[2001] 3 F.C. 175
A-533-00 / A-539-00
The Commissioner of Competition (Applicant)
v.
Superior Propane Inc. and ICG Propane Inc. (Respondents)
Indexed as: Canada (Commissioner of Competition) v. Superior Propane Inc. (C.A.)
Court of Appeal, Linden J.A.—Ottawa, September 8, 9, 18 and 19, 2000.
Competition — Practice — Motion for stay of Competition Tribunal decisions, continuing hold separate order with respect to merger of respondents — Not necessary to prevent eggs from being scrambled — Irreparable harm not established as feasible to divide merged business within reasonable time period.
In December 1998, Superior Propane Inc. agreed to merge with ICG Propane Inc. The Commissioner of Competition challenged the merger before the Competition Tribunal and obtained an order to hold separate, in effect until August 30, 2000. The Tribunal allowed the merger to proceed, a finding of substantial lessening of competition notwithstanding, on the ground that subsection 96(1) of the Act provided a defence. These motions were for a stay of the Tribunal decisions pending determination of the Commissioner’s appeals. The respondents, alleging a $2,500,000 loss per month because of the delay, wished to proceed with the merger pending the appeal.
Held, the motions for a stay should be dismissed.
To obtain a stay, the applicant must meet the three-prong test set out by the Supreme Court of Canada in RJR — MacDonald v. Canada: serious issue, irreparable harm, balance of convenience.
While a serious issue was raised herein (the meaning of section 96 of the Competition Act), the applicant has failed to establish irreparable harm. Although it has been common practice in both the United States and Canada to impose hold separate orders on merging parties because it was considered that it would be almost impossible to undo the damage caused by the merger in the event of success on appeal, that view was not adhered to.
A merged company is not like scrambled eggs which cannot be unscrambled. It can be broken up, though it may be difficult to do so. Competition can be restored. It is not enough for it to be hard or inconvenient to do so. In the United States, great corporations such as AT&T and Standard Oil have been divided up. An expert made reference to some 100 divestitures in the last 3 years. According to the persuasive evidence of one witness, it was feasible to divide the merged business within a reasonable time period so as to create two viable competitors in the national and local markets. While the applicant has not given any undertaking as to damages, not only have the respondents voluntarily undertaken to refrain from divesting themselves of certain assets, but there was evidence that they could cover any costs associated with a possible divestiture, mainly out of the savings they will achieve during the period of the appeal process.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Canadian Charter of Rights and Freedoms, being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44].
Competition Act, R.S.C., 1985, c. C-34 (as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 19), ss. 1.1 (as enacted idem), 92 (as enacted idem, s. 45; S.C. 1999, c. 2, s. 37), 96 (as enacted by R.S.C., 1985 (2nd Supp.), c. 19, s. 45), 104 (as enacted idem, s. 45; S.C. 1999, c. 2, s. 37).
CASES JUDICIALLY CONSIDERED
APPLIED:
RJR — MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311; (1994), 111 D.L.R. (4th) 385; 164 N.R. 1.
REFERRED TO:
President and Fellows of Harvard College v. Canada (Commissioner of Patents), [2000] 4 F.C. 528 (2000), 189 D.L.R. (4th) 385; 7 C.P.R. (4th) 1 (C.A.); Canada (Director of Investigation and Research) v. Hillsdown Holdings (Canada) Ltd. (1992), 41 C.P.R. (3d) 289 (Comp. Trib.); International Corona Resources Ltd. v. Lac Minerals Ltd. (1987), 21 C.P.C. (2d) 260; 23 O.A.C. 378 (Ont. C.A.); Canada (Commissioner of Competition) v. Superior Propane Inc., [2000] C.C.T.D. No. 15 (QL).
MOTIONS for a stay of two Competition Tribunal decisions pending determination of the appeals therefrom. Motions dismissed.
APPEARANCES:
William J. Miller and Jo’Anne Strekaf for appellant.
Neil Finkelstein, Melanie Aitken and Brian N. Radnoff for respondents.
SOLICITORS OF RECORD:
Deputy Attorney General of Canada for appellant.
Davies, Ward & Beck, Toronto, for respondents.
The following are the reasons for order delivered orally in English by
Linden J.A.:
Introduction
[1] These four motions have been brought in order to obtain a stay of two decisions of the Competition Tribunal pending the determination of the appeals that have been launched in both cases, as well as for an order expediting both appeals and seeking directions.
[2] One of the decisions being appealed, dated August 30, 2000 [[2000] C.C.T.D. No. 15 (QL)] dismissed the Commissioner’s application pursuant to section 92 [as enacted by R.S.C., 1985 (2nd Supp.), c. 19, s. 45; S.C. 1999, c. 2, s. 37] of the Competition Act, R.S.C., 1985 c. C-34 [as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 19]. The other decision being appealed found that an interim hold separate order dated December 11, 1998 (HSO) made pursuant to section 104 [as enacted idem; S.C. 1999, c. 2, s. 37] automatically terminated with the decision of August 30, 2000 (and denying a stay).
[3] The factual background is too complicated to set out in detail, but suffice it to say that the respondent Superior Propane Inc. on December 7, 1998 agreed to merge with ICG Propane Inc., which was challenged and investigated by the Commissioner of Competition. At the 48-day hearing in which 91 witnesses were called, including 17 expert witnesses, the Tribunal, in a 108 page, 516 paragraph decision, allowed the merger to proceed, even though there was a finding of substantial lessening of competition, on the ground that subsection 96(1) [as enacted by R.S.C., 1985 (2nd Supp.), c. 19, s. 45] provided a defence.
[4] Soon after the Commissioner’s challenge was undertaken, an interim order to “hold separate” (HSO) was entered on consent of both parties on December 11, 1998, which order was held to have expired automatically on August 30, 2000.
[5] The Commissioner wishes to keep this order in effect pending the determination of this appeal, but the respondents wish to proceed with the merger pending the appeal. The respondents are confident of success but, if they are not successful, they are of the view that the steps toward merger taken in the meantime can be undone. They are frustrated, not only by the delay, but by the fact that they are losing $2,500,000 per month in efficiencies because of it.
[6] These motions began as an urgent motion for a temporary stay on Friday, September 8, 2000, immediately following the decision of the Tribunal; the argument proceeded on Saturday, September 9, 2000, and was adjourned to be continued on September 18 and 19, 2000 so that the Court would have all the written reasons of the Tribunal and better material could be prepared for the hearing. This Court must now decide whether it will dismiss the stay motions and let the merger proceed pending the appeal, or whether it will issue a stay continuing in force the HSO dated December 11, 1998. In either event, the parties are agreed that both appeals should be expedited and have indicated a willingness to co-operate in order to facilitate an early hearing.
Analysis
[7] Both parties agree that the three element test set out in RJR — MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, even though it was a Charter [Canadian Charter of Rights and Freedoms, being Part 1 of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44]] case, is the applicable one, that is,
(1) there must be a serious question raised by the appeal
(2) irreparable harm must be suffered by the applicant, and
(3) the balance of convenience must favour a stay.
Upon an appeal, the burden on an applicant may be somewhat heavier than before a trial, but it is still not a heavy one; there must be a serious question raised but, according to Justice Sopinka in RJR — MacDonald, supra, “the threshold is a low one”, the applicant being required to show only that the application was not “vexatious or frivolous”. Even if the appeal is unlikely to succeed, the motions judge should consider the second and third elements because a prolonged examination of the merits is “neither necessary nor desirable”.
[8] In this case there is a disagreement between the parties about whether the standard of review is correctness or reasonableness in a case like this. There is discord about whether the issues here are questions of law or questions of fact or mixed questions of law and fact. Some deference may well have to be accorded to certain aspects of the decision, but, in my view, there are other issues which are of great legal significance and may well have to be decided on the basis of correctness. (See President and Fellows of Harvard College v. Canada (Commissioner of Patents), [2000] 4 F.C. 528 (C.A.). The Court cannot abdicate completely to the Tribunal its task of monitoring the development of competition law.
[9] Thus, despite the valiant effort of Mr. Finkelstein to persuade me that there are absolutely no serious issues raised in this appeal, to my mind, there is at least one major legal issue involved in this appeal (applicant’s one and two) that must be resolved by this Court and which amounts by itself to a serious legal question, whatever the standard of review. That issue is the meaning of section 96 of the Act in light of the purposes of the Act as set out in section 1.1 [as enacted by R.S.C., 1985 (2nd Supp.), c. 19, s. 19] of the Act. It is a key issue of enormous importance in the administration of the Act. The majority of the Tribunal employed one method of interpreting that section, but a dissenting member of the Tribunal completely disagreed. The Commissioner has taken inconsistent positions on its meaning in the past in the MEG’s and elsewhere. A former Chair of the Tribunal, Justice Reed, in Canada (Director of Investigation and Research) v. Hillsdown Holdings (Canada) Ltd. (1992), 41 C.P.R. (3d) 289 (Comp. Trib.), at page 339, expressed herself, in an obiter dictum perhaps, in terms that may be taken to be inconsistent with the majority decision in this case, even though she only raised the question and did not finally decide it. It seems to me quite clear that this complex and significant issue, the meaning of section 96, is so fundamental a legal question, that the decision of the Tribunal must be evaluated by this Court, even though in the final analysis the Court might well give deference to it.
[10] It is not necessary, therefore, for me to consider the seriousness of the other two issues raised by the applicant concerning the onus matter nor the situation of “merger to monopoly”. Neither is it necessary for me to comment on the section 104 issue concerning whether the Tribunal is functus in relation to the hold separate order following the issuance of its decision. As there is at least one serious issue raised here, the first hurdle has been met.
[11] I must now consider the second hurdle that must be overcome by the applicant, irreparable damage. Counsel for the Commissioner, basing himself on U.S. authorities, argued eloquently that once the eggs are scrambled, they cannot be unscrambled. In other words, if the two companies are allowed to proceed with the merger pending the appeal, it will be almost impossible to undo the damage caused by this in the event of success in the Court of Appeal. He referred to one judge’s description of a similar circumstance as potential “chaos”, if one had to undo the situation following the completion of this merger. (See International Corona Resources Ltd. v. Lac Minerals Ltd. (1987), 21 C.P.C. (2d) 260 (Ont. C.A.)).
[12] In his report for the Commissioner attached to his affidavit, Professor Richard Schwindt of Simon Fraser University, British Columbia, concluded that the “integration of Superior Propane Inc. and ICG operations would at best impede, and at worst jeopardize an effective divestiture”, that is, the “relatively rapid restoration of vigorous competition in the industry”. This is hardly proof that the harm “could not be remedied”. (See RJR — Macdonald, at page 341.) It is argued that, since interim integration will “diminish or practically destroy ICG as a divestible entity”, the “public interest” will be “irreparably harmed” if a stay is refused. In other words, it is said that consumers would be subjected to the anti-competitive effect of this merger during the period awaiting the decision on the appeal. There is no doubt that divestiture would be difficult and costly if the merger proceeded, but the respondents are aware of that fact and willing, if necessary, to bear the cost of it. These costs have been expertly estimated, and it is clear that the money saved will more than offset the cost.
[13] In my view, the metaphor of scrambled eggs is dramatic, but not entirely apt. When one scrambles eggs it is impossible to unscramble them, but a merged company is not exactly like scrambled eggs. It can be broken up, though it is maybe difficult to do so. Competition can be restored. It is not enough for it to be hard or inconvenient to do so. To obtain a stay, the damage must be truly irreparable and proved to be so.
[14] In the past great corporations, like AT&T and Standard Oil have been divided up in the U.S. The U.S. Department of Justice is currently seeking to split up Microsoft. It can be done according to unchallenged evidence produced by the respondents. Bob Briggs, a senior partner in a Washington D.C. anti-trust firm that he claims is the largest private anti-trust practice in the world, in a report attached to an affidavit, states that “there is no reason, in principle, why post-acquisition divestitures cannot be as effective a remedy as divestiture before a merger”. He gave examples of many divestitures (100 in the last 3 years), some that have taken place even 25 years (Dupont) and 17 years (El Paso Natural Gas) after the original mergers took place. He states that there are agencies and courts capable of supervising the divestitures needed to enhance competition. He claims that this type of ex post facto remedy “permits society to reap the benefits of highly desired efficiencies, while providing a powerful incentive for management not to engage in opportunistic conduct that could trigger later calls for divestiture”.
[15] The evidence of Stephen Cole produced by the respondents is most persuasive. He spent hundreds of hours on this matter and supervised thousands of hours of research by his associates to conclude as follows:
It is feasible to divide the merged business within a reasonable time period so as to create two viable competitors who would compete effectively in the national market and in the relevant local markets.
Part of his reasons for this is that 85 percent of the people, trucks and tanks will be maintained in the integration process. Even though more of the attrition may come from ICG resources, that is still a significant fact here. Another fact to consider is that, if required, it might be possible to find a buyer for the remnants of ICG which could form the basis of a new stand alone competitor. Amerigas was mentioned as a possible purchaser, even though its interest was originally expressed as a buyer for ICG as a going concern. Other possible bidders were identified. Cole relied on the prior example of the CP divestiture that was undertaken in this country. He opines that it is “feasible to create two propane distribution competitors by divestiture of the integration”. And he says that the respondents can handle any costs associated with that mainly out of the savings they will achieve in the period of the appeal process.
[16] Consequently, the evidence, in my view, is overwhelming that the applicant has not been able to establish, as it must, that there will be irreparable harm suffered if the stay is not granted.
[17] The third element is the balance of convenience, but I need not deal with that issue since I have concluded that the second requirement has not been met. The motion succeeds only if all three requirements are proved, and one of the elements has not been established. It is, however, clear that the financial costs to the respondents of the delay are large, 30 million dollars per year. The absence of an undertaking as to damages by the applicant is also significant here. In fact, the respondents have voluntarily undertaken in this Court to refrain from divesting themselves of the trucks, tanks and realty, other than in the normal course of business, pending the appeal, a wise course to follow, but not one that I would impose on them, the Commissioner appearing to be uninterested in it.
[18] It has been said that the operations of the two companies cannot be merged during the winter months, that is until April 1, 2001, but the planning aspects of this complicated project could proceed in the next few months. It is in merging operation where the major savings can be achieved, two-thirds of them. It may be that by April 1, 2001, the Court of Appeal will have decided this appeal and, if the Commissioner is successful, the preliminary steps taken in the merger can be halted at that time. If unsuccessful, depending on the reasons of the Court, the Supreme Court of Canada might be asked by the Commissioner for a stay of further steps in the merger pending an appeal there.
[19] This motion for a stay will be dismissed with costs in the cause.
[20] As for the motion expediting the hearing of both appeals, and for directions, the parties have agreed to the following timetable leading to a hearing of both appeals on Tuesday, Wednesday and Thursday, January 9, 10 and 11, 2001:
(1) Appeal books will be served and filed by October 27, 2000;
(2) The memorandum of fact and law of the appellant will be served and filed by November 17, 2000;
(3) The memorandum of fact and law of the respondents will be served and filed by December 15, 2000.
It will be so ordered.