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

Lawson A.W. Hunter Q.C., Susan M. Hutton and Michael Kilby -

On April 29, 2013, the Government of Canada tabled its budget implementation bill, the Economic Action Plan 2013 Act, which includes proposed amendments to the Investment Canada Act (ICA), particularly in relation to state-owned enterprises (SOEs). Given that the amendments are contained in the budget bill, it again appears that there will be little or no opportunity to debate substantively the merits of the amendments or to revise them before they become law. This is not the first time amendments to the Investment Canada Act have been made within the budget bill. In 2009, extensive amendments were made to both the Investment Canada Act and the Competition Act in that year’s budget bill, and were passed without revision. The significance of both the Investment Canada Act and the Competition Act to the Canadian economy is such that the practice of amending these statutes without the opportunity for full consultation and reflection from all stakeholders increases the risk of unfortunate and unintended consequences.

The proposed amendments follow the Government’s December 7, 2012 announcements in relation to SOEs in the context of its approval of CNOOC/Nexen and Petronas/Progress. As outlined in detail in our previous blog post on the subject, the December 7 announcements set out several new concepts, including:

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Michael Kilby  -

Investment Canada – The Year of the State-Owned Enterprise

2012 proved to be a highly eventful year for foreign investment law in Canada. Although numerous foreign investments by SOEs in the Canadian energy sector had received foreign investment approvals in recent years1, the summer of 2012 saw the announcement of two multi-billion dollar energy transactions involving SOEs that collectively posed an unprecedented test for the Investment Canada Act and for Canadian policymakers. In June, Petronas (the Malaysian state-owned oil company) announced its $6 billion acquisition of Progress Energy. At the time, this was the largest-ever proposed acquisition of a Canadian company by a state-owned enterprise. But that record did not stand for long: just a month later, in July, CNOOC Limited (a majority Chinese state-owned oil company)announced its $15 billion acquisition of Nexen.

These proposed acquisitions became the subject of intense scrutiny in the national media throughout the summer and fall, and indeed attracted attention in the business press globally, particularly in Asia. With few exceptions, large-scale M&A activity in the Canadian oil patch ground to a halt in the fall of 2012 as market participants stood still and held their collective breath pending the outcome of the government reviews of these proposed foreign investments. Tension was only heightened in October when the Minister of Industry rejected the Petronas transaction on a preliminary basis, immediately recalling the rejection of BHP Billiton’s hostile bid for Potash Corporation of Saskatchewan less than two years earlier.

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Marisa Berswick -

The thresholds for review of acquisitions involving Canadian businesses will soon increase under both the Competition Act and the Investment Canada Act.

The Competition Bureau announced on January 8, 2013 that the “transaction size” threshold for review of acquisitions under the Competition Act will increase from the 2012 threshold of CDN$77 million to CDN$80 million. The 2013 threshold is anticipated to come into effect on or about January 12, 2013.

The transaction-size threshold is based on the book value of assets in Canada of the target (or in the case of assets, of the assets in Canada being acquired), or the gross revenues from sales “in or from” Canada generated by those assets, calculated in accordance with the Notifiable Transactions Regulations under the Competition Act. The Competition Act threshold is indexed annually to account for inflation. The ”size of parties” threshold remains constant at CDN$400 million.

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Ashley Weber and Bessie Qu -

On June 1, 2012, Industry Canada published long-awaited draft amendments to the Investment Canada Regulations. This is the Canadian government's second attempt to implement amendments to the Investment Canada Act passed in March 2009, which raised the review threshold for WTO investors and introduced a new metric threshold for valuing Canadian businesses based on "enterprise value". The amendments also introduce additional notification disclosure requirements that, if implemented, will significantly increase the burden on foreign investors for what has historically been an otherwise straight-forward, administrative post-closing filing.

The switch to "enterprise value" was ostensibly designed to better capture the value of a business as a going concern. However, as discussed in our previous post on May 28, devising a workable definition of "enterprise value" proved more difficult than anticipated when the legislation was amended in 2009. In response, the new draft Regulations establish a more rigorous methodology for calculating enterprise value, addressing some of the concerns raised by the Canadian Bar Association in response to the 2009 amendments. The recommendations that were adopted include:

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Susan M. Hutton and Robert Mysicka -

In the wake of the Canadian government’s announcement that it plans to make targeted changes to the Investment Canada Act (ICA), the Honourable Christian Paradis, Minister of Industry, announced on May 25 that additional amendments will be made to the  ICA and the foreign investment review process.  Other proposed amendments, including the publication of reasons for interim decision, and enabling the Minister to accept the posting of security for the performance of undertakings, had already been announced on April 27, 2012.

The latest proposed changes include:

• Implementing the increase in the review threshold from C$330 million (based on book value of assets of the Canadian business) to C$1 billion (based on enterprise value) for WTO member countries(part of the 2009 amendments, the implementation of which had been stalled – see below);
   
•  A new guideline for mediation procedures under the ICA for resolving disputes in relation to compliance with undertakings.

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D. Jeffrey Brown & Robert Mysicka

On April 26, 2012 the Minister of Finance, Jim Flaherty, introduced the budget implementation legislation, Bill C-38—the Jobs, Growth and Long-term Prosperity Act—which provides for significant amendments to federal legislation in line with the objectives set out in the government’s 2012 Budget Plan. 

In addition to the government’s budget implementation measures, Bill C-38 includes proposed changes to the Investment Canada Act designed to increase transparency in the foreign investment review process while preserving commercial confidentiality for investors supplying information under the Act. The proposed amendments will also authorize the Minister of Industry to accept security for payment of any penalties ordered by a court as a result of any contravention of the Act, including breach of undertakings given by a foreign investor to secure approval of investments under the Act.

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David Elder -

The Supreme Court of Canada has refused to hear an appeal relating to the scope of the authority of the federal cabinet to overturn a CRTC decision concerning whether a telecommunications carrier has met Canadian ownership obligations.

In doing so, the Court has essentially affirmed the eligibility of wireless new entrant Wind Mobile to operate, as well as implicitly endorsed the authority of the federal cabinet to take into account broad policy questions in determining whether to overturn CRTC decisions.

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David Elder -

With the introduction of the federal government’s latest budget bill, Canada is a step closer to lifting foreign ownership restrictions for some telecommunications providers.

In mid-March, the Minister of Industry announced planned changes to the current foreign ownership restrictions that are intended to provide greater access to capital and expertise for new entrants and smaller telecommunications carriers.  Last week’s budget bill, which amends over 50 statutes, contains amendments to the Telecommunications Act that are designed to put these changes to the Canadian ownership rules into effect.

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Susan Hutton

The Investment Canada Act threshold for the review of direct acquisitions of control of Canadian businesses (other than those involved in cultural activities) by investors controlled in countries that are members of the WTO (or where control is acquired from sellers controlled in WTO-member countries) has now been officially raised to C$312 million for transactions closing in 2011. The threshold is indexed annually to account for inflation. Legislative amendments passed in 2009 would see this threshold increased to $600 million (rising incrementally over 3 years to $1 billion, and indexed for inflation thereafter), based upon the "enterprise value" of the Canadian business.  These amendments have not been declared in force, however, as regulations defining the meaning of "enterprise value" have not been finalized.

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Susan Hutton and Megan MacDonald

On July 20, 2010, the Department of Canadian Heritage announced that it would undertake a review of its Revised Foreign Investment Policy in Book Publishing and Distribution (the Book Policy). The Book Policy, which governs foreign investment in the Canadian book industry, was introduced in 1985 and last revised in 1992. The review specifically seeks to determine whether the Book Policy continues:

• to provide opportunity for healthy competition in the book publishing, distribution and retail industries; and
• to contribute to the broader government objective of ensuring that Canadian cultural content is created and accessible in Canada and abroad.

To initiate the review process, the Department of Canadian Heritage released a discussion paper in July entitled Investing in the Future of Canadian Books. The paper outlined the motivations for the review, described the structure of the Canadian book industry and discussed the impact of existing foreign investment policies on a variety of cultural industries. The Department accepted responses to a questionnaire included in the discussion paper until mid-September 2010, and these submissions will be posted on the Canadian Heritage website for public comment throughout the month of October. The final consultation phase will involve roundtable discussions to be held in late 2010.

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On July 11, 2009, Industry Canada released draft regulations (the Draft Regulations) that will implement certain amendments to the Investment Canada Act (ICA) introduced with the passage of Bill C-10 in March of this year. The Draft Regulations provide prescribed information necessary to implement amendments to the ICA raising the monetary threshold for the review of investments and establishing a process for national security reviews under the ICA, in addition to setting out new information requirements for ICA filings. As there is a 30-day comment period, the Draft Regulations could come into effect as early as mid-August.

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Susan M. Hutton

The Canadian Competition Bureau recently unveiled draft new Guidelines for The Revised Merger Review Process, as well as a proposed Regulation Amending the Notifiable Transactions Regulations¹.Both documents are in draft form, with comments requested by May 29, 2009 in the case of the draft Guidelines, and by June 3, 2009² in the case of the proposed Regulation. The sudden implementation of a U.S.-style two-stage merger review process on March 12, 2009 left the Bureau rushing to update the filing requirements, not least because the current Regulation speaks of a choice between a short-form and a long-form notification that no longer exists. The Bureau's draft process Guidelines seek to answer questions concerning "supplementary information requests," the equivalent of so-called "second requests" for documents and information in the United States. The issuance of such a request triggers the second stage of merger review and suspends the waiting period while the parties supply the additional information requested.

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As we approach the holiday season, recent changes to the laws in Ontario around gift cards should be borne in mind.  In particular, since October 1, 2007 gift cards can no longer be issued in Ontario with an expiry date, with very limited exceptions.  In most cases, if gift cards are issued with an expiry date, the law now requires that the expiry date be ignored.

Additionally, as a result of the amendments, gift cards must be issued for the full value of the payment by the consumer - no charge can be levied for the issuance of the card. Furthermore, any permitted fees and all restrictions, limitations and conditions that the supplier imposes must be set out in writing.

Click here to view the amended regulations to the Consumer Protection Act.

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Susan M. Hutton and Ian Disend

Bill C-11, An Act to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other Acts, received Royal Assent on June 22, 2007. Bill C-11 changes the merger review regime for all transactions involving transportation undertakings which transactions otherwise are required to be notified under Part IX of the Competition Act.

According to the new provisions of the Canada Transportation Act, when notification is required under s. 114(1) of the Competition Act, parties to a proposed transaction involving any "transportation undertaking" (as opposed to only air transportation undertakings, as before) must now give notice to the Minister of Transportation (the Minister). The requirement that the Canadian Transportation Agency (the Agency) must also be given notice for air transportation undertakings remains unchanged.

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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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With the fall of Canada's Liberal minority government on November 28, 2005, Bill C-19, An Act to Amend the Competition Act and to Make Other Consequential Amendments, died on the order paper. While the outcome of the January 23, 2006 federal election is unclear, re-introduction of the Bill in 2006 seems likely. Meanwhile, on October 6, 2005, the Government had announced amendments that would have increased the criminal fines for anti-competitive conspiracies from a current maximum of CDN$10 million to a maximum of CDN$25 million per indictment. The new proposals would also have provided the Commissioner of Competition with the authority to conduct broad-ranging studies of competition in a market - even when she does not believe there are grounds for an order pursuant to the Competition Act.

Bill C-19 was originally introduced to Parliament in the Fall of 2004, and was under review by the House Standing Committee on Industry, Science and Technology since that time.

The newly introduced amendments were in addition to those initially proposed in Bill C-19, which included, among other things, proposals to:

• repeal the existing criminal provisions in the Competition Act dealing with price discrimination, predatory pricing and discriminatory promotional allowances; and

• enable the Competition Tribunal to order the payment of an administrative monetary penalty up to a maximum of CDN$10 million (first order) or CDN $15 million (subsequent orders) under the abuse of dominance provisions of the Competition Act.

 

 

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 Susan M. Hutton and Patricia Martino

As reported in the March, 2005 edition of this newsletter, the House of Commons Standing Committee on Industry, Natural Resources, Science and Technology resumed consideration of Bill C-19 on March 9, 2005, after a hiatus of several months due to political skirmishing between opposition parties and the minority government members of the Committee. Further witnesses appeared on March 23, 2005. Although more witnesses may appear, it is still possible that Bill C-19 may become law this spring. So far, the Bill appears to have general all-party support, despite the opposition of some witnesses to certain aspects of the Bill.

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The amended Bill C-249 would significantly restrict application of the ''efficiency defense'' for mergers under section 96(1) of the Competition Act.

As reported in the March 2003 issue of The Competitor, the Federal Court of Appeal, in a January 31, 2003 decision, upheld the Competition Tribunal's determination that efficiencies to be generated by the merger of Superior Propane Inc. with ICG Propane Inc. would outweigh its  anticompetitive effects, thereby "saving" the merger pursuant to section 96(1) of the Competition Act, the so-called "efficiencies defence."  On March 31, 2003, the Commissioner announced that he would not seek leave to appeal the decision from the Supreme Court of Canada.

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