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

All transactions involving an operating business in Canada which exceed certain thresholds are subject to mandatory pre-merger notification under the Act, and the parties are not permitted to close the transaction until the expiry or early termination of a 30-day waiting period following pre-notification.  That waiting period can be extended, however, if the Commissioner of Competition requires additional information to complete her review of the likely competitive impact of the transaction and issues a SIR.  Where a SIR is issued within the first 30 days following notification, the waiting period does not expire until 30 days following compliance with the SIR.

The most significant changes in the revised Guidelines include:

• Hostile Transactions: A new section of the Guidelines deals with the merger review process in the context of hostile transactions. This new section is largely repetitive of the Bureau’s second enforcement guideline regarding hostile transactions and notes that, in the context of a hostile transaction, a target is not able to affect (e.g., delay) the commencement of the relevant waiting periods by delaying its pre-notification filing or its response to a SIR. The section also notes that, to ensure that it receives SIR responses from targets on a timely basis, the Bureau will typically issue a SIR in combination with a timing agreement (to certify compliance on or before a specified date) and/or a court order obtained pursuant to section 11 of the Act, which compels the target to provide information to the Bureau.
   
• Pre- and Post- Issuance Dialogue: The revised Guidelines provide more detail about the dialogue between the Bureau and the parties before and after the issuance of a SIR. In particular, pre-issuance dialogue can serve to narrow the scope of a SIR and identify technological barriers to production, while post-issuance dialogue can help to prioritize information to be supplied and specify the custodians and search terms to be used in collecting data. The Bureau typically expects parties to use best efforts to respond to a SIR in a timely manner and on a rolling basis.
   
• Updated Search Periods: The revised Guidelines provide that, when a SIR is issued, the default search period for hard copy and electronic records will generally be the year-to-date period immediately preceding the date of issuance of the SIR and the previous two full calendar years. For data requests, the time period will generally be limited to the year-to-date immediately preceding the SIR issuance and the previous three full calendar years. However, these default search periods may vary depending on the facts of a particular case.
   
• Requirement to Refresh: The revised Guidelines note that the Bureau will require parties to produce “refreshed” information where the period between the date of issuance of a SIR and the date of certification of a complete response exceeds (typically) 90 days. In such cases, the Bureau will require responsive records to be current to within 30 days of the certification of a party’s response.
   
• Timing Agreements: A revised section on “timing agreements” provides more detail about the situations in which the Bureau will consider using a timing agreement as an alternative means of obtaining additional information about a proposed transaction, as opposed to issuing a SIR. The revised section also notes that, in the context of a hostile transaction, the Bureau may request that a bidder provide a timing commitment (not to certify compliance before a specified date) to ensure that the Bureau has sufficient time to obtain and analyze information from all parties.
   
• Sample SIR Instructions: The revised Guidelines contain sample SIR instructions, which set out the logistical procedures that parties must follow in complying with the SIR. The instructions include the relevant search periods, the means by which documents must be provided, and an acceptable manner in which to certify that a party has fully complied with a SIR.

To those familiar with US antitrust law, the above-outlined structure of the new Canadian regime clearly bears a close resemblance to the structure of US merger control law under the Hart-Scott-Rodino Act. However, two key differences between the Canadian and US regimes are that: a) it is possible in Canada, and even common, for parties to seek and obtain clearance for substantively simple transactions via an “advance ruling certificate” process, removing the need to make formal notification filings in the first place; and b) the expiry of the 30 calendar day waiting period in Canada does not amount to substantive comfort that the Commissioner has concluded that a transaction does not raise competition issues.

Since the new law came into force in March 2009, the rate at which the Commissioner and the Competition Bureau (the Bureau) have obtained negotiated remedies has increased dramatically in 2009 and 2010, as compared to historical levels. Indeed, between July 2009 and September 2010, (a 14 month period), the Bureau obtained Canadian competition law remedies in approximately 10 transactions, including numerous international transactions. Whether this is due to an increased number of strategic transactions or the new law is open to debate. Although it is impossible to say whether the Bureau could have obtained divestitures in respect of this number of transactions under the previous merger control regime, it is clear that this rate is considerably higher than in recent years where there were typically two or three merger remedies per year.2

Looking more closely at the transactions for which divestitures have been required, they vary greatly in terms of their Canadian elements. Some (Suncor/Petrocan, Clean Harbours /Everready and IESI-BFC/Waste Services) exclusively, or almost exclusively, raised competition issues in Canada and not in any foreign jurisdictions. In these situations, the Bureau obtained divestitures entirely independently from any foreign competition law regulators. Others (Pfizer/Wyeth, Merck/Schering Plough, Novartis/Alcon) were very much international mergers with relatively small Canadian components, and where international cooperation would have been significant in arriving at conclusions. Others still were international majors, but with relatively large Canadian components (e.g.,Agrium / CF Industries) with international cooperation again likely being significant. However, even where international cooperation was an important component of the Bureau’s review, the divestitures obtained have frequently had Canada-specific elements, demonstrating that Canadian remedies are not merely an exact re-iteration of any foreign remedies.

Prior to the March 2009 amendments, merging parties had the ability to force the Commissioner to litigate to prevent closing on the expiry of the 42 day period after pre-notification filings were submitted. Although such litigation was, in practice, a rare occurrence because parties wanted to obtain positive clearance from the Commissioner, the bargaining dynamic that existed between the Commissioner and the parties was nevertheless generally more favourable to the parties than is the case today. More particularly, for transactions the review of which lasted longer than 42 days, which captures the significant majority of mergers that are substantively complicated from a competition law perspective, the Commissioner had an incentive to negotiate to avoid litigation. 

Under the new regime, this dynamic is often not present, as the Commissioner’s review of substantively complicated transactions occurs largely, or even exclusively, during a period in which the parties are not able to close. Parties can only put themselves in a legal position to close by complying with a SIR (or the terms of a timing agreement), but the very act of complying with a SIR is a time-consuming, resource-intensive process, and results in the parties providing, under oath, the internal data and documents that the Commissioner would use to support a merger challenge. Parties can and do agree to pull and refile their merger filing such that the waiting period recommences and the Commissioner need not issue a SIR to prevent closing.

While information regarding the timing of parties’ compliance with SIRs (or timing agreements) for specific transactions is not publicly available, it is very likely that at least some of the recent divestitures contained in consent agreements obtained by the Commissioner were negotiated in situations where the parties were not in a legal position to close. This was never or virtually never the case under the old regime, where the parties would often be in a legal position to close during the negotiation of any remedy. One of the implications of the new regime for merging businesses where there is some competitive overlap is that if a relatively short interim period between signing and closing is contemplated, the parties will very likely arrive at their intended closing date in a situation where they require positive clearance from the Commissioner to close, meaning that their bargaining position in negotiating a consent agreement may be relatively weak.

Finally, it is notable that although the Commissioner has obtained merger remedies at an unprecedented rate since the implementation of the March 2009 amendments, the Commissioner has only brought a single formal merger challenge at the Competition Tribunal, continuing a trend that dates back a number of years.   Furthermore, the merger in question was “non-notifiable,” in the sense that it was not large enough to trigger a mandatory Competition Act filing. The new SIR process and the enhanced leverage of the Commissioner would therefore have been an irrelevant consideration in the review of this merger. 

It is unclear whether there will be much in the way of contested merger proceedings in the future. On the one hand, the enhanced information gathering powers of the Commissioner, which operate to extend the waiting period, suggest that the Commissioner may be in a better position than before to prepare for a contested merger challenge. On the other hand, parties to a transaction, recognizing the enhanced power of the Commissioner, may be more inclined to arrive at a negotiated settlement by way of consent agreement relating to the problematic portions of the transaction, in order to permit a relatively expeditious closing. It may take several years before the impact of the March 2009 amendments on merger investigation and litigation in Canada is fully understood. It would seem, however, that consent agreements will continue to occupy a significant position in the Canadian competition law landscape at least so long as the current strategic merger activity continues and that, consequently, case law under the Competition Act’s substantive merger review provisions will remain sparse.

Foreign Investment Review – Investment Canada Act

The ICA provides for the pre-closing review and Ministerial approval of certain investments in Canadian businesses, with such approval granted where the Minister determines that an investment is of “net benefit to Canada.” Prior to March 2009, the ICA did not contain any explicit “national security” review mechanism. We provide below a brief overview of Canada’s new “national security” review regime under the ICA. Certain other technical amendments to the ICAwere made in March 2009, but are not discussed in any detail herein. 

• National Security - Overview

A national security review may be launched where the Government regards a foreign investment as potentially “injurious to national security”. If it concludes that there is a potential threat, the Government can prohibit or attach conditions to a foreign investment, whether an investment in an existing Canadian business or the establishment of a new Canadian business. If the investment is already completed, the Government’s powers include the ability to order the divestiture of a Canadian business. It is important to note that this mechanism for national security review is separate from the existing economic review process.

The national security amendments to the ICA raise a number of issues, including the following.

• National Security is Undefined

The ICA does not define “national security”. The Government has not provided any meaningful guidance on the factors it will consider when determining whether there is a national security issue. The concern that national security could be interpreted expansively (beyond obvious defence-related concerns) is heightened by the large and varied group of governmental departments and agencies listed in the National Security Review of Investments Regulations (the National Security Regulations), including the Department of Canadian Heritage, the Department of Natural Resources, the Department of Transport, the Canada Revenue Agency, the Department of Public Works and Governmental Services and the Department of Finance, in addition to the more obvious agencies such as the Department of National Defence and the Canadian Security Intelligence Service.

• Small Transactions and Other Investments are Subject to the New Law

Unlike the case in economic reviews under the ICA, the new national security review law applies to minority investments. Also, under the new law, the government may order a review if the business in question carries on any part of its operations in Canada and has any of: a place of operations in Canada; one or more individuals who are employed or self-employed in connection with the operations; or assets in Canada used in carrying on the operations. There is no minimum asset or transaction size threshold, with the result that a national security review is possible even with respect to small transactions.

• No Process for Voluntary Pre-Clearance

The ICA does not provide a pre-clearance process for national security issues. However, in some cases the National Security Regulations provide for a statutory limitation on the Minister’s ability to act after a certain date. In some cases it may be possible to have the limitation period expire before closing. If this is not possible, there will be some (in most cases minimal) risk of a post-closing national security review.

• State-Owned Enterprises (SOEs)

It is generally thought that the genesis of the national security law was the proposed acquisition of Canadian nickel miner Noranda Inc. by China Minmetals in 2004. Although that transaction did not proceed, it did generate debate about the role of national security considerations under the ICA.

In December 2007, the government issued guidelines on how it would apply the “net benefit to Canada” test to investments by SOEs that were being reviewed under the economic review provisions of the ICA (as opposed to the new national security law, which was not then in force). In addition to the factors that the Minister of Industry typically considers in deciding whether to approve reviewable investments, the SOE Guidelines indicate that the governance and commercial orientation of SOEs will be considered.

With respect to governance, the SOE Guidelines state that the SOE’s adherence to Canadian standards of corporate governance will be assessed, including any commitments to transparency and disclosure, independent directors, audit committees and equitable treatment of shareholders, as well as compliance with Canadian laws and practices. The Minister will also consider how and to what extent the investor is controlled by a state.

With respect to the commercial orientation, the SOE Guidelines state that the following will be relevant: (i) destinations of exports from Canada; (ii) whether processing will occur in Canada or elsewhere; (iii) the extent of participation of Canadians in Canadian and foreign operations; (iv) the support of on-going innovation, research and development; and (v) planned capital expenditures in Canada.

Finally, the SOE Guidelines outline the types of binding commitments or undertakings an SOE may be required to provide to pass the “net benefit” test. While many of these include commitments required by any foreign purchaser, of particular interest is the potential for a requirement to list the shares of the acquiring company or the target Canadian business on a Canadian stock exchange.

Mitigating Considerations

Despite the uncertainty generated by the introduction of the national security review process in Canada, foreign investors should in most cases not be overly concerned for a number of reasons.

• Experience with National Security Reviews to Date

As at the date of writing, there has apparently only been a single national security notice (not a full review) since the new law came into force a year ago. Moreover, as at the date of writing, even under the “net benefit to Canada” test that is applicable to economic reviews, there have only been two non-cultural investments rejected in the quarter century since the ICA came into force (the ATK - MDA aerospace transaction, and the BHP Billiton – PotashCorp transaction, both described below).

• Canada has an Open Economy

Canada’s economy has historically been open to foreign investment. In 2009 (not a particularly active year for global foreign investment), 22 transactions were approved by the Minister of Industry under the economic review provisions of the ICA,including three significant investments by SOEs: (i) China National Petroleum Corporation’s acquisition of control of Athabasca Oil Sands Corp, (ii) Korea National Oil Corporation’s acquisition of Harvest Energy Trust and (iii) Abu Dubai’s International Petroleum Investment Co’s acquisition of NOVA Chemicals Corporation. Also, China Investment Corporation’s acquisition of a 17% interest in Teck Resources Limited was successfully completed in 2009, and, in 2010, Sinopec’s acquisition of an interest in Syncrude received approval under theICA. To date, no SOE transactions have been formally rejected.

Investment Canada Act Developments in Recent Months

The most significant ICA development in recent months was the rejection of BHP Billiton’s proposed acquisition of Potash Corporation of Saskatchewan (PotashCorp) in November 2010. This rejection, combined with other foreign investment controversies, has drawn considerable attention to the ICA and has generated widespread debate within the Canadian foreign investment bar, corporate Canada, policymakers and academia as to the appropriate role of government in screening, imposing conditions on and approving foreign investment in Canada. Most recently, parliamentary hearings regarding further potential changes to the foreign investment review regime have been commenced. The outcome of such hearings, in terms of further amendments to theICA, is uncertain. A brief summary of the PotashCorp situation follows.

BHP’s hostile takeover bid for Saskatchewan’s PotashCorp, an iconic world-class producer of a key Canadian natural resource, attracted massive political and media attention from the moment of its launch in mid-August 2010.3

The Premier of the Province of Saskatchewan vigorously argued that the federal government should refuse the proposed bid, concerned among other things, about potentially significant negative tax consequences for the Province of Saskatchewan and the loss of a public company Canadian head office.

On November 3, 2010, the Minister issued a preliminary decision rejecting BHP’s bid on the basis that it failed to satisfy the “net benefit to Canada” test. Although the law provided BHP with a 30-day period within which further submissions could be made to try to change the Minister’s view, BHP apparently chose not to proceed, officially withdrawing its application on November 14, 2010. BHP issued a detailed press release following the failure of the bid, outlining numerous specific commitments it had been prepared to make.  Undertakings would apparently have included a five-year commitment to remain in a Canadian potash export group, significant spending on infrastructure, increased investment in BHP’s already planned Jansen mine (also located in Saskatchewan), commitments to forgo certain tax benefits and to apply for a listing on the Toronto Stock Exchange. Other proposed undertakings apparently related to employment increases, spending on community and education programs and an unprecedented US$250 million performance bond to ensure that the company fulfilled its undertakings.

Following the decision, some commentators noted suggestions by Minister of Agriculture Gerry Ritz that BHP’s bid had been refused because potash is a “strategic resource” for Canada. This is not an explicit factor for consideration under the ICA. However, other countries have, in the context of foreign investment review, taken measures to protect their most valuable resources or companies.4

The ICA certainly provides the Minister with significant discretion and the PotashCorp decision has led to calls for clarification of Canada’s foreign investment rules from businesspeople, investors and politicians across the political spectrum. Critics have cited a lack of transparency and a lack of predictability as factors affecting the efficacy of foreign investment review. While the current approach gives the Minister significant flexibility to assess proposed investments on a case-by-case basis, it is also true that perceived unpredictability might complicate the risk assessments undertaken by foreign acquirers and, conceivably, deter investment in Canada. Nevertheless, the PotashCorp decision had numerous unique features, including the opposition to the transaction from the Premier of Saskatchewan, suggesting that it would be incorrect to draw any broader conclusions regarding Canada’s approach to foreign investment from this apparently unique transaction.

[1] There had been no groundswell of support in Canada for the adoption of a US-style merger review process. The recommendation was included in the final June 2008 report of the Competition Policy Review Panel, a panel formed in July 2007 with a mandate to review Canada's competition and foreign investment policies, and make recommendations to the federal government for making Canada more globally competitive. This recommendation was somewhat surprising given that none of more than 100 written submissions to the panel called for the adoption of US-style process, and indeed such a recommendation seemed beyond the terms of reference of the panel. Furthermore, the recommendation was also contained in the final report of Brian Gover, following his review of the exercise of the Commissioner’s powers under section 11 of the Competition Act

[2] The final months of 2010 and first few months of 2011 were a relatively quieter period for the Competition Bureau in terms of merger remedies. Although numerous remedy sale processes were completed, these related to remedies that had been previously announced. Notable transactions cleared during this timeframe included Shaw / Canwest, BCE / CTVglobemedia and XM Canada / Sirius Canada. The Bureau did, however, bring a merger challenge in January, 2011 in respect of a closed merger.

[3] Stikeman Elliott LLP acted as counsel to PotashCorp.

[4] In fact, Australia itself has been known to protect key industries and, at the same time that BHP was making a bid for PotashCorp, Australian authorities were engaged in a detailed review of the takeover bid for the Australian Stock Exchange by Singapore Exchange Ltd. Indeed, the very existence of BHP and the other Australian mining supermajor, Rio Tinto, as Australian companies, is due, in no small part, to the existence of stringent Australian foreign investment rules that played a major role in previous transactions involving BHP and Rio Tinto. 

Reprinted with permission from The Canadian Legal Lexpert® Directory 2011
© Thomson Reuters Canada Limited

Background

The merger process amendments were first formally proposed in the Gover Report, issued to the Commissioner of Competition on June 19, 2008, but only publicly released for broad distribution on August 12, 2008. Following an unfavourable Federal Court decision calling the Commissioner to task for seeking, on an ex parte basis, overbroad and duplicative document production in the Labatt/Lakeport merger³, Mr. Gover had been given a mandate by the Minister of Industry to investigate the Bureau's use of its investigative powers under section 11. Gover's recommendation, based on a limited consultation, was to implement a U.S.-style "second request" merger regime - thus allowing the Bureau unilaterally to issue wide-ranging document production subpoenas, without any judicial oversight at all. This recommendation was somewhat surprising - its implication being that the appropriate legislative response to the Federal Court's concerns over abuse of the Commissioner's powers was to eliminate the possibility for oversight of the Commissioner by the Federal Court.

On June 26, 2008, the Competition Policy Review Panel (the "Wilson Panel") issued its final report, Compete to Win, and similarly recommended adoption of a U.S.-style merger regime, despite the facts that its terms of reference did not include consideration of the merger review process, and that none of the approximately 155 written submissions made prior to the submission deadline, including the Commissioner of Competition's submission, had advocated or even suggested the possibility of adopting a U.S.-style merger regime. Subsequent written submissions by the Commissioner and oral submissions by invited experts to meetings of the Wilson Panel did address the merits of a U.S.-style merger regime and, as noted above, it had been promoted in the Gover Report issued to the Commissioner prior to issuance of the Wilson Panel report - but the nature of the process leading to both of those reports ensured the proposal remained largely under wraps until included in a blue-ribbon panel report whose broad-ranging recommendations to improve Canada's competitiveness were quickly adopted by the government of the day.

Given the lack of public debate about the merits of the amendments, little was known about the Bureau's approach to issuance of and compliance with SIRs. Moreover, questions were raised about how the new procedure would interface with unique, and well-regarded, features of the Canadian regime, including the ability of the Bureau (exercised in the vast majority of cases, which do not raise competition issues) to clear a transaction well within the thirty-day waiting period on the basis of a request for an "advance ruling certificate" (ARC) or no-action letter, rather than on the basis of formal notification.

The Guidelines

In that regard, the Guidelines do confirm that the best features of current practice regarding non-problematic transactions will remain in place. They also indicate, in our view, a more formalistic approach to compliance with documentary production requests than had necessarily been the case with the old section 11 order process.

• The Bureau's practice of reviewing "non-complex" transactions within a maximum two-week timeframe (after receipt of sufficient information regarding the likely competitive impact), and of issuing ARCs where appropriate, remains unchanged. Such an approach maintains the widely acknowledged efficiency with which the Bureau reviews transactions that do not raise potential competition issues.
   
• The Guidelines discuss the class of transactions falling within the Bureau's "complex" designation, which the Bureau endeavours to review within a maximum ten-week, non-statutory period, a period that is obviously longer than the initial thirty-day statutory waiting period. The Guidelines state that for some "complex" transactions, the Bureau will be willing to refrain from issuing a SIR, allowing the waiting period to lapse on the understanding that the parties will not close the transaction for an agreed-upon period and will cooperate with the Bureau's information requests on a voluntary basis. It should be noted, however, that based on limited experience to date, a "very complex" transaction will likely be subject to a SIR, and the Bureau appears likely to ask for a timing agreement in place of a SIR for a "complex" transaction - in practice, the waiting period will be extended (voluntarily or otherwise) for "complex" and "very complex" transactions.
   
• The Guidelines note that before issuing a SIR, the Bureau will generally engage in limited "pre-issuance dialogue" with the merging parties, including providing a draft SIR to the parties. In this manner, parties may be able to identify issues related to how certain information is requested or is to be provided. The Bureau is open to the possibility that pre-issuance dialogue may lead to a reduction in the potential burden of the SIR - provided such dialogue is concluded quickly (i.e., a few business days, at most).
   
• The Guidelines explain that the Bureau will engage in post-issuance dialogue with the merging parties regarding the scope of the SIR, and set out certain post-issuance practices and procedures. Most notably, a custodian maximum limit of thirty individuals (not including records contained in central files) will generally apply, in all but exceptional cases, where the parties cooperate in providing the Bureau with detailed information about their personnel structures, including specific discussions about individual roles and responsibilities.⁴
   
• The Guidelines contemplate that in some circumstances (such as where there are no competition issues unique to Canada) it may be possible to limit custodians to the same custodians agreed upon for purposes of a U.S. second request. In certain circumstances, the Bureau may accept records provided to foreign competition agencies as being responsive to the Canadian SIR.
   
• The Bureau will generally limit document production to year-to-date records plus the previous two calendar years. The Bureau will generally limit data requests to year-to-date data plus the previous three calendar years. The Bureau will generally not require parties to resort to producing records contained on back-up media if the Bureau can obtain sufficient records through less onerous means. The Bureau recommends that parties provide it with access to members of technical staff to discuss archival systems.
   
• The Bureau is open to entering into timing agreements (wherein the parties agree not to fully comply with the SIRs before a specified date or event), which can include provisions respecting when the parties and the Bureau expect to reach certain milestones in the review of the transaction.

The Guidelines contain several elements of potential concern:

• The Guidelines contemplate that where records provided "appear to be substantially incomplete," the Bureau could revisit the issue of custodians, including designating additional custodians to be searched. As a practical matter, requiring additional searches once the parties have fully complied with the SIR would delay the commencement of the second thirty-day waiting period by several weeks and, as discussed below, calls into question the legal grounds upon which the Commissioner can challenge the sufficiency of SIR compliance once the affidavit is filed.
   
• The Guidelines' approach to potential challenges to SIR compliance is especially troubling. The Guidelines state that the Bureau must receive each party's response to its respective SIR before it can properly assess whether any information remains outstanding, and that the Bureau reserves the right to request additional information if production is deemed to be insufficient, and will do so "as soon as reasonably possible." This approach appears to ignore, however, 116(3) of the Act. Subsection 116(3) permits the Commissioner seven days within which to notify a party that it is required to submit information excluded on the grounds of subsection 116(2) (lack of relevance to the Commissioner's inquiry), or (2.1) (information previously supplied) - seven days commencing when the party submits the affidavit (without regard to whether the other party has also complied). More importantly, there is no express provision for the Commissioner to second-guess a party's sworn claim under subsection 116(1) that information cannot reasonably be obtained, is subject to solicitor-client privilege, or would breach a confidentiality requirement established by law. Absent challenge under subsection 116(3) within seven days of the filing of a party's affidavit, the Commissioner arguably has no power unilaterally to require the production of additional information or to delay commencement of the second waiting period.⁵
   
• The Guidelines set out internal appeal procedures should the parties seek to contest the scope of the SIR, or should the Bureau contest the completeness of the SIR response. Under these processes, a senior Bureau official (including, potentially, an official not involved in merger review) is charged with resolving disputes between another senior Bureau official and the parties. The effectiveness and fairness of such internal review mechanisms - as compared to the potential for court supervision under the old section 11 regime - remain unclear.

Conclusion

As of mid-September, 2009, after six months of experience with SIRs, senior Bureau officials revealed that SIRs had been issued in respect of five proposed transactions. The Guidelines claim that the SIR process allows the Bureau to obtain records and data "through a more efficient and less formal information-gathering process than that associated with obtaining orders under section 11 of the Act." Time will tell, but experience to date suggests that the information-gathering process has become more, not less, formal with the new procedures - at least from the point of view of the merging parties. Moreover, the Guidelines' approach to questioning the sufficiency of SIR compliance may well prove contentious.

¹ Members of Stikeman Elliott LLP's Competition Group, including the authors, have been counsel to parties that have received SIRs from the Competition Bureau under the new regime.
² The old system, with a choice between a short and a long-form notification, had finite waiting periods, which the Commissioner could not extend without obtaining an injunction from the Tribunal to delay closing - thus putting power to delay closing beyond the waiting periods in the hands of the Tribunal, not the Commissioner. It also featured a requirement for the Commissioner to obtain a court order, albeit available on an ex parte basis, if she required further documents and information beyond that contained in notifications or provided voluntarily by the parties. The new regime eliminates, for practical purposes, court and Tribunal oversight for at least a period of several months, while parties must comply with detailed "supplementary information requests" issued by the Commissioner, before being in a position to bring the waiting period to a close.
³ See "Substantial disclosure obligations for production orders: Federal Court rebukes Commissioner in Labatt/Lakeport merger" (The Competitor, February 2008).
⁴ Of note, the Bureau also reserves the right to require additional custodians to be searched, depending on its view of the sufficiency of production it receives once both parties have complied. Moreover, given the time and expense of document review for each custodian (outside technology firms are typically engaged to assist with retrieval of years of archived e-mails and documents, and small armies of lawyers are required to review the documents for relevance and privilege), the proportionality of even thirty custodians compared to the probative value of additional documents received must surely be questionable, at best, in many cases.
⁵ In this regard, in the case of a disputed subsection 116(1) claim that information is "not reasonably obtainable," privileged or would breach a legal requirement of confidentiality, the Commissioner would appear to have to use the new section 123.1 of the Act, pursuant to which the Commissioner may seek a court order enjoining completion of a transaction in violation of the waiting period (or, among other things, imposing a $10,000-per-day fine in respect of closed transactions), and/or requiring a person to submit information required under subsection 114(2) of the Act (the SIR provision). Arguably, by operation of subsection 116(1), however, information that the affiant believes in good faith to be subject to the 116(1) exceptions is not required under subsection 114(2) of the Act. Time will no doubt tell how courts will view the interplay between these provisions, but the exclusion of subsection 116(1) from the ability of the Commissioner unilaterally to challenge SIR compliance, and the limitation of the Commissioner's ability to request additional information to seven days after filing of the affidavit, are surely significant.
 

Among other things, the proposed amendments to the Notifiable Transactions Regulations set out the new uniform merger filing requirements, which essentially will mandate the filing of a "short form" notification plus documents in all cases. A "short-form" notification currently requires, along with certain basic information about the parties and the transaction, lists of the top twenty customers and suppliers for the principal products of each party and its affiliates with significant business in or with Canada. After coming into force (likely in summer 2009), the amended Regulation will also require the filing of two categories of documents:

1. legal documents that are to be used to implement the proposed transaction (or the most recent drafts thereof); and
2. studies, surveys, analyses and reports prepared or received by a senior officer for the purpose of evaluating or analysing the proposed transaction with respect to "market shares, competition, competitors, markets, potential for sales growth or expansion into new products or geographic regions."

The latter requirement is virtually identical to specification 4(c) of the merger notification form used in the United States³.These types of documents were previously required to be filed in Canada only as part of a long-form notification, but will now be required in all cases where formal notification is made. How many transactions this will affect remains to be seen, however, as the vast majority of notifiable transactions in Canada do not raise any serious competition issues and have in the past been the subject of requests for advance ruling certificates (ARCs) rather than formal notifications. It is not yet known whether the Bureau will now expect the so-called "4(c)" documents to accompany ARC requests - even in cases involving no or trivial competitive overlap. Doing so would significantly increase the regulatory compliance burden for the majority of notifiable transactions in Canada, arguably with little or no benefit to those reviewing such routine transactions.

The more controversial of the two draft documents, however, is likely to be the draft Guidelines for the The Revised Merger Review Process. The Guidelines seek to outline the Bureau's approach to the new two-stage merger review process generally, and to "supplementary information requests" in particular. As described in the Guidelines, the Act now provides for an initial 30-day waiting period, during which the majority of mergers will be reviewed (and during which the transaction may not be completed). For transactions where further review is required, the Act authorizes the Bureau to issue a "supplementary information request" which extends the waiting period for an additional 30 days from the date the requested information is supplied.

Second requests issued by the Bureau's counterparts in the United States are infamous for the time, money and managerial resources that must be expended in order to comply, and for the exhaustive scope of the information required. The American Bar Association revealed in 2007 that for 23 transactions for which information had been gathered, the total cost of complying with a second request had averaged over US$5 million (median US$3.3 million) and that agency review had taken about seven months (both average and median) to complete⁴. Competition Bureau Officials in Canada have sought to allay fears over the potential adoption of a comparable approach in Canada. That said, the draft Guidelines seem implicitly to confirm the Bureau's intention to adopt the basic premise of U.S. second requests, which is that before allowing the waiting period to expire, the agencies will require the production of e-mails and other documents generated or received over a two- to three-year period by those in positions of authority concerning the overlap products - whether probative or not.

The Canadians propose to limit the search to a maximum of 30 custodians in most cases (the ABA letter referred to above revealed that an average of 126 custodians and a median of 94 were required to be searched in the sample of second requests surveyed), and to engage in pre- and post-issuance dialogue in order to avoid, or at least narrow, the scope of a Canadian second request. The draft Guidelines also discuss internal controls on the scope and issuance of second requests, and outline internal "appeal" procedures parties may follow if they object to the scope of a second request.

Implicit throughout the Guidelines, however, is the assumption that - within 30 days of being notified of a proposed transaction that raises serious competition issues - the Bureau will demand production not only of the  information most relevant to its analysis (as was previously its practice with the issuance of relatively targeted information requests or court orders, typically much later in the process), but of all information that could potentially be relevant in any way to eventual litigation of the case. As such, it would appear that despite limiting the scope of second requests as compared to its U.S. counterparts, the burden that the Competition Bureau will place on parties to transactions that raise complex competition issues in Canada (and who wish eventually to see the waiting period expire) is about to undergo a quantum leap.

The Guidelines also indicate that, consistent with the practice in the United States, the Bureau will be open to identifying the most important information it requires on key issues, and to working through the issues and potentially clearing the transaction before the full scope of the information requested in the second request is actually produced. While parties may in some cases have their transactions cleared without fully complying with a second request, not all parties will be able easily to reach agreement with the Bureau on required remedies. For such transactions, the cost of reaching the position where the Bureau must go to the Competition Tribunal and prove a prima facie case in order to further delay the transaction may now be very high indeed.

As noted above, comments are requested in respect of the draft Guidelines by May 29, 2009, and in respect of the draft amendments to the Regulations by June 3, 2009.

¹Canada Gazette Part I, April 4, 2006.
²Bill C-10, The Budget Implementation Act, 2009, received Royal Assent on March 12, 2009. In addition to measures designed to stimulate the Canadian economy, Bill C-10 included sweeping reforms to the Competition Act and the Investment Canada Act. Please see the March, 2009 issue of The Competitor for details.
³The language in Item 4(c) of the Hart Scott Rodino Antitrust Improvements Act of 1976 reads "all studies, surveys, analyses and reports which were prepared by or for any officer(s) or director(s) (or, in the case of unincorporated entities, individuals exercising similar functions) for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets. . ."
⁴Letter to the Antitrust Modernization Commission dated February 22, 2007 from the Section of Antitrust Law of the American Bar Association re: Data Regarding the Burden of Responding to HSR Second Request Investigations (available on-line).

Background

The acquisition of Lakeport by Labatt was first proposed in January 2007, following closely on the heels of another acquisition, during which the Competition Bureau had reviewed Ontario beer markets in some detail. In February 2007, the Competition Bureau obtained court orders against eleven parties, requiring them to produce significant additional documents and information in furtherance of its review of the Lakeport acquisition.  With the closing date looming and the Commissioner voicing serious concerns, the parties offered to enter into a so-called "hold-separate arrangement" to permit the public takeover bid to proceed, even while the Bureau continued its investigation. The Bureau rejected the form offered, however, and instead sought an injunction from the Competition Tribunal, pursuant to section 100 of the Competition Act, to delay the closing of the transaction. The Tribunal dismissed the Commissioner's application on March 28, 2007², citing insufficient evidence, and the transaction closed the next day.³

The Competition Act permits the Commissioner to challenge a transaction for up to three years after closing, however, and the Bureau's investigation continued. More than seven months later, in November 2007, the Commissioner obtained, on an ex parte basis, court orders against fifteen parties (including Labatt and Lakeport) for the production of additional documents and information. Labatt quickly asked the Federal Court to set aside the November orders against it and Lakeport.In a stinging rebuke, the Federal Court issued a decision on January 28, 2008, setting aside its own order requiring Labatt to produce additional documents, on the basis that the disclosure by the Commissioner to obtain the order had been "misleading, inaccurate and incomplete," and had full disclosure been made, the order would not have been issued.⁴Just days earlier, on January 22, 2008, the Federal Court of Appeal had also rejected the Commissioner's appeal of the Tribunal's decision not to grant the interim injunction.⁵The Bureau's investigation of the competitive effects of the merger continued, apparently, until January 16, 2009 - almost two years after receipt of the original filings.

While exceptional cases do arise, it should be noted that the Competition Bureau's own non-binding "service standard" for review of a transaction that raises "very complex" issues is five months. The Labatt/Lakeport transaction was exceptional in many ways - including the length of the review.

¹ As previously reported in The Competitor (November 24, 2008: "Throne Speech promises big changes to Canada's competition and foreign investment regimes," by Susan M. Hutton), the incoming government's inaugural address in November  2008 promised, among other things, to harmonize Canada's merger review procedures with those of the United States, thereby extending the initial review period from (typically) 14 days to 30, and permitting the Bureau to effectively "stop the clock" for several months by issuing detailed information requests without judicial oversight. As demonstrated by the Labatt/Lakeport case, Canada's current regime, with the parties choosing between a 14-day and a 42-day waiting period, can result in the Bureau having only 42 days in which to review a merger, unless it obtains an interim injunction to delay closing.

² Section 100 permits the Tribunal to delay closing for 30 days (extendable for another 30 days in some circumstances) if (a) the Commissioner certifies that an inquiry is being made into a transaction and she is of the opinion that more time is required to complete the inquiry, and (b) the Tribunal is satisfied that "if the interim order is not granted, a person is likely to take an action that would substantially impair the ability of the Tribunal to make an order under Section 92 to remedy the effect of the proposed transaction on competition because that action would be difficult to reverse."  The Tribunal found that the Commissioner had not met the burden of establishing that closing would substantially impair the Tribunal's ability to remedy a substantial lessening or prevention of competition.  It pointed out that, unlike in the United States, Canadian merger remedies need not restore the pre-merger situation, but need only restore competition to the point that there has been no substantial lessening of competition.  The Bureau's key witness had addressed only the ability to restore pre-merger competition, and thus the Tribunal had no evidence on this key point.

³ For details, please see the April 2007 issue of The Competitor: "Labatt and Lakeport defeat bid by Canada's Competition Commissioner to block closing" (by Shawn Neylan).

⁴ Please see the February 11, 2008 issue of The Competitor for details: "Substantial disclosure obligations for production orders: Federal Court rebukes Commissioner".

⁵ For details, please see the February 11, 2008 issue of The Competitor: "Commissioner swallows defeat in beer battle" (by Shawn Neylan and Michael Kilby).

In its response to the Report, the CBA Competition Law Section welcomed Mr. Gover's recommendation that the Bureau should, as a matter of course, engage in pre-application and post-service dialogue with respondents of section 11 orders with a view to tailoring the order, to determining the respondent's record-keeping practices, to identifying and seeking to limit the number of custodians who are required to search for information and records and to limiting the time period for which records and information are required. According to the Report, the civil branch already engages in such dialogue, but the mergers branch is reluctant to do so, while the practice is mixed in the criminal branch in this regard.

The CBA also welcomed Mr. Gover's recommendations that the criminal branch should refrain from seeking section 11 orders in furtherance of a criminal inquiry against a person who is a suspect in that inquiry (due to constitutional concerns); that all section 11 orders contain language permitting the Commissioner to "read down" the scope of the order (presumably pursuant to the consultative process mentioned above); and that counsel to the Commissioner, as well as the affiant, should personally attend all section 11 proceedings.

The CBA Section took issue, however, with a number of "positions, assertions and proposals" in the Report, describing them as "unfounded or controversial" and saying that they did not reflect sufficient consultation with the private competition bar and Canadian business community, or accurately represent the CBA's position regarding section 11.

With respect to the consultations with the private bar, Mr. Gover's report reveals that he met with the current and past Chairs of the Section. According to the Section's letter, however, there was only one such meeting, which lasted an hour, and during which key sections of the Report, among them his criticisms of the Labatt decision and proposed amendments to the Competition Act in areas other than section 11 (such as giving the Commissioner the power to issue U.S.-style "second requests" and to toll the waiting periods in merger cases) were not discussed. According to the Section, Mr. Gover also seriously misstated the Section's position when he claimed that the private bar's main concern is the existence of section 11 itself. To the contrary, the Section's key concerns are said to be the lack of notice to respondents and the over-breadth of orders.

The Report does point out that, while the Commissioner need only assert the existence of an inquiry and a belief that the respondent has relevant information in its possession (and need not prove that she has reasonable grounds for either), she has a duty as an ex parte applicant to provide a description of the nature of the alleged conduct that is the subject of the inquiry, and this description must be sufficient for the Court to judge the relevance of the information sought. With respect to relevance, Mr. Gover criticized the Federal Court's judgments in Labatt⁴ and Air Canada⁵, stating that "it is not for the Court to determine whether there is another source that would be more effective or efficient." Rather, Mr. Gover's view is that, given that section 11 is intended as an investigative tool, potential relevance ought to be the standard, giving a fairly high degree of deference to the Commissioner with respect to the scope of the order. That said, he acknowledges that the Commissioner, as an ex parte applicant, has a duty to disclose any facts known to the Bureau that may explain the position of the respondent regarding the scope of the order and the relevance of the material sought.

On balance, while the Report may have fanned some flames, it essentially endorses the Bureau's new procedure for review of all section 11 applications by three senior Bureau and Justice officials, and appears to go a long way toward addressing the Section's key concerns by calling on the Bureau to engage in both pre- and post-order dialogue with respondents (which implies that at least informal notice should be the norm in civil cases), and by permitting Bureau officers to narrow the scope of the order once issued (if consultations reveal a narrower scope to be appropriate). The Report also advocates that one judge should ideally have carriage of all section 11 orders in a single case, the better to manage the process.

In the end, actions speak louder than words. If the Bureau implements Mr. Gover's recommendations, one suspects a Labatt-style situation will not soon repeat itself, and both the bar and the Bureau will be much happier (if happy is the right word in the context of litigation) with the section 11 process.

¹See "Report in Section 11 Orders Under Competition Act Released," Information Notice (August 12, 2008).
²See "Expert Appointed to Advise on Bureau's Process," Information Notice (March 3, 2008).
³Canada (Commissioner of Competition) v. Labatt Brewing Company Limited [2008] F.C. 59 (F.C.T.D.).
⁴Ibid.
⁵Canada (Commissioner of Competition) v. Air Canada (2000), 8 C.P.R. (4th) 372 (F.C.T.D.)

The Competition Act

The Panel concluded that "a number of provisions of the Competition Act are either ineffective or obsolete" and noted that "[t]hese deficiencies are particularly evident in respect of the conspiracy and pricing provisions." While satisfied that the Competition Act's substantive merger provisions are "modern" and that there is "no compelling need" to change the existing efficiencies defence, the Panel concluded that the Competition Bureau should not limit its assessment of efficiencies to mergers that it determines likely to prevent or lessen competition, but should consider efficiencies from the outset of its assessment of a merger. The Panel also recommended that the Bureau provide more guidance on the criteria the Commissioner of Competition applies in issuing advance ruling certificates in respect of mergers.  Notably, the Panel also concluded that the Competition Bureau should focus on its core mandate of enforcing and promoting compliance with the Competition Act and limit its "advocacy" efforts to interventions before federal and provincial boards and tribunals. General competition advocacy (e.g., market studies) should be left to the Panel's proposed (independent) "Canadian Competitiveness Council," whose general mandate would be "to examine and report on, advocate for measures to improve, and ensure sustained progress on, Canadian competitiveness."

The Panel's principal recommendations for amendments to the Competition Act include:

Criminal Matters

• replacing the current conspiracy (cartel) provisions with a per se criminal offence for hard core cartels and civil review by the Competition Tribunal for all other agreements that are demonstrated to have or be likely to have significant anti-competitive effects;
• repealing the price discrimination, promotional allowance, and predatory pricing provisions;

Reviewable Practices (other than Mergers)

• repealing the existing criminal price maintenance provision and replacing it with civil review by the Competition Tribunal of price maintenance that is demonstrated to have or be likely to have significant anti-competitive effects, at the behest of  either the Competition Bureau or private parties (private access);
• empowering the Competition Tribunal to impose an administrative monetary penalty of up to $5 million for abuse of a dominant position;

Mergers

• harmonizing merger review procedures with the United States' Hart-Scott-Rodino (HSR) procedures, with an initial review period of thirty days and a discretion, on the part of the Commissioner of Competition, to initiate a "second stage" review period that would end thirty days after compliance with a "second request" for information by the Commissioner;
• reducing the period within which the Commissioner can challenge a completed merger from three years to one year; and
• reviewing (with a view to increasing) the financial thresholds for merger notification requirements.

The Panel also recommended that the Bureau strive to improve the timeliness of its decisions, advice and rulings, including the issuance of informal "advance rulings," to ensure that compliance with the Act can be achieved in a timely manner.

Discussion

The Panel's recommended introduction of an HSR-like merger review process could - depending on how similar it is to the U.S. process - substantially increase the information demands on merging parties and the time period during which a transaction raising significant competition law issues could not close. It would also diminish the importance of the Federal Court as a gatekeeper in respect of Bureau information demands by replacing the current, judicially-supervised section 11 process with, if it follows the U.S. approach, an onerous second request by the Bureau.  Some Canadian stakeholders have expressed surprise at the Panel's advocacy of a U.S.-style system in these regards.

The Panel's recommendations for reform in the areas of conspiracy, pricing and abuse of dominance are consistent with the recommendations of the Commissioner (and, in respect of the repeal of the criminal pricing provisions, the private bar) in years past.  Of note, the Panel's recommendations with respect to the pricing provisions and abuse of dominance are at least directionally in line with proposed amendments to the Act contained in Bill C-454, currently before Parliament and discussed in the May 2008 issue of The Competitor.

The Investment Canada Act

While the Panel rejected the OECD's assessment that Canada has the most restrictive barriers to foreign direct investment among industrialized countries (suggesting instead that Canada's foreign investment review process is simply more explicit and visible than in most countries), the Panel proposed significant amendments to the Investment Canada Act (the ICA) on the basis that there has been no policy review of the ICA in more than twenty years and to rectify the perception that Canada does not fully welcome foreign investment.  Chief among the recommended amendments to the ICA are the following:

• raising the threshold for review of direct foreign acquisitions of Canadian businesses from $295 million in book value of assets of the Canadian target to $1 billion in the "enterprise value" of the business, and extending the higher threshold to investors from all countries (not just those that are members of the World Trade Organization);
• eliminating the very low threshold ($5 million in book value of assets) currently applicable to targets with activities in the so-called "sensitive sectors" of uranium production, financial services and transportation services (but not cultural activities, which would continue to be subject to possible review by Heritage Canada);
• shifting the onus from investors to the Minister by permitting the Minister to reject a transaction on the grounds that it would be "contrary to Canada's national interest" (currently, investors must show that the transaction is likely to be of "net benefit" to Canada);
• eliminating the requirement to notify Industry Canada of transactions that fall below the review threshold;
• requiring the responsible Ministers (Industry and Heritage Canada) to produce an annual report that would give reasons for the disallowance of any investment, disclose new policies or guidelines, and describe undertakings offered by investors (while respecting confidentiality concerns); and
• increasing the use of guidelines and other advisory communications to clarify the review process and interpretations of the ICA.

Application of ICA to Cultural Activities

With respect to acquisitions of Canadian businesses with "cultural" activities, the Panel was critical of numerous aspects of the current review process undertaken by Heritage Canada: the overreach of the current review process to activities and transactions of minimal (if any) cultural significance; a lack of clarity as to the meaning of "cultural" products; and adverse incentives and impacts on the ability to raise capital and enhance competition in cultural sectors.  The Panel doubted that a review should be required where the cultural activities are only an ancillary part of the target's business, and recommended a de minimis exemption based on revenues from the cultural activities of the target business. It stated that Heritage Canada should distinguish between cultural products that involve creation and distribution and those activities that are incidental to commercial activities. Concluding that it did not have sufficient evidence before it to recommend a new review threshold, the Panel recommended that the Minister of Heritage conduct a review of its cultural policies, including foreign investment restrictions, every five years, with the first such review in 2008.

"Hollowing-Out of Corporate Canada"

The Panel acknowledged the debate over the "hollowing out" of corporate Canada and expressed its own concern over foreign takeovers of notable Canadian companies.  The Panel concluded that overall the "data indicate that the share of assets in Canada's non-financial industries under foreign control has not changed noticeably in recent years."  Moreover, while recognizing the loss of a number of leading companies, the Panel also noted a number of "growing Canadian champions" and rejected interfering with "the natural rhythm of creative destruction and renewal."   That said, the Panel was critical of securities regulations, which it says have ham-strung Canadian directors' ability to defend against hostile takeover bids as compared to their U.S. counterparts, and called on the Ontario Securities Commission to lead reform.

National Security and State-Owned Enterprises

Although the Panel's revised mandate did not include consideration of a national security test for foreign investment review, the Panel indicated its support for the Minister of Industry's intention to consider the establishment of a new review requirement for transactions that raise national security concerns and suggested a process similar to that used by the U.S. government, wherein such transactions must be approved by the Committee on Foreign Investment in the United States (CFIUS).  Similarly, the Panel also welcomed the Government's recently issued guidelines on the application of the ICA to state-owned enterprises (see the December 2007 issue of The Competitor for details).

Proposals on sectoral investment restrictions

The Panel reviewed current restrictions on foreign investment in air transport, uranium mining, telecommunications, broadcasting and financial services in order to assess their impact on, among other things, competition.   In general, the Panel was supportive of liberalizing foreign investment in these sectors, in some cases with the proviso that market access should be conditional on reciprocal liberalization.  The Panel's principal recommendations in this area were:

• conducting periodic Ministerial reviews (every five years) of the regulatory regime in these sectors with a view to minimizing impediments to competition;
• increasing the limit on foreign ownership of airlines to 49% of voting equity on a reciprocal basis through bilateral negotiations, and completing open-skies negotiations with the European Union "as quickly as possible";
• liberalizing the non-resident ownership policy for uranium mining, subject to any new national security legislation and certain reciprocal benefits from other countries;
• amending the Telecommunications Act to allow foreign companies to establish a new telecommunications business in Canada or to acquire an existing business having up to a 10% share of the Canadian market-and subsequently liberalizing foreign investment restrictions in the telecommunications and broadcasting industries in a competitively-neutral manner; and
• removing the de facto prohibition on bank, insurance, and cross-pillar mergers of large financial institutions, subject to regulatory safeguards.

Conclusion

Whether and when the Panel's legislative recommendations will materialize remains to be seen.  Some of its key recommendations, including narrowing the focus of foreign investment review and liberalizing foreign investment in telecoms and airline transportation, will no doubt require further public debate before a consensus can be reached. Nevertheless, the Panel recommends a number of policy changes (such as greater transparency in the foreign investment review process) that could be implemented quickly. In addition, support from opposition parties can be expected with respect to many of the recommended amendments to the Competition Act such that these amendments could proceed, on their own or as amendments to Bill C-454 (an opposition private member's bill, which has passed second reading and is currently before a Parliamentary Committee) notwithstanding the minority status of the current Government.  Whatever the Government's ultimate response to the Panel's report, it will offer a fertile source of recommendations for Canada's economic agenda over the coming months.

Background

On January 31, 2007, Labatt agreed to acquire Lakeport and, in accordance with the Act, provided the Commissioner with voluminous information with respect to the competitive implications of the proposed transaction. On February 15, 2007, the Commissioner commenced a formal inquiry into the merger and, on February 22, 2007, obtained Federal Court orders against eleven different entities, including Labatt and Lakeport, to produce records and other information. A significant amount of information was then delivered to the Commissioner, including nearly 140,000 pages by Labatt alone. On November 6, 2007, the Commissioner requested, on an ex parte basis, further orders against fifteen respondents, including Labatt and Lakeport, eight of which had been subject to the earlier orders, seeking further information and/or documentation. As noted, these orders were granted by the Federal Court on November 8, 2007. Labatt then brought a motion asking the Court to set aside the November order against it and Lakeport.

Analysis and decision

Because ex parte applications are made without notice to an opposing party (thus providing no opportunity to challenge the application), the party asking for the order has a duty to ensure that the Court is apprised of all of the relevant facts, including those adverse to its request. Thus, the Federal Court focused on the Commissioner's burden to inform the Court of any points of fact or law that may favour the other side. While this burden is not controversial, the Court - in its discussion of the type and range of information the Commissioner ought to have presented - has established relatively onerous obligations and has likely raised the bar above that anticipated, or adhered to, by the Bureau. Indeed, the Court applied the test used for parties seeking Mareva injunctions³. While the consequences of a successful Mareva injunction (freezing of assets) may be viewed as more severe than a production order, the principles underlying the application for a Mareva injunction, that of urgency and the need to surprise the intended targets, are relevant to certain investigations by the Competition Bureau. In the present case however, neither urgency nor the need for surprise applied, as the investigation had been ongoing for more than eight months and the transaction had closed.

The Federal Court ruled that on a number of levels, the Commissioner's application for the November, 2007 order was inadequate, inaccurate and/or misleading. First, the Commissioner failed to disclose representations made to the Court on a previous occasion that the extensive information sought in the orders issued by the Court in February 2007 "would be sufficient for the purposes of her inquiry." Second, the written submissions of Commissioner's counsel misled the Court by stating that "none of the records or information sought has been previously requested," when the Court identified, with Labatt's assistance, areas of overlap with the previous order and indeed with information already in the Commissioner's possession through other means. Finally, the Commissioner failed to inform the Court of the concerns previously communicated by Labatt about the nature and scope of the Commissioner's February 2007 demands and their implications for the November 2007 information request.

The Court leaned heavily on its analysis of the extent of overlap between the February (and November follow up) applications, signalling that by returning to the Court to seek production of additional records, a close examination would need to be made to ensure the information sought is necessary and relevant. The Court cited a number of examples of overlap, and then focused on the affidavit filed in support of the November application, which the Court concluded was properly read as describing the potential "inadvertent duplication" from the previous order as limited to one specific area only. Indeed, the Court even examined the potentially relevant information already in the Commissioner's possession from prior investigations into the Ontario beer market. Finally, the Court criticized the affidavit for not referencing the potential for overlap among the 10,000 pages of records and information provided by the merging parties pursuant to its statutory obligations upon notifying the Commissioner of the (then) proposed merger.

Possible implications of the ruling

The Federal Court's decision and its imposition of a strong burden of disclosure when seeking, without notice, a production order, calls for greater scrutiny by the Bureau of materials used in support of requests for production orders and greater circumspection in whether to request, what to request and how often to request information. It may even encourage a reconsideration of the Bureau's policy to use ex parte applications to obtain production orders, even in circumstances where the need for surprise and urgency are not present. Clearly, in future, the evidence relied upon by the Commissioner in support of a production order will have to be prepared with a stronger emphasis on the identification of any possible overlaps between the information and records being sought and those that may already be in the Competition Bureau's possession, and where an overlap exists, a detailed identification of the overlap and an explanation as to why the overlap is necessary. The Federal Court decision also suggests that the Commissioner's evidence will also need to explain, in some detail, why additional information, beyond that already in the Bureau's possession, is necessary for the Commissioner to conduct her inquiry. Just how far the Bureau will need to go to examine its own records and prior examinations of industry sectors before requesting parties to produce information is unknown, but it seems clear that they will have to go farther than has been their practice. It is equally clear that parties subject to an order - armed with the Federal Court decision - will be emboldened to challenge production orders, particularly where production of information has, by any means, already been undertaken by those parties.

¹ Section 11 of the Competition Act provides that the Commissioner may apply for an ex parte order requiring a person: i) to attend for examination on oath with respect to any matter relevant to the inquiry; ii) to produce specified records or things to the Commissioner; or iii) to make and deliver to the Commissioner a written return under oath setting out the information requested in the order. ² See the January 2008 edition of The Competitor, describing the Federal Court of Appeal's dismissal of the appeal by the Commissioner of the Competition Tribunal's refusal to grant and injunctive order under s. 100 of the Act, and the April 2007 edition, describing the Competition Tribunal decision.
³ A Mareva injunction is a court order that freezes assets so that a defendant to an action cannot dissipate their assets from beyond the jurisdiction of a court so as to frustrate a judgment.