal’s goal appears to have been to minimize the degree of subjective
judgment required in the effects assessment process under subsection 96(1). The
Tribunal’s insistence on quantification, where possible, is to enable it to
make the most objective judgment that can be made in the circumstances. In my
view, that was not unreasonable.
[151] The
Tribunal has not clearly articulated in its Reasons why the approach minimizing
subjective judgment and favouring, where possible, an objective offset analysis
- as prescribed in Superior Propane #3 and approved by our Court in Superior Propane #4 - should now be discarded in favour of a methodology
which favours the exercise of subjective judgment.
[152] In
the absence of a cogent explanation demonstrating why subjective judgment
should be favoured, I prefer to follow the prior jurisprudence calling for an
offset methodology that is based, insofar as feasible, on objective
determinations. Objective determinations are better suited for ensuring
predictability in the application of the Competition Act and avoiding
arbitrary decisions. Predictability is particularly important in merger reviews
since most merger transactions are reviewed only by the Commissioner and rarely
reach the Tribunal. A methodology which favours objective determinations
whenever possible allows the parties to merger transactions and the
Commissioner to more readily predict the impacts of a merger, discourages the
use of arbitrary judgment in the process, and reduces overall uncertainty in
the Canadian business community.
[153] I now
turn to the application by the Tribunal of its offset methodology.
[154] The
Tribunal considered reduced site clean-up and the resulting environmental
benefits as qualitative effects of the merger.
[155] I
question whether the environmental effects of a merger, where no economic
effect is ascribed to them, can be taken into account in a merger review under
the Competition Act. The purposes of the Competition Act are set out
in its section 1.1, which refers solely to economic considerations: promoting
the efficiency and adaptability of the Canadian economy; expanding
opportunities for Canadian participation in world markets; ensuring that small
and medium-size enterprises have an equitable opportunity to participate in the
Canadian economy; and providing consumers with competitive prices and product
choices. Environmental concerns having no economic impact are not listed, nor
are they otherwise considered under the Competition Act.
[156] Some
may well find it desirable to include environmental values within a merger
review. Nevertheless the introduction of such values into the Competition
Act is a policy matter which properly belongs to Parliament to decide. I
add that the Tribunal, in its present form, is not particularly well-suited to decide
environmental issues since its members (or at least its lay members) are chosen
on the advice of persons who are knowledgeable in economics, industry, commerce
and public affairs, but not necessarily in the environment: Competition
Tribunal Act, subsection 3(3).
[157] However,
the Tribunal did more than take into account non-economic environmental
effects. The reduced site clean-up it referred to as a qualitative effect of
the merger is the result of market expansion which is lost as a result of the
merger. The Tribunal accepted that the 10% drop in tipping fees which would be
brought about by competition between the Babkirk Site and the Silverberry secure
landfill would result in the disposal of approximately [omitted] additional
tonnes of hazardous waste: Reasons at para. 298. The Tribunal had already treated
this effect as part of the deficient “deadweight loss” analysis (Reasons at
paras. 299 to 301). It then considered it again as a qualitative effect, when
it should have instead considered it only once as a quantitative anti-competitive
effect that had not been appropriately quantified by the Commissioner.
[158] My
comments above concerning the reduced site clean-up also apply to the reduced “value
propositions” considered by the Tribunal as a second qualitative effect. “Value
propositions” are offers Tervita would have made in a competitive environment to
certain customers that would have amounted to either existing services being
provided at lower prices, or new or enhanced services being provided, thus
leading to a lower total cost for overall waste services used by such
customers. These “value propositions” could have been quantified by the
Commissioner, but were not in fact quantified, even roughly. At the very least,
the Commissioner should have submitted evidence as to why she did not quantify
this effect. The Tribunal nevertheless decided to consider these as qualitative
effects. Again, this approach runs contrary to Superior Propane #3 and Superior Propane #4. A quantitative effect which has not in fact been
quantified should not be considered as a qualitative effect since that may lead
the Tribunal into a subjective overstatement of the weight the effect should be
accorded in the offset balancing exercise required under section 96.
[159] This
now brings me to the final issue raised by the appellants in this appeal:
whether the Tribunal erred in law by considering Tervita’s monopoly as a
distinct anti-competitive effect under the Competition Act by finding
that “[m]ost importantly...the Merger will not only give rise to the
qualitative effects summarized immediately above, but it will also preclude
benefits of competition that will arise in ways that defy prediction”: Reasons
at para. 317.
[160] Our
Court has found that considering a monopoly as a distinct anti-competitive effect
could result in double counting the anti-competitive effects resulting from the
merger. As noted by Rothstein J.A. in Superior Propane #4 at
paras. 50 and 51:
[50] In its redetermination decision,
the Tribunal [in Superior Propane #3] noted
that in its substantial lessening or prevention of competition approach, it had
already taken into account a number of effects of the merger "i.e.,
deadweight loss, interdependent pricing, service quality etc.". To
consider these effects again, as arising from the monopoly condition, would be
to double count them. The Tribunal, therefore, concluded that for the
additional effects of a monopoly to be taken into account, the Commissioner was
required to provide evidence of effects that had not already been considered.
However, the Tribunal found that the Commissioner had presented no evidence of
such additional effects.
[51] The question is one of evidence.
If the condition of monopoly resulted in additional effects that had not
already been taken into account by the Tribunal, there had to be evidence of
those effects. In the absence of the Commissioner providing evidence of
additional effects resulting from monopoly that had not already been introduced,
I cannot say that the Tribunal erred in finding that a monopoly condition did
not give rise to additional anti-competitive effects.
[161] Insofar
as the Tribunal is taking into account the monopoly position of Tervita
resulting from the merger without any evidence from the Commissioner of
additional anti-competitive effects resulting from that monopoly, it has not
followed the above quoted principles set out in Superior Propane #3 and Superior Propane #4.
The
offset analysis
[162] The determination
of whether the gains in efficiency resulting from the merger offset the
anti-competitive effects is largely a fact-finding exercise to which appellate
courts should generally show deference, unless the determination was based on
an error of law or constituted a palpable or overriding error.
[163] In
this case, the Tribunal erred in law in its section 96 analysis, notably by accepting
a defective “deadweight” loss calculation, by using an overly subjective offset
methodology, by treating as qualitative effects certain quantitative effects
which the Commissioner had failed to quantify, and by referring to qualitative
environmental effects that are not cognisable under the Competition Act.
[164] In
light of these errors, it is now necessary to consider whether the matter
should be remitted to the Tribunal for a new determination in accordance with
these reasons, or whether this Court should make a fresh assessment.
[165] In Hollis
v. Dow Corning Corp., [1995] 4 S.C.R. 634, at para. 33, the Supreme Court
of Canada found:
It is well established that
appellate courts have the jurisdiction to make a fresh assessment of the
evidence on the record where they deem such an assessment to be in the
interests of justice and feasible on a practical level…
The Supreme Court of Canada
recently reiterated this approach in Masterpiece Inc. v. Alavida Lifestyles
Inc., 2011 SCC 27, [2011] 2 S.C.R. 387 at para. 103.
[166] There
is here a complete record on which to carry out a new determination of the
offset. In order to avoid further prolonging the proceedings between these
parties, I believe that the interests of justice would be best served if this
Court finally decided the matter.
[167] In
this case, the quantitative anti-competitive effects of the merger which have
not been quantified by the Commissioner include the loss of market expansion
resulting from competition and the “value propositions”. The fact that these
effects have not been quantified does not mean that they do not exist or that
zero value should be assigned to them. Rather, the lack of quantification
simply means that the weight to be afforded to these effects is undetermined. A
proper interpretation of section 96 of the Competition Act requires that
the party bearing the burden of the offset analysis (in this case the appellants)
must still demonstrate on a balance of probabilities that the gains in
efficiency offset the anti-competitive effects.
[168] In
cases where the gains in efficiency resulting from the merger are significant, under
an objective and reasonable offset methodology, it would not be
open for the Tribunal to assign weight to the quantitative but non-quantified
effects in such a manner as to offset the gains in efficiency. Nor could the
Tribunal treat these quantitative but non-quantified effects as qualitative
effects in order to assign subjective weight to them.
[169] However,
in this case the gains in efficiency resulting from the merger are marginal to
the point of being negligible. The only gains in efficiency resulting from the
merger are very small overhead gains, which in any event may well be achieved
by a third party secure landfill operator who would acquire the Babkirk Site
following the divestiture order. Consequently, the merger provides negligible gains
in efficiency while ensuring the continuation and strengthening of Terivta’s
market monopoly in the geographic area at issue.
[170] In my
view, it cannot be concluded that an anti-competitive merger may be approved
under section 96 of the Competition Act if only marginal or
insignificant gains in efficiency result from that merger. This approach is supported
by the jurisprudence and by the very terms of subsection 96(1) of the Competition
Act, which require that the gains in efficiency be both
“greater than” and “offset” the anti-competitive effects.
[171] I
refer in particular to Superior Propane #3 at paras. 171 and 172,
where my colleague Nadon J., as he then was, found that the efficiency defence
is not available if the gains in efficiency simply marginally exceed the
anti-competitive effects:
[171] ...While the Tribunal agrees
that in such cases, relatively small gains in efficiency will be needed to
exceed the typically small dead weight loss, the Act requires more under s. 96.
[172] Indeed...s-s. 96(1) makes it
quite clear that the efficiency defence is not available if efficiency gains
merely exceed the effects of lessening or preventing competition. To be
available, those gains must also offset the effects, and it cannot be concluded
that the Tribunal would find that efficiency gains (whether large or small)
that marginally exceeded the effects (whether large or small) would also offset
those effects. In particular, it cannot be concluded that an anti-competitive
merger would be approved under s. 96 if the only savings were the salaries of
two senior executives.
[172] The gains
in efficiency here are of lesser magnitude than even those contemplated in the
above quote from Superior Propane #3. The overall gains in
efficiency resulting from the merger amount to approximately [omitted] per
year, and thus do not even represent the yearly remuneration of a half-time junior
employee.
[173] Moreover,
a pre-existing monopoly, such as is the case here, will usually magnify the
anti-competitive effects of a merger: Superior Propane # 3 at
paras. 165 and 169; The Law and Economics of Canadian Competition Policy,
above at pp. 155 to 161.
[174] Though
the anti-competitive effects of the merger in this case have not been quantified,
they nevertheless exist. Under an objective and reasonable
offset determination, marginal and insignificant gains in efficiency cannot
offset known anti-competitive effects even where the weight to be afforded to
such effects is undetermined. This is not treating the quantitative anti-competitive
effects as qualitative effects in order to give them some subjective weight.
Rather, this is an objective and reasonable offset determination
in which the anti-competitive effects and the gains in efficiency are
recognized for what they are.
CONCLUSIONS
[175] For
the reasons set out above, I would dismiss both appeals. I would award costs to
the Commissioner, but there should only be one set of costs for both appeals.
[176] Considering
the confidentiality order issued by our Court in this case, these reasons shall
be provided to counsel prior to being released to the public. The parties shall
each have seven days from the date of these reasons to indicate in writing to
the Court which portions, if any, should not be publicly disclosed. As the case
may be, the parties shall also each submit in the same timeframe representations
justifying why this Court should restrict public disclosure of portions of the
reasons notwithstanding the open court principle. The Court will thereafter
determine which portions of these reasons, if any, should be kept confidential.
"Robert M.
Mainville"
“I
agree
John M. Evans J.A.”
“I
agree
David Stratas J.A.”
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