The Competitor : Canada Competition / Antitrust Blog by Stikeman Elliott Lawyers & Attorneys

Jeffrey Brown and Alexandra Stockwell

On May 4, 2006, the Honourable Lawrence Cannon, Minister of Transport, Infrastructure and Communities, introduced amendments to the Canada Transportation Act (CTA). Minister Cannon promotes the changes as balancing the interests of communities and consumers with those of air and rail carriers, leading to "a transportation framework that can better meet future economic . challenges." However, the amendments, if enacted, could also present unforeseen challenges to some Canadian businesses, especially in terms of mergers and acquisitions.

Bill C-11, An Act to Amend the Canada Transportation Act and the Railway Safety Act, is similar to Bill C-44, brought forward by the previous government in its dying days. The amendments are described by the government as introducing a public interest review process for mergers and acquisitions of all federally regulated transportation services. At present, the CTA's provisions relating to merger and acquisition review are found in Part II of the Act, and apply only to air transportation undertakings. The amendments would move the provisions to Part I of the Act, making most of them applicable to all transportation undertakings. Canadian control and ownership requirements, however, would not extend to all forms of transportation, but rather would continue to apply exclusively to air transport services.

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Jeffrey Brownand Alexandra Stockwell

The Federal Court of Canada has dismissed an application for judicial review of the Commissioner of Competition's decision to discontinue an inquiry into the distribution of motion pictures in Canada. The main issue was whether the Bureau was obliged to provide the complainants with a copy of an external economist's report, which had played a role in the Commissioner's decision to discontinue the inquiry. The complainant claimed that the Bureau's refusal to provide a copy of the report was a breach of its duty to act fairly, and also prevented the applicant from filing a reply to the report, in violation of its right to hear and respond to the case against it.

The Federal Court considered whether the Commissioner's decision to discontinue an inquiry is judicial or quasi-judicial in nature, or purely "administrative" (and thus less amenable to court interference). Based on the facts that the Competition Act does not provide for a hearing, the decision does not affect complainant rights or obligations, and the proceeding is not an adversarial one, the court concluded that the Commissioner's decision is an administrative act. The court referred to the Supreme Court's decision in Baker v. Canada (MCI) [1999] 2 S.C.R. 817 for the guidelines for analysing such discretionary decisions and held that "courts must defer to discretionary decisions in the absence of bad faith on the part of decision-makers, the exercise of discretion for an improper purpose, or the use of irrelevant considerations."

The Court held that there was no evidence of bad faith or the use of irrelevant considerations, and further held that the Bureau was under no obligation to provide a copy of the external economist's report to the complainants. It was sufficient that the essential points and conclusions of the economist's report were contained in the Commissioner's report, which was provided to the complainant. The court pointed out that the complainant was invited to reply to the Commissioner's report, and the applicant did not have a valid reason for not taking that opportunity, since it had no right to more information than what the Commissioner had already disclosed. This decision confirms the Commissioner's very broad discretion in conducting and discontinuing inquiries, and the high threshold for judicial intervention in the Commissioner's decisions in that regard.

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Susan Hutton and Alexandra Stockwell

The Canadian Competition Bureau recently released a Technical Backgrounder explaining the reasoning behind its mid-March 2006 clearance of the acquisition of Maytag by Whirlpool. Both parties are manufacturers of household appliances. For the purposes of competitive review, the product market was defined as the five major home appliances: washers and dryers (the "laundry" segment), refrigerators, dishwashers and ranges. Although both Maytag Canada and Whirlpool Canada were viewed as industry leaders, especially in the laundry segment, and post-merger shares in this segment were significant, the Bureau held that effective competition would remain after the acquisition.

In assessing the proposed merger, the Bureau decided that appliances manufactured by Whirlpool or Maytag and sold under a retailer's house brand should not be attributed to the merged entity, but should rather be treated as an independent competitor in the marketplace. In coming to this decision, the Bureau considered that the retailer owns and controls the house brand and makes all decisions regarding pricing and marketing; that the retailer is often responsible for its own warehousing and distribution, and provides its own product warranties and servicing for its house brands; that there are several remaining manufacturers available to compete for house-brand supply contracts; and that retailers can and do switch from one appliance manufacturer to another, if no long-term manufacturing contract is in place.

In effect, this decision recognizes the changing roles of large retailers, which can function simultaneously as distributors for and competitors to the OEMs.

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