Davis LLP Successfully Defends Against Dissolution Remedy in Important Case Before the Competition Tribunal

Published: Friday, 15 June 2012

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Vancouver, B.C. – On June 15, 2012, the Competition Tribunal released its reasons for ordering CCS Corporation (now Tervita Corporation) (“CCS”) to divest the shares or assets of Babkirk Land Services Inc. (“Babkirk”), a subsidiary of Complete Environmental Inc. (“Complete”). The Commissioner of Competition, the head of the Competition Bureau, challenged CCS’s acquisition of the shares of Complete and sought an order dissolving the transaction. If granted, such an order might have required the five former shareholders of Complete to take back the shares of Complete and possibly return sales proceeds. Davis LLP represented the former shareholders of Complete and successfully argued before the Tribunal that dissolution would be inappropriate.

During the proceedings, the Commissioner was able to persuade the Tribunal that the “merger was more likely than not to maintain the ability of CCS to exercise materially greater market power than in the absence of the merger, and that the merger is likely to prevent competition substantially.” However, the Commissioner was not able to establish that a dissolution remedy was justified; instead, the Tribunal held that dissolution would be overbroad, intrusive and less effective than a divestiture order. The Tribunal ordered the Commissioner to pay legal costs to Davis’ clients, the successful former shareholders of Complete.

“This is only the sixth contested merger case to be decided by the Tribunal since 1986, and the first since 2005,” explains Kevin Wright, the head of the Competition & Antitrust Law Group at Davis LLP.  “In a number of ways [in addition to the issue of remedy], the Tribunal’s decision sets a precedent that will impact future transactions. The case also signals that, in the right circumstances, the Commissioner is prepared to challenge acquisitions of any size and to pursue a remedy against sellers even after the fact. As a result, deal makers and transactional lawyers alike should include a substantive competition assessment in their due diligence ‘check list’ when considering and negotiating proposed deals, be they large or small.”

The Davis LLP team included Kevin Wright and Jonathan Gilhen (Competition & Antitrust), and Brent Meckling, Morgan Burris and Samantha Stepney (Litigation).

Background

CCS is the owner and operator of the only two operating secure landfills in North-Eastern British Columbia that are permitted to accept solid hazardous waste: “Silverberry”, located north-west of Fort St. John, and “Northern Rockies”, located near Fort Nelson, British Columbia. These secure landfills largely service oil and gas industry operators seeking to dispose of certain hazardous materials resulting from drilling activities.

Complete operated municipal solid waste landfills for the Peace River Regional District as well as a solid waste transfer station and a roll-off container rental business. In February 2010, Complete’s subsidiary, Babkirk, was issued a permit to construct a secure landfill. The secure landfill permit issued to Babkirk was only the fourth issued in North-East British Columbia, the others belonging to CCS’s Silverberry and Northern Rockies and Peejay, which was developed by Doig River Environmental Inc., a First Nations-owned company.

In January 2011, CCS acquired the shares of Complete. The acquisition fell well below the financial thresholds that would have required the parties to file a pre-closing notification with the Competition Bureau. Nevertheless, the Commissioner commenced an application before the Tribunal. The Commissioner alleged the acquisition was a merger that prevented, or was likely to prevent, competition substantially by eliminating the only likely competitor for secure landfill services in North-East British Columbia. Since the Commissioner requested the Tribunal order dissolution as the preferred remedy, she named the former shareholders of Complete as respondents in her application along with CCS, Complete and Babkirk. This request was somewhat unusual since the Bureau normally seeks divestiture remedies in merger cases.

Judgment as to Appropriate Remedy

In arriving at its decision, the Tribunal offered some key guidance on the issue of remedy:

• the Commissioner bears the onus of showing that each proposed remedy is available and effective. The Tribunal rejected the Commissioner’s argument that once she showed dissolution was an effective and available remedy, the former shareholders of Complete had to demonstrate that divestiture was an available, effective and less intrusive remedy;
• financial hardship is a factor that can be considered by the Tribunal when determining the appropriate remedy. The Commissioner had argued that any hardship of the sellers resulting from dissolution was irrelevant since she warned the former shareholders of Complete that she would seek dissolution before they closed the transaction. The Tribunal concluded that it is the right of private parties to disagree with the Commissioner, to make their case before the Tribunal and to demonstrate the hardship of a proposed remedy; and
• where dissolution would require a purchaser to return a business that is unrelated to the relevant market(s) where competition is (or is likely to be) lessened or prevented substantially, dissolution may not be an appropriate remedy. The Tribunal held that dissolution would have involved the return of Complete’s businesses other than the assets of Babkirk, and therefore would be overbroad.

A copy of the full decision of the Competition Tribunal can be found on the Tribunal’s website at www.ct-tc.gc.ca.

About Davis LLP

Davis LLP is an international, full-service law firm servicing clients across Canada and in Tokyo. The firm has well-known and respected capabilities in core legal services, and is a leader in a number of niche markets. Davis LLP is described by Chambers Global as “a lean outfit that punches above its weight. With a strong client base of Canadian and U.S. companies, the firm is often involved in complex matters with an international dimension.”

Media Contact

For more information or to book an interview, please contact:

Elizabeth Reymundo
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(604) 643-6476
ereymundo@davis.ca