Commissioner of Competition Sues to Stop Merger

On April 30th the Commissioner of Competition announced that he is challenging the acquisition by Parkland Industries of 17 Pioneer gas stations or supply contracts to non-corporate stations. Parkland proposes to acquire the gas stations and contracts as part of a larger transaction involving 181 stations and 212 agreements. The Commissioner believes that the transaction will result in a substantial lessening of competition in 14 communities in Ontario and Manitoba. He is also seeking an interim injunction that would require Parkland to preserve and operate independently the stations and contracts in dispute pending the resolution of the case on its merits.

When the Commissioner challenges a merger under the Competition Act, he may apply to the Competition Tribunal for "such interim order as it considers appropriate." In these situations, he must satisfy a three part test for the granting of injunctive relief:

  1. There is a serious issue to be tried;
  2. Irreparable harm would ensue if an order is not granted; and
  3. The balance of convenience favours granting the interim order.

What You Need To Know

The important issue in this case relates to the Commissioner’s arguments on the second element. The Commissioner is asserting that, if an injunction is not granted, there would be "irreparable harm" in the form of material price increases for consumers in the 14 local markets in issue. This is the first time the Commissioner has argued that the alleged price effects of a merger in the period between closing and a Tribunal decision on the merits ought to satisfy the "irreparable harm" requirement. (If the argument is accepted, it would, unusually, effectively result in the Tribunal pre-judging the very issue to be litigated in the main hearing.)

In other merger cases where the Commissioner has tried to obtain interim orders, he has argued that the "irreparable harm" would flow from the integration of the target business after closing, which would make it difficult for the Tribunal to address the competition concerns by "unscrambling the eggs." (An argument rejected by the Federal Court of Appeal on one occasion on the basis that a merger is not an omelette.)

The merging parties in this case have relied on judicial precedent to assert that evidence of irreparable harm must be clear and not speculative, and that the Commissioner must demonstrate that there is a "high degree of probability" that the potential harm will occur. The evidence is not there, they claim.

Implications

If the Commissioner is successful, the impact of the interim injunction decision on merger reviews could be significant. Virtually all mergers that the Commissioner challenges involve allegations of adverse price effects. If adverse price effects become the standard to satisfy the "irreparable harm" requirement, orders preventing all or part of any merger from proceeding pending an ultimate judicial resolution could become common. The mere threat of such orders may be sufficient to inhibit parties from attempting to close mergers in the face of actual or potential litigation. Until now, the conventional wisdom has been that parties may accept the risk of an adverse judicial outcome and proceed to close their transactions, absent highly unusual circumstances.

The application for an interim injunction was argued earlier this month; the decision, regardless of the outcome, will have important implications for merger review in Canada.

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