Canada (Commissioner of Competition) v. Superior Propane Inc., 2003 FCA 53

Date: 20030131

Docket: A-219-02

Neutral citation: 2003 FCA 53

CORAM:        RICHARD C.J.

LÉTOURNEAU J.A.

ROTHSTEIN J.A.

BETWEEN:

                                          THE COMMISSIONER OF COMPETITION

                                                                                                                                                       Appellant

                                                                                 and

                                 SUPERIOR PROPANE INC. and ICG PROPANE INC.

                                                                                                                                               Respondents

                                   Heard at Ottawa, Ontario, on November 26 and 27, 2002.

                                  Judgment delivered at Ottawa, Ontario, on January 31, 2003.

REASONS FOR JUDGMENT BY:                                                                              ROTHSTEIN J.A.

CONCURRED IN BY:                                                                                                       RICHARD C.J.

REASONS DISSENTING IN PART BY:                                                               LÉTOURNEAU J.A.

Date: 20030131

Docket: A-219-02

Neutral citation: 2003 FCA 53

CORAM:        RICHARD C.J.

LÉTOURNEAU J.A.

ROTHSTEIN J.A.

BETWEEN:

                                          THE COMMISSIONER OF COMPETITION

                                                                                                                                                       Appellant

                                                                                 and

                                 SUPERIOR PROPANE INC. and ICG PROPANE INC.

                                                                                                                                               Respondents

                                                        REASONS FOR JUDGMENT

ROTHSTEIN J.A.

ISSUE

[1]                 The issue on this appeal from the Competition Tribunal is whether the Tribunal followed the directions given to it by this Court in Canada (Commissioner of Competition) v. Superior Propane Inc., [2001] 3 F.C. 185.

FACTS

[2]                 Prior to December 1998, Superior Propane Inc.(Superior) and ICG Propane Inc. (ICG) were each engaged in the retail sale and distribution of propane and related services.

[3]                 On December 7, 1998, Superior acquired ICG (the Superior/ICG merger or merger).

[4]                 On December 7, 1998, the Commissioner of Competition (the "Commissioner") filed an application under section 92 of the Competition Act, R.S.C. 1985, c. C-34 as amended (the "Act"), for an order to dissolve the merger of Superior and ICG on the grounds that the merger would substantially prevent or lessen competition.

[5]                 By Reasons and Order dated August 30, 2000, the Competition Tribunal (the "Tribunal") found that the merger was likely to lessen competition substantially in many local markets and for national account customers and was likely to prevent competition substantially in Atlantic Canada. However, the Tribunal did not make the order for dissolution of the merger sought by the Commissioner under section 92. It found, pursuant to section 96, that the merger was likely to bring about gains in efficiency that would be greater than and would offset the effect of the prevention and lessening of competition that would result from the merger.

[6]                 The Commissioner appealed the Tribunal's denial of a dissolution order to this Court.

[7]                 By judgment dated April 4, 2001, this Court allowed the Commissioner's appeal on the grounds that the Tribunal had misinterpreted section 96 of the Act. The matter was remitted to the Tribunal for redetermination in a manner consistent with the reasons of the Court.

[8]                 By Reasons and Order dated April 4, 2002, the Tribunal, after conducting the redetermination ordered by the Court, dismissed the Commissioner's application (the "redetermination decision").

[9]                 This is an appeal by the Commissioner from the Tribunal's dismissal of his application following its redetermination proceedings.

ANALYTICAL APPROACH

[10]            In order to determine whether the Tribunal, in its redetermination decision, failed to follow the directions of the Federal Court of Appeal, it is necessary to consider:

1.         the relevant legislative scheme;

2.         the relevant findings of the Tribunal in its original decision;

3.         what the Court found to be in error in the Tribunal's original decision;

4.         what the Court concluded and directed the Tribunal to do; and

5.         whether the Tribunal, in its redetermination decision, did what it was directed to do by the Court.

1.         THE RELEVANT LEGISLATIVE SCHEME

[11]            Section 92 of the Act provides that if the Tribunal finds that a merger prevents or lessens or is likely to prevent or lessen competition substantially, it may, subject to section 96, order that the merger be dissolved. Section 96 is referred to as the "efficiency defence". The Tribunal shall not order dissolution of a merger under section 92 if it finds that the merger is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that will likely result from the merger and that the gains in efficiency would not likely be attained if the dissolution order were made.

[12]            Sections 92 and 96 provide:

2.         THE RELEVANT FINDINGS OF THE TRIBUNAL IN ITS ORIGINAL DECISION

[13]            In its original decision, the Tribunal found that the Superior/ICG merger would prevent or lessen competition substantially. The Tribunal then went on to consider the efficiency defence under section 96. The Tribunal used what economists refer to as the "total surplus standard" to weigh "the effects of any prevention or lessening of competition" against efficiency gains. The effect that is looked at under the total surplus standard is the "deadweight" loss of wealth to the economy resulting from the merger. Deadweight loss results from the fall in demand for the merged entities' products following a post-merger increase in price, and the inefficient allocation of resources that occurs when, as prices rise, consumers purchase a less suitable substitute. Under the total surplus standard, an anti-competitive merger is allowed to proceed when efficiency gains are greater than and offset this deadweight loss to the economy.

[14]            The total surplus standard does not consider the effect of the wealth likely to be transferred from consumers to the shareholders of the merged entity as a result of the anti-competitive merger and the consequent increase of prices. This "wealth transfer" or "redistributive effect" is considered to be neutral. Under the total surplus standard, there is no economic reason for favouring a dollar in the hands of consumers over a dollar in the hands of the shareholders of the merged entity who are also consumers.

[15]            In its original decision, the Tribunal found that the efficiency gains over ten years were estimated to be $29.2 million per year. The initial deadweight loss calculation measured by the total surplus standard was estimated to be not more than $3 million per year over ten years. In addition, the Tribunal considered negative qualitative effects resulting from the potential reduction or removal of product offerings following the merger. Specifically, ICG had established certain services and pricing arrangements that Superior and other propane marketers did not. The Tribunal found that the removal or reduction of these services would reduce the real output of the industry. In the view of the Tribunal, the combined effect of the initial loss calculation of $3 million and the negative qualitative effects would result in a total deadweight loss that would not exceed $6 million per year over ten years. Because the Tribunal found that efficiency gains of $29.2 million per year exceeded the deadweight loss of $6 million, it concluded that the efficiency gains were greater than and would offset the effects of the lessening or prevention of competition. As a result, it dismissed the Commissioner's application to dissolve the merger.

3.         WHAT THE COURT FOUND TO BE IN ERROR IN THE TRIBUNAL'S ORIGINAL DECISION

[16]            The Court found that because the Tribunal's adoption of the total surplus standard purported to be of general application to all cases in which the efficiency defence was invoked, and did not confine itself to the facts of this particular case, it was deciding a question of law. The Court determined that the Tribunal erred in law because it limited the relevant effects of an anti-competitive merger for purposes of section 96 to only deadweight loss, effectively making the efficiency defence in all cases, a codification of the total surplus standard. The Court found that a wider range of effects should be considered and that it was an error in a section 96 analysis not to have regard for the purposes set out in section 1.1 of the Act. Section 1.1 provides:

4.         WHAT THE COURT CONCLUDED AND DIRECTED THE TRIBUNAL TO DO

[17]            The Court remitted the matter to the Tribunal for redetermination. In its decision, the Court provided directions to the Tribunal for the redetermination proceedings. The conclusions of the Court and the directions it gave to the Tribunal can be summarized as follows:

1.         For purposes of section 96, the effects cannot be limited to the deadweight loss, as required by the total surplus standard, in all cases;

2.         The correct methodology for determining the extent of anti-competitive effects of a merger is left to the Tribunal;

3.         The methodology chosen in any given case should be sufficiently flexible to enable the Tribunal to fully measure the particular facts before it;

4.         In this case, the balancing weights approach, proposed by expert witness Professor Peter Townley, would be acceptable, although it would require elaboration and refinement on application to the facts;

5.         For purposes of redetermination, the Tribunal need only identify and assess the effects of the prevention or lessening of competition, having regard to the purposes set out in section 1.1 of the Act, and decide whether the efficiency gains already proven were likely to be greater than and to offset those effects; and

6.         The burden of proving the extent of the anti-competitive effects is on the Commissioner; the burden of proving the scale of efficiency gains and whether the efficiency gains are likely to be greater than and to offset those effects is on the respondent.

[18]            The Court's conclusions and directions are found at paragraphs 159 to 162, 176 and 177 of its decision:

¶ 159    Having concluded for the above reasons that the Tribunal erred in law when it interpreted section 96 as mandating that, in all cases, the only effects of an anti-competitive merger that may be balanced against the efficiencies created by the merger are those identified by the total surplus standard, this Court should not prescribe the "correct" methodology for determining the extent of the anti-competitive effects of a merger. Such a task is beyond the limits of the Court's competence. [Emphasis added]

¶ 160    Whatever standard is selected (and, for all I know, the same standard may not be equally apposite for all mergers) must be more reflective than the total surplus standard of the different objectives of the Competition Act. It should also be sufficiently flexible in its application to enable the Tribunal fully to assess the particular fact situation before it.

¶ 161    It seems to me that the balancing weights approach proposed by Professor Townley, and adopted by the Commissioner, meets these broad requirements. Of course, this approach will no doubt require considerable elaboration and refinement when it comes to be applied to the facts of particular cases.

¶ 162    Further, while the adoption of the balancing weights approach is likely to expand the anti-competitive effects to be considered, and hence to narrow the scope of the defence, I see no reason why it should, as the respondents submitted, practically write section 96 out of the Act.

...

¶ 176    The Tribunal need only identify and assess "the effects of any prevention or lessening of competition" for the purpose of section 96 and decide whether the efficiencies that the Tribunal has already found to have been proved by the respondents are likely to be greater than, and to offset, those effects.

¶ 177    The Commissioner has the legal burden of proving the extent of the relevant effects, while the respondents have the burden, not only of proving the scale of the efficiency gains that would not have occurred but for the merger, but also of persuading the Tribunal on the ultimate issue, namely, that the efficiency gains are likely to be greater than, and to offset, the effects.

5.         WHETHER THE TRIBUNAL, IN ITS REDETERMINATION DECISION, DID WHAT IT WAS DIRECTED TO DO BY THE COURT?

a) The Tribunal's Redetermination Decision

[19]            I conclude that prima facie, the Tribunal has followed the directions of the Court.

[20]            In its redetermination decision, the Tribunal placed the burden of proving the extent of the anti-competitive effects on the Commissioner. Further, it did not restrict itself to the total surplus standard for weighing the anti-competitive effects of the merger against the efficiency gains. Rather, it had regard to the balancing weights approach of Professor Townley. In general, the balancing weights approach requires the Tribunal to weigh the effects of the merger on consumers against the effects of the merger on the shareholders of the merged entity. This involves a two-step process. First, the Tribunal must determine the relative weights to be assigned to producer gains and consumer losses, to equate them, or to make the wealth transfer neutral in effect. Second, the Tribunal must engage itself in a value judgment process to decide whether the assigned weights are reasonable in light of societal interests, namely, any disparity between the incomes of the relevant consumers and shareholders of the merged entity.

[21]            While the Tribunal did not adopt the precise model proposed by Professor Townley, it did use the model as a foundation for its assessment of the extent of the anti-competitive effects. To this end, having regard to the purposes set out in section 1.1 of the Act, the Tribunal specifically considered the following effects:

(a)       deadweight loss;

(b)       interdependent and coordinated behaviour of competitors;

(c)       service quality and programs;

(d)         on Atlantic Canada;

(e)       interrelated markets;

(f)        loss of potential dynamic efficiency gains;

(g)         monopoly; and

(h)       small and medium sized enterprises.

The Tribunal's consideration of the balancing weights approach of Professor Townley and the regard that it had for the purposes of section 1.1 of the Act accord with both the direction and latitude given to it by the Court.

[22]            The controversial aspect of the Tribunal's chosen methodology relates to its treatment of the wealth transfer from consumers to the shareholders of the merged entity. This wealth transfer was calculated at approximately $40.5 million per year. In oral argument, the Commissioner asserted that the entire wealth transfer of $40.5 million should be added to the deadweight loss of $6 million. If so, the total of $46.5 million would outweigh the efficiency gains of $29.2 million and the merger would be disallowed. This approach is essentially what economists refer to as the consumer surplus standard.

[23]            However, implicit in this approach is that the $40.5 million wealth transfer is entirely socially adverse. For purposes of the subsection 96(1) inquiry, the Tribunal was not prepared to assume that the entirety of the wealth transfer should necessarily be considered a socially adverse effect of the merger. The wealth transfer might have positive or neutral social effects. It concluded that it was only the socially adverse portion of the wealth transfer that should count against the efficiency gains (the "socially adverse effects approach"). It, therefore, rejected the Commissioner's submission that the entire wealth transfer be included in the calculation of anti-competitive effects under subsection 96(1).

[24]            The only socially adverse effects of the merger that the Tribunal was able to find were the effects on low income households that used propane for essential purposes and had no good alternatives. The Tribunal calculated this socially adverse portion of the wealth transfer to be approximately $2.6 million per year.

[25]            Having regard to the balancing weights approach of Professor Townley, the Tribunal acknowledged that the interests of these low income consumers should be weighted more heavily than the interests of the shareholders of the merged entity. However, the appropriate weight was not determinable from the evidence in the record. Nonetheless, the Tribunal found that even if the adverse portion of the wealth transfer was doubled, the total anti-competitive effects would not exceed $11.2 million (adverse portion of wealth transfer of $5.2 million (2 x $2.6 million) + deadweight loss of $6 million). As a result, the Tribunal concluded that under any reasonable weighting, the merger should be allowed as the gains in efficiency of $29.2 million per year would be greater than, and would offset, the effects of the prevention and lessening of competition attributable to the merger.

[26]            The Court left it to the Tribunal to decide upon the methodology for determining the extent of anti-competitive effects of the merger. The Tribunal did not restrict itself to the total surplus standard. The Tribunal used, as a foundation for its methodology, the balancing weights approach of Professor Townley and had regard to the purposes in section 1.1 of the Act. It considered the evidence and placed the onus of proving anti-competitive effects on the Commissioner. Prima facie it followed the directions given to it by this Court.

(b) Errors Asserted by the Commissioner

[27]            I turn now to the specific errors that the Commissioner asserts to determine if my prima facie conclusion is displaced.

i) Did the Tribunal err in not including the entire wealth transfer as an anti-competitive effect of the merger?

[28]            The Tribunal considered only a portion of the wealth transfer, together with the deadweight loss, to be the anti-competitive effects of the merger. The Tribunal found that the inclusion of the entire wealth transfer as an anti-competitive effect, namely, the consumer surplus standard, would be contrary to the conclusion of the Court. It would also rule out consideration of the welfare effects of the transfer as proposed by Professor Townley and would vitiate the efficiency defence.

[29]            As to its finding that inclusion of the entire wealth transfer would vitiate the efficiency defence, the Commissioner says that there was no evidence that was properly before the Tribunal to make such a finding. One of the economic authorities that the Tribunal relied upon (A. Fisher & R. Lande, "Efficiency Considerations In Merger Analysis" (1983) 71 Calif. Law Rev. 1582) had earlier been rejected by the Tribunal in its original proceedings when the Commissioner attempted to rely on it. Further, the Commissioner argued that the Fisher and Lande article and the other authority relied upon by the Tribunal (P.S. Crampton, "The Efficiency Exception for Mergers: An Assessment of Early Signals from the Competition Tribunal" (1993), 21 Can. Bus. L.J. 371) were not introduced into evidence and neither were accepted as authoritative works by the expert witnesses at trial.

[30]            The respondent was unable to point to any properly introduced evidence that supported the Tribunal's vitiation conclusion. Without evidence to support its conclusion, I am of the opinion that the Tribunal could not conclude that inclusion of the entire wealth transfer in the effects analysis would vitiate the efficiency defence.

[31]            However, there were other bases relied upon by the Tribunal for rejecting inclusion of the entire wealth transfer in its assessment of anti-competitive effects. One was that it was contrary to the conclusion of the Court. The other was that it would rule out the inquiry that the balancing weights approach regarded as necessary to assess the welfare effects of the merger. While the Court did not expressly reject the consumer surplus standard, it did endorse utilization of the balancing weights approach advanced by Professor Townley. The balancing weights approach rejects inclusion of the entire wealth transfer because to include it would not provide the discretion necessary to deal with the impact of a merger on different socio-economic statuses of consumers and shareholders of a merged entity.

[32]            Therefore, while there was no evidence to support the Tribunal's vitiation finding, there was evidence and rationale to support the Tribunal's rejection of the consumer surplus standard and inclusion of the entire wealth transfer in its assessment of anti-competitive effects. Therefore, the vitiation finding was inconsequential.

[33]            The Tribunal acted well within the discretion conferred upon it by the Court when it engaged in the socially adverse effects approach. The Court allowed the Tribunal to select the methodology to be applied in determining the extent of anti-competitive effects for purposes of subsection 96(1). Furthermore, in oral argument, while seeking inclusion of the entire wealth transfer in this case, the Commissioner acknowledged that inclusion of the entire wealth transfer was not applicable in all cases; one example being where an increase in price following a merger of Canadian exporters is primarily paid by non-residents. Before this Court, the Commissioner did not argue that it was an error of law for the Tribunal not to have included the entire wealth transfer in the assessment of anti-competitive effects.

ii) Did the Tribunal err by refusing to consider effects of the merger from a qualitative perspective?

[34]            By refusing to consider the effects of the merger from a qualitative perspective, the Commissioner argues that the Tribunal failed to follow the directions of the Court to consider all effects. The Commissioner refers to paragraph 233 of the majority reasons:

In the Tribunal's view, the requirement in subsection 96(1)that efficiency gains must be "greater than" the effects of lessening or prevention of competition favours a quantification of efficiency gains and the effects to be considered, where possible. That a particular effect cannot, even in principle, be quantified does not relieve the Tribunal of assessing the effect in the "greater than" test. Accordingly, where it is possible to quantitatively estimate such effects even in a rough way, perhaps by establishing limits as the Tribunal has done regarding certain qualitative effects, it is desirable to do so where the evidence permits. On the other hand, effects that are, in principle, measurable should be estimated; failure to do so will not lead the Tribunal to view them qualitatively.

[35]            As I read paragraph 233, the Tribunal was not refusing to consider all effects. On the contrary, the Tribunal acknowledged that it must consider all effects, even if they could not be quantified. Paragraph 233 indicates that where effects are measurable, they should be estimated. The Tribunal goes so far as to say that estimates may even be rough, perhaps by establishing limits. But when it is possible to do so, some quantification must be undertaken. Effects will only be considered qualitatively if they cannot be quantitatively estimated.

[36]            The Commissioner objects that the Tribunal is imposing a duty to quantify even when the possibility of quantification is only "theoretical". However, the Tribunal's willingness to accept rough estimates, it seems to me, is the practical answer to this objection.

[37]            Paragraph 233 is guidance to the Commissioner as to the nature of the evidence required to demonstrate the extent of the relevant effects - he must quantify effects where they can be quantified. I think it is understandable why the Tribunal would be of this view.

[38]            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 is not unreasonable.

iii) Did the Tribunal Err by Adopting a Restrictive View of the Merger on Small and Medium Sized Enterprises?

[39]            In its analysis of the effects of the merger on small and medium sized enterprises, the Tribunal began by considering the question of predatory pricing against competitors by Superior. In my view, the Tribunal rightly observed that there is often a fine distinction between aggressive competition and predatory pricing. In the Tribunal's opinion, there was insufficient evidence of predation of competitors by Superior. The sufficiency of evidence is a matter for the Tribunal to consider and determine.

[40]            The Tribunal then found there was no evidence that the merger would make it more difficult for potential competitors to enter the market. In the view of the Tribunal, there was no evidence of Superior disciplining competitors. These were matters that had been dealt with in its original decision. No new evidence was advanced on redetermination. As such, these findings were not revisited in the redetermination proceedings.

[41]            Having regard to the purpose section of the Act, section 1.1, the Tribunal identified the obligation placed on it by the Court as one of considering whether small and medium sized enterprises are denied an equitable opportunity to participate in economic activity. Insofar as competitors were concerned, the Tribunal acknowledged the potential for coordinated pricing by these competitors as a result of the merger; that is, that competitors might, under the umbrella of the merged entity's pricing, charge prices higher than those at competitive levels. However, this was not evidence of competitors being denied an equitable opportunity to participate in the Canadian economy.

[42]            As to small and medium sized business customers of the merged entity, the Tribunal found that an equitable opportunity for participation in the economy in a subsection 96(1) analysis does not confer a right to competitive prices on those customers. The Tribunal must be correct on this point because a subsection 96(1) analysis only arises when a merger has been found to prevent or lessen competition substantially with the potential consequence that the merged entity will charge higher than competitive prices.

[43]            The Tribunal concluded that to find a denial of an equitable opportunity of small and medium sized enterprises to participate in the economy requires a demonstration that anti-competitive conduct contrary to the Act is taking place or will likely take place. In the view of the Tribunal, the evidence did not demonstrate anti-competitive conduct contrary to the Act.

[44]            The Commissioner says that the Tribunal's express reference, in paragraph 305 of its reasons, to conduct contemplated by sections 50 and 79 of the Act is too narrow. Paragraph 305 states:

To find the denial of an equitable opportunity of small and medium sized enterprises to participate requires a demonstration that anti-competitive conduct offensive under the Act (i.e. section 79 or section 50) is taking place or will likely take place. On the evidence in this case, the Tribunal cannot conclude that small and medium sized competitors and customers will lose an equitable opportunity to participate in economic activity.

I would agree with the Commissioner that the Tribunal's focus was too narrow if, indeed, it had restricted itself to sections 50 and 79 only. However, it seems to me that the Tribunal's reference is to conduct that is contrary to any provision of the Act, and its reference to sections 50 and 79 were examples only. Section 50 includes predatory pricing and section 79 refers to abuse of dominance, two considerations that could be relevant in the case of a merger found to prevent or lessen competition substantially. But as I have said, these were only examples. Had they been the only provisions the Tribunal considered relevant, the Tribunal would not have used the more expansive term "anti-competitive conduct offensive under the Act" and would have referred specifically to the two provisions alone.

[45]            Beyond "anti-competitive conduct offensive under the Act", the Commissioner has not indicated what other type of activity the merged entity could engage in that would deny small and medium sized enterprises an equitable opportunity to participate in the Canadian economy. In the absence of some other type of conduct being identified by the Commissioner that should be taken into account, I cannot say that the Tribunal erred in identifying the conduct at issue as that which is contrary to the Act.

iii) Did the Tribunal err by refusing to consider the creation of a monopoly per se as an anti-competitive effect in its subsection 96(1) analysis?

[46]            The Commissioner argues that the Tribunal erred by failing to consider the creation of a monopoly per se as a distinct anti-competitive effect under the subsection 96(1) analysis. I am unable to agree with this argument.

[47]            The Court found that, where the Tribunal limits the anti-competitive effects of a merger to deadweight loss, the creation of a monopoly becomes an irrelevant consideration. As a result, the Court observed that the elimination of all consumer choice and the removal of all competition would not be weighed as anti-competitive effects in a subsection 96(1) analysis.

[48]            The question is, how did the Court direct the Tribunal to deal with the question of monopoly and did the Tribunal follow those instructions.

[49]            I do not interpret the Court as finding that monopoly per se must be treated by the Tribunal as an anti-competitive effect to be weighed against efficiency gains under subsection 96(1). Monopoly, however it might be defined (e.g. 95 percent market share, 100 percent market share, high barriers to entry), is a description of a market condition, not the effect of that market condition. If monopoly is to be taken into account for purposes of subsection 96(1), it is the effects of the monopoly that must be considered, not the existence of the monopoly per se.

[50]            In its redetermination decision, the Tribunal 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.

v) Did the Tribunal err by Failing to Respect the Principle of Stare Decisis?

[52]            The Commissioner argues that the Tribunal erred in law in criticizing the judgment of the Court and in doing so, he says the Tribunal failed to respect the principle of stare decisis. As a result, the Commissioner says the Tribunal failed or refused to consider matters that the Court directed it to consider.

[53]            There is no question that the Tribunal was critical of this Court's findings on a number of points. It criticized the Court's finding that the Tribunal had the responsibility to protect the public interest rather than focussing on whether a merger prevents or lessens competition substantially. It questioned the Court's view that effects other than the deadweight loss to the economy should be taken into account when the paramount objective of the merger provisions is efficiency. It commented on the Court's consideration of United States law in respect of mergers and observed that the Court did not appear to take into account differences between Canadian and United States merger law. The Tribunal expressed doubt about the Court's consideration of subsection 96(3), namely that pecuniary gains or losses to consumers might be considered in the effects analysis under subsection 96(1). The Tribunal was also of the view that consideration of monopoly which had already been considered in the section 92 analysis constituted double counting when reconsidered in a subsection 96(1) analysis.

[54]            The principle of stare decisis is, of course, well known to lawyers and judges. Lower courts must follow the law as interpreted by a higher coordinate court. They cannot refuse to follow it: Re Canada Temperance Act, Re Constitutional Questions, Re Consolidated Rules of Practice, [1939] 4 D.L.R. 14 at 33 (Ont. C.A.), aff'd [1946] 2 D.L.R. 1 (S.C.C.); [1951] S.C.R. 504">Woods Manufacturing Co. v. Canada (Attorney General), [1951] S.C.R. 504 at 515. This principle applies equally to tribunals having to follow the directions of a higher court as in this case. On redetermination, the duty of a tribunal is to follow the directions of the reviewing court.

[55]            However, there is a difference between criticism of a higher court's decision and a refusal to follow the decision. I know of no rule of law that precludes a lower court or tribunal from expressing disagreement with a decision of a higher court. While infrequent, lower courts do periodically question the decision of a higher court. On occasion, courts question the wisdom of statutes enacted by Parliament and recommend changes to the law when they think it is appropriate to do so.

[56]            Certainly, the extent to which the Tribunal criticized the decision of the Court in this case was unusual. Obviously, the members of the Tribunal have strongly held views on the matters on which they commented. However, such criticism does not amount to an error of law unless combined with defiance of the Court's directions. The sole issue is whether the Tribunal failed or refused to follow the directions of this Court. For the reasons I have already given, it did not.

[57]            The only question left is whether, in finding that only $2.6 million of the $40.5 million wealth transfer should be considered an anti-competitive effect to be weighed against the merger, did the Tribunal merely pay "lip service" to the Court's direction? In other words, does the criticism of the Court's judgment by the Tribunal, together with the relatively small amount of the wealth transfer accepted by the Tribunal as an anti-competitive effect, suggest that the Tribunal was implicitly defying the Court's direction?

[58]            In its reasons, the Tribunal went to some length in describing the approach it would follow. The Court left it open to the Tribunal to adopt the socially adverse effects approach to the wealth transfer. The Tribunal based its analysis on this approach, but found that there was a dearth of evidence presented by the Commissioner respecting the adverse effects of the merger. Consideration of the evidence is the function of the Tribunal. I cannot say that the Tribunal's conclusion in this case is contrary to the overwhelming weight of evidence or that it ignored evidence or that the inferences that it drew were unreasonable. The methodology and analysis that it adopted were within the discretion conferred upon the Tribunal by the Court.

[59]            For these reasons, I cannot say that the Tribunal failed to respect the principle of stare decisis. It did not just pay lip service to the directions of the Court, nor did it defy its directions.

v) Did the Tribunal Err in its Allocation of the Onus of Proof?

[60]            The Court placed the onus of proving the extent of anti-competitive effects on the Commissioner. The respondent had the onus of proving efficiency gains, as well as the onus of persuading the Tribunal that the efficiency gains were likely to be greater than, and to offset the anti-competitive effects.

[61]            In addition to deadweight loss, the Commissioner argues that the entire wealth transfer of $40.5 million should initially be included in the anti-competitive effects of the merger for the purposes of the subsection 96(1) analysis. He says that if the respondent disagreed, it was up to the respondent to prove that the amount should be reduced.

[62]            I cannot see how the Commissioner's approach is consistent with the direction of the Court. The Commissioner's approach can only be correct if he had satisfied the Tribunal that prima facie, the entire wealth transfer should be considered as an adverse effect of the merger. He did not. The onus of proving the extent of the anti-competitive effects is on the Commissioner. According to the Tribunal's socially adverse effects approach to the wealth transfer, the Commissioner had to persuade the Tribunal of the extent of those effects. The Commissioner satisfied the Tribunal that only $2.6 million, representing the socially adverse effects on low income households, could be considered.

[63]            The Commissioner says that the socially adverse effects approach essentially eliminates any burden on the respondent of persuading the Tribunal on the ultimate issue, that the efficiencies exceed and outweigh those effects. I do not agree. In the first place, the Court left it open to the Tribunal to decide upon the methodology for determining the extent of the anti-competitive effects of the merger. The socially adverse effects approach is the methodology chosen by the Tribunal and it is not inconsistent with the Court's directions. The burden on the Commissioner under this approach may be greater than under a different approach, but there is no evidence to suggest that it is impossible to meet.

[64]            In any event, the burden of proving that the efficiencies exceed and outweigh the anti-competitive effects may be relatively straightforward where the efficiencies and effects are quantified and there is significant disparity between the two. However, when qualitative considerations are to be taken into account, the determination of whether efficiency gains exceed and offset those effects may be more difficult to assess. Either way, the burden will be on the respondent to satisfy the Tribunal that the efficiency gains are greater than and offset the socially adverse effects of a merger.

NATURAL JUSTICE

[65]            The Commissioner says the Tribunal considered academic studies and articles that were not properly before it through witnesses who could be cross-examined. Where an error of natural justice has occurred, the relief to be granted is to remit the matter to the Tribunal for redetermination. However, in oral argument, the Commissioner expressly waived that relief if the Court found that the Tribunal's only error was one of natural justice.

[66]            As I do not find that the Tribunal committed other errors which would justify intervention by this Court, it is not necessary to address the natural justice issue.

STANDARD OF REVIEW

[67]            I also do not think it is necessary to address the standard of review. Even on a correctness standard, I have not found error on the part of the Tribunal.

CONCLUSION

[68]            I would dismiss the appeal with costs.

                                                                                  "Marshall Rothstein"          

                                                                                                              J.A.                  

"I agree

J. Richard C.J."

LÉTOURNEAU J.A. (Dissenting in part)

[69]            I have had the benefit of reading the reasons drafted by my colleague Rothstein J.A. For all practical purposes, I agree in substance with most of his findings except for the one which relates to the impact of monopolies and which, in my respectful view, strikes at the heart of the Competition Act, R.S.C. 1985, c. C-34 as amended (Act) and which is of national interest. My view and assessment of the Act on this issue lead me to a different conclusion, one which results in my allowing the appeal in part. I shall also comment on two other findings, but my views on these two other matters have no bearing on the merits per se of the appeal.

The facts

[70]            I need not state again the relevant facts and findings of the Competition Tribunal (Tribunal) summarized by my colleague, except for the facts relating to the creation of monopolies as a result of the merger. In its first decision rendered on August 30, 2000, later set aside by this Court and sent back for new determination on April 4, 2001, the Tribunal found that the merger would result in monopolies or near-monopolies in the following large areas of the country:

                                                    Table 4

                                  Geographical Markets with Merger-to-Monopoly

Pre-Merger              Post-Merger

Market                                                         SPI           ICG               SPI

%             %                   %

Val d'Or                                                                        74            23                  97

Sept Iles/Baie Comeau                                                                 55            45                 100

Bancroft/Pembroke/Eganville                                     92            5                   97

Dryden/Fort Frances/Kenora/Ignace                                           47            52                  99

Echo Bay/Sault Ste Marie                                                            55            44                  99

Hearst/Wawa/Manitouwadge/Marathon                                   43            53                  96

Little Current/Sudbury                                                                51            48                  99

North Bay                                                                                      81            16                  97

Thunder Bay                                                                                  46            54                 100

Fort McMurray                                                                            32            67                  99

Whitecourt                                                                                     55            45                 100

Burns Lake/Terrace/Smithers/Prince Rupert                           62            37                  99

Fort Nelson                                                                                    44            56                 100

Valemont                                                                       43            57                 100

Watson Lake                                                                                  25            75                 100

Whitehorse                                                                                     33            67                 100

This conclusion of the Tribunal is not in dispute. It is to the legal impact of this conclusion that I now turn to in the context of the efficiency defence provided by section 96 of the Act. To put it perhaps in clearer terms, I shall ask and determine whether the defence of efficiency authorizes the creation of monopolies through mergers.

Whether subsection 96(1) which recognizes a defence of efficiency authorizes mergers to monopolies

[71]            In its decision rendered on April 4, 2001, as my colleague Rothstein J.A. pointed out, this Court ruled that the Tribunal erred in its interpretation of section 96 of the Act and the efficiency defence when it limited the anti-competitive effects to be considered to the deadweight loss in all cases.

[72]            However, the majority of the Court did not assign any weight to the relevant effects. I was sitting on the panel and I went further than my colleagues with respect to the creation of monopolies in view of the purpose of the Act stated in section 1.1:

                                                                                       (Emphasis added)

I was of the view that efficiency of the economy expressed in the defence of efficiency was not meant to and could not override and eliminate competition in an Act designed to maintain and promote competition. Economic efficiency was not, in my opinion, the paramount objective of the Act as found by the Tribunal. At paragraphs 13 to 16 of my reasons, I wrote:

[13]      The Tribunal found that the merger was likely to prevent competition substantially in Atlantic Canada and to lessen competition substantially in coordination services offered to national account customers: see decision, paragraphs 310 and 313. There was also conclusive evidence that, in many large areas of the country, the merger would not merely lessen competition, but would in fact eliminate it and create monopolies. The following Chart illustrates the impact of the merger with respect to monopolies or near monopolies: see Compendium of the appellant, page 001327:

                                                    Table 4

                                  Geographical Markets with Merger-to-Monopoly

Pre-Merger              Post-Merger

Market                                                         SPI           ICG               SPI

%             %                   %

Val d'Or                                                                        74            23                  97

Sept Iles/Baie Comeau                                                                 55            45                 100

Bancroft/Pembroke/Eganville                                     92            5                   97

Dryden/Fort Frances/Kenora/Ignace                                           47            52                  99

Echo Bay/Sault Ste Marie                                                            55            44                  99

Hearst/Wawa/Manitouwadge/Marathon                                   43            53                  96

Little Current/Sudbury                                                                51            48                  99

North Bay                                                                                      81            16                  97

Thunder Bay                                                                                  46            54                 100

Fort McMurray                                                                            32            67                  99

Whitecourt                                                                                     55            45                 100

Burns Lake/Terrace/Smithers/Prince Rupert                           62            37                  99

Fort Nelson                                                                                    44            56                 100

Valemont                                                                       43            57                 100

Watson Lake                                                                                  25            75                 100

Whitehorse                                                                                     33            67                 100

[14]      The Tribunal, in view of its conclusion that efficiency is the paramount objective of the Act, ignored as an effect of the merger the fact that monopolies in certain product markets would ensue and failed to give any weight to that effect in its analysis under section 96. The Act maintains and promotes competition. It assumes that economic efficiency will generally and primarily develop through competition. It also accepts in section 96 that, in some cases, a reduction in competition can and will produce more efficiency than competition as it existed before merger.

[15]      In my respectful view, however, section 96 was not meant to authorize the creation of monopolies since it would defeat the purpose of section 1.1. The section was not intended to authorize mergers resulting in monopolies whereby, contrary to section 1.1, competition is eliminated, small and medium-sized enterprises are not able to enter or survive in the market and consumers are deprived of competitive prices.

[16]      As the Supreme Court of the United States has asserted repeatedly with respect to the U.S. antitrust laws, "Congress was dealing with competition, which it sought to protect, and monopoly, which it sought to prevent: Standard Oil v. Federal Trade Comm'n, 340 U.S. 231, at pages 248-49 (1951) quoting A.E. Staley Mfg. Co. v. Federal Trade Comm'n, 135 F. 2d 453, at page 455 (7^th Cir. 1943)". As my colleague pointed out, a similar expression of intent can be found in the Minister's (Minister of Consumer and Corporate Affairs and Canada Post) statement in the House of Commons where he reasserted in presenting the Bill that the ultimate objective of the Act was to provide consumers with competitive prices and product choices.

                                                                                       (Emphasis added)

[73]            I remain convinced that the creation of monopolies is the ultimate adverse, anti-competitive effect which defeats the very purpose of the Act as expressed in section 1.1. In the name of economic efficiency, the Act allows for a substantial lessening of competition, but it does not authorize its elimination altogether. As I mentioned in my previous reasons, Parliament intended, and the Act reflects that intent in section 1.1, that efficiency of the Canadian economy will generally and primarily develop through competition and enhancement of competition in Canada.

[74]            Prior to the enactment of bill C-91, which is now the Act, prevention of monopolies and maintenance of competition were ensured through the criminal process. Such process was found to be cumbersome and not as efficient as desired. It was replaced by a civil process designed to ease the burden of fighting illegal mergers. Answering questions in the House of Commons on the proposed Bill, Mr. Côté, then Minister of Consumers and Corporate Affairs, stated at page 1:7 of the House of Commons Debates, on April 23, 1986:

                                                                                       (Emphasis added)

[75]            During the debates, some members of the House expressed concerns about concentration of power and wealth in the hands of a few individuals. The Minister of Consumers and Corporate Affairs, ibid., at page 1:18, reasserted that the purpose of the Act was to enhance competition in Canada:

                                                                                       (Emphasis added)

[76]            At page 1:19, after further discussions on the issue of concentration, the Minister affirmed again the purpose of the Act:

                                                                                       (Emphasis added)

[77]            A substantial review of the debates in the House of Commons and its Committees on the issue of economic efficiency and competition reveals that the discussion among Parlementarians was not always free from ambiguity. However, the Minister's position consistently remained the same: enhancement of competition in Canada. This is precisely the principle embodied in section 1.1 of the Act: maintenance and enhancement of competition in Canada (not elimination) in order to promote the efficiency and adaptability of the Canadian economy.

[78]            In conclusion, I wish to add that the issue of monopolies in the context of an Act which favours competition is not a mere question of evidence. It is a question of principle, a fundamental issue which, in this case, has been addressed by Parliament in section 1.1 of the Act. As I previously mentioned, it is the ultimate adverse, anti-competitive effect, an effect that runs counter to the expressed values, purposes and objectives of the Act. Having said that, the next question is: what is the appropriate remedy in the circumstances?

The appropriate remedy

[79]            The remedy should be tailored to correct the problems created by the merger without, if possible, compromising it and its resulting gains in economic efficiency. I believe it is possible to solve the problems of monopoly in the geographical areas identified without putting in question the whole merger. I would leave it to the Tribunal and rely upon its expertise to determine what course of action is best in the circumstances, and issue orders accordingly. The Tribunal possesses wide powers under section 92 of the Act to order that the merger be dissolved in part or that assets or shares be disposed of. It can order that part of the merger not be proceeded with. With the consent of the Commissioner of Competition (Commissioner) and the respondents, it can order the respondents to take any other action which will prevent or eliminate the creation of monopolies in the designated geographical areas.

Whether the Tribunal erred by adopting a restrictive view of the merger on small and medium sized enterprises

[80]            As my colleague Rothstein J.A. pointed out in his reasons, the Commissioner complained that the Tribunal took too narrow a view of the kind of anti-competitive conduct that is offensive under the Act by restricting itself to conduct prohibited in sections 50 and 79 of the Act. These sections identify some prohibited or illegal practices. The Tribunal addressed the issue in the following terms in paragraph 305 of its reasons:

To find the denial of an equitable opportunity of small and medium sized enterprises to participate requires a demonstration that anti-competitive conduct offensive under the Act (i.e. section 79 or section 50) is taking place or will likely take place. On the evidence in this case, the Tribunal cannot conclude that small and medium sized competitors and customers will lose an equitable opportunity to participate in economic activity.

                                                                                       (Emphasis added)

[81]            I am not sure that the Tribunal referred to these two sections only as examples of offensive anti-competitive conduct. The use of these words "i.e. section 79 or section 50" as opposed to "e.g. section 79 or section 50", in the context of reprehensible conducts, points, in my view, more towards a restrictive than an expansive definition or particularization of the preceding words "anti-competitive conduct offensive under the Act".

[82]            In any event, I agree with my colleague Rothstein J.A. that the Tribunal's focus was too narrow if its intent was to restrict the words "anti-competitive conduct offensive under the Act" to the conducts identified in sections 50 and 79 only. I also agree with him that, "in the absence of some other type of conduct being identified by the Commissioner that should be taken into account", there is no reason to interfere with the Tribunal's decision on that point.

The role of a Tribunal on redetermination proceedings

[83]            I do not want to conclude my reasons without saying, in the interest of a proper administration of justice, a word about the role of a tribunal on redetermination proceedings. To use the words of Lord Hailsham in Cassell Et Co Ltd v. Broome, [1972] 1 All ER 801, at page 809, "I desire to do so briefly and with studied moderation". Let me say at the outset that it is not necessarily improper to express some criticism at a judicial decision. Often times, such criticism eventually brings a change to the law or its judicial interpretation. However, this is not the role of a tribunal on redetermination proceedings whereby the tribunal is instructed to implement the directives of the reviewing Court, generally on the basis of the record before it. The role of the tribunal is to act in accordance with the decision of the reviewing Court: Canada (Director of Investigation and Research) v. Air Canada (1993), 51 C.P.R. (3d) 131, at page 140. It is to implement the decision, not cast doubts on its merits.

[84]            For reasons that I will explain, it is hazardous, to say the least, at the stage of a redetermination to engage or appear to be engaging in a criticism of the reviewing Court's findings and directives or a re-litigation of its authority. First, it has the potential of undermining the system of administration of justice and the public confidence in it. In [1951] S.C.R. 504">Woods Manufacturing Co. Ltd. v. The King, [1951] S.C.R. 504, at page 515, the Chief Justice of the Supreme Court, for a unanimous Court, warned all courts against such temptation:

There is this to be added. It is fundamental to the due administration of justice that the authority of decisions be scrupulously respected by all courts upon which they are binding. Without this uniform and consistent adherence the administration of justice becomes disordered, the law becomes uncertain, and the confidence of the public in it undermined. Nothing is more important than that the law as pronounced, including the interpretation by this Court of the decisions of the Judicial Committee, should be accepted and applied as our tradition requires; and even at the risk of that fallibility to which all judges are liable, we must maintain the complete integrity of relationship between the courts. If the rules in question are to be accorded any further examination or review, it must come either from this Court or from the Judicial Committee.

[85]            In Cassell Et Co Ltd, supra, the English Court of Appeal criticized a decision of the House of Lords and instructed judges of first instance to ignore that decision. After having stated at page 809 that it was "not open to the Court of Appeal to give gratuitous advice to judges of first instances to ignore decisions of the House of Lords in this way", the House of Lords went on to explain why it was highly undesirable to take this course even if it were entitled to do so:

The course taken would have put judges of first instance in an embarrassing position, as driving them to take sides in an unedifying dispute between the Court of Appeal or three members of it (for there is no guarantee that other Lords Justices would have followed them and no particular reason why they should) and the House of Lords. But, much worse than this, litigants would not have known where they stood. None could have reached finality short of the House of Lords, and, in the meantime, the task of their professional advisers of advising them either as to their rights, or as to the probable cost of obtaining or defending them, would have been, quite literally, impossible. Whatever the merits, chaos would have reigned until the dispute was settled, and, in legal matters, some degree of certainty is at least as valuable a part of justice as perfection.

While in that case the Court of Appeal, no doubt, had gone further than the Tribunal did in the case at bar, it illustrates the kind of difficulties generated for other panels of the same Tribunal, the reviewing Court and litigants.

[86]            In the present instance, the Commissioner complains, and, rightly so, that the criticisms and the comments made by the Tribunal at the reviewing Court's decision generated unnecessary uncertainty and confusion with respect to the actual state of the law and its future application, thereby making the present appeal inevitable.

[87]            Re-litigation of a reviewing Court's authority on redetermination proceedings may also affect the public and the parties' perception of a tribunal who engages in such conduct. It can be seen as arrogance or lack of maturity. Either way, it has the potential of undermining the credibility of the tribunal itself.

[88]            In addition, such conduct is a perfect recipe for an unnecessary fuelling of litigation as it provides additional grounds of appeal. The present appeal is a living example of that. I need only reproduce some of the grounds of appeal invoked by the Commissioner:

The Tribunal Erred in Law in Failing to Abide by the Appeal Judgment, and the Tribunal Exceeded its Jurisdiction on its Redetermination

The Tribunal Erred in Rejecting this Court's Ruling Regarding the Tribunal's Statutory Mandate

The Tribunal Erred in Rejecting this Court's Interpretation of Sections 1.1 and 96(1) of the Act

(i)            The Tribunal Erred in Rejecting this Court's Interpretation of the Objectives and Legislative History of the Act

(ii)           The Tribunal Erred in Rejecting this Court's Analysis of U.S. Antitrust Law and the Legal Academic Authorities

(iii)          The Tribunal Erred in Rejecting this Court's Conclusions Regarding the Significance of s. 96(3) of the Act

(iv)          The Tribunal Erred in Rejecting this Court's Finding that the Creation of Monopolies was a Distinct Effect under s. 96(1) of the Act

[89]            Finally, and this is perhaps just as or even more important than the other reasons given, it may give rise to an allegation of bias on the part of the tribunal or an allegation that the tribunal showed on redetermination a closed mind leading to a reasonable apprehension of bias. An allegation of bias, especially actual as opposed to apprehended bias, made against a tribunal is a serious allegation and one that ought not to be made lightly. It casts doubt on the integrity of a tribunal and its members: see Arthur v. Attorney General of Canada, 2001 CAF 223 (F.C.A.). A tribunal should, on redetermination proceedings, be careful not to leave itself open to such allegations.

Conclusion

[90]            For the reasons given in relation to the issue of monopoly, I would allow the appeal in part with costs, set aside the part of the Tribunal's decision which authorizes mergers to monopolies in the geographical areas identified in Table 4 and refer the matter back to the Tribunal with instructions to take the necessary measures, including disposal of assets or shares, to ensure that the merger does not result in the creation of monopolies in the said geographical areas.

                                                                                    "Gilles Létourneau"            

                                                                                                              J.A.

                          FEDERAL COURT OF APPEAL

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                   A-219-02

STYLE OF CAUSE: THE COMMISSIONER OF COMPETITION v.         SUPERIOR PROPANE INC. and ICG PROPANE INC.

PLACE OF HEARING:                                   Ottawa, Ontario

DATE OF HEARING:                                     November 26 & 27, 2002

REASONS FOR JUDGMENT:      ROTHSTEIN J.A.

CONCURRED IN BY:                                       RICHARD C.J.

DISSENTED TO IN PART BY:                        LÉTOURNEAU J.A.

DATED:                      January 31, 2003

APPEARANCES:

Mr. John F. Rook, Q.C.                                                   FOR THE APPELLANT

Ms. Jo'Anne Strekaf

Mr. William J. Miller

Mr. Steven T. Robertson

Mr. Christopher P. Naudie

Mr. Neil Finkelstein                                              FOR THE RESPONDENT

Mr. Brian Facey

Ms. Charlotte Kanya-Forstner

SOLICITORS OF RECORD:

Mr. Morris Rosenberg                                                     FOR THE APPELLANT

Deputy Attorney General of Canada

Ottawa, Ontario

Bennett Jones                                                        FOR THE APPELLANT

Toronto, Ontario

Blake, Cassels & Graydon LLP                                       FOR THE RESPONDENT

Toronto, Ontario