Canadian update: Competition Tribunal cases

Originally published in the 26 July 2005 issue of Competition Law Insight

As reported in CLI 22 February 2005 p12, Rona Inc had applied to the Tribunal for an order rescinding a consent agreement with the Commissioner of Competition (the Commissioner) that required it to divest a retail hardware store in Sherbrooke, Quebec. Rona had consented to this divestiture in return for the Commissioner’s agreement not to challenge its acquisition of a competing chain of retail hardware stores. In its application, Rona had argued that the consent agreement should be rescinded because of a material change in circumstances, namely the entry of the Home Depot hardware chain into the Sherbrooke market.

In a decision released on 6 June 2005, the Tribunal granted Rona’s application. It held that Home Depot’s imminent entry was indeed a change in circumstance that fully answered the Commissioner’s concerns about the substantial lessening of competition resulting from Rona’s acquisition of the Sherbrooke store. The Tribunal criticised the Commissioner for not being sufficiently mindful of these developments and for having instead become fixated on the divestiture, even though it was no longer necessary. The Tribunal observed that the consent agreement process provided for in the Competition Act is meant to be applied flexibly: this obliges the Commissioner to remain sensitive throughout the process to changes in market circumstances.

The Rona case forcefully establishes the principle that the Commissioner should not insist on holding parties to the terms of a consent agreement if changes in the marketplace dictate that it is no longer reasonable to do so. This is a positive development for the merger settlement process in Canada because it underscores that consent agreements must be approached by the Commissioner in a flexible and not a rigid fashion. On the negative side, the Commissioner’s defeat in this case may lead her to insist on pre-closing "fix-it-first" divestitures before agreeing not to challenge a merger. Alternatively, the Commissioner may require much shorter divestiture periods if a post-closing sale is agreed upon. In either case, the Commissioner’s goal will be to minimise the possibility of a material change in circumstance before the remedy is implemented.

The Tribunal has also released its decision regarding Construx Engineering Corporation’s request for leave to apply for relief against General Motors of Canada (GM), under the Competition Act’s refusal-to-deal and market restriction provisions.

As reported in CLI 14 June 2005 p9, Construx alleged that GM had contravened the above provisions of the Competition Act by refusing to permit Construx to acquire GM vehicles for resale outside Canada. Construx said that GM’s refusal had had a "devastating effect" on its business and substantially lessened competition in "the market for exporting from and reselling in Canada of new GM motor vehicles".

The Tribunal has now denied Construx’s application on the grounds that it did not provide sufficient credible evidence that GM’s conduct had substantially affected its business. The Tribunal also ruled that Construx did not provide sufficient evidence to support its allegation that GM’s conduct had substantially lessened competition in a relevant market.

Although the Tribunal has stated in previous decisions that the threshold for obtaining leave to bring private applications is "low", it is clear from the Construx case (and a number of others before it) that the Tribunal will not allow applicants to succeed without at least some credible evidence in support of their allegations. This is welcome confirmation that private applicants cannot treat the Tribunal as a mere rubber stamp when seeking to bring their cases forward.

The Rona and Construx decisions are available on the Tribunal’s website at www.ct-tc.gc.ca.

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