Can Efficiencies Save Anti-Competitive Mergers in Canada?

The Competition Act of Canada contains a unique provision. S. 96(1) of the Act elevates efficiencies derived from a merger to the point that, if gains in efficiencies "will be greater than, and will offset, the effects of any prevention or lessening of competition that will result" from a merger, then the merger must be allowed. The application of that provision has been exhaustively tested in litigation over the merger of Superior Propane and ICG Propane. After the Commissioner of Competition had challenged the merger, the Competition Tribunal allowed it. The Tribunal, relying upon s. 96(1) found that there had been a substantial lessening of competition, indeed, in several markets a merger to monopoly, but also found that the efficiencies were such that s. 96(1) applied to save the merger. The Commissioner then appealed to the Federal Court of Appeal which redirected the matter to the Competition Tribunal. In its second determination, the Competition Tribunal reluctantly accepted the direction of the Court of Appeal and, after extensively criticizing that Court, confirmed its own initial finding that efficiencies prevailed over anti-competitive effects in a merger to monopoly. When, once more, the Commissioner appealed to the Court of Appeal, that court upheld the Tribunal's determination that the efficiencies presented under s. 96(1) overcame any substantial lessening of competition. The Commissioner will not appeal again.

The decisions of the Tribunal as well as of the Court of Appeal are extensive and legally fascinating.

The essential legal issues in the litigation were the role of efficiencies in Canadian competition law and the standard by which those efficiencies are to be measured. The Tribunal emphasized throughout its majority judgements that the attainment of efficiencies is at the heart of Canadian competition law. It contrasted that with the emphasis upon consumer welfare found in the United States. Consequently, the Tribunal initially applied the "total surplus standard" in which no distinction is made between the welfare of consumers and that of shareholders but, upon rehearing and at the direction of the Court of Appeal found that even under a "balancing weights" standard, very little evidence had been presented which could show that the welfare of consumers was to be preferred to that of shareholders. On the second hearing the Tribunal relied upon the proposition that, to have consumer welfare prevail over that of...