Canada: Understanding Bill C-11: A Competition Perspective

Bill C-11, now proclaimed into law, has significantly changed the operation of the Canada Transportation Act (the "CTA"), including changes to the process of notification and review of mergers involving transportation undertakings.

Bill C-11: The History

On May 4, 2006 the Minister of Transport, Infrastructure and Communities ("the Minister") introduced Bill C-11 in the House of Commons. In many respects Bill C-11 copied Bill C-44, which was introduced in the House of Commons in March, 2005 and which was, in turn, largely based on Bill C-26, introduced in February of 2003. While Bills C-26 and C-44 both died on the order paper, Bill C-11 was passed by the House of Commons on February 28, 2007. On June 22, 2007, Bill C-11 received Royal Assent, becoming law and amending the CTA, the Competition Act, and several other acts.

Summary of Bill C-11

When the federal government introduced Bill C-11, it described the proposed legislation as "balancing the interests of communities, consumers, commuters and urban transit authorities with those of air and rail carriers."

Highlights of the amendments include:

• an updated National Transportation Policy Statement in the CTA;

• the modification and extension of provisions regarding mergers and acquisitions of air transportation undertakings to all transportation undertakings;

• a clarification regarding the operation of the Competition Act with regard to international agreements respecting air services and railway rates, tariffs, and services;

• the creation of a mediation process for disputes concerning federal transportation matters;

• air transportation specific changes relating to complaints processes, advertising of prices, and the disclosure of terms and conditions of carriage; and

• railway transportation specific changes relating to resolving complaints and other disputes, the transfer and discontinuance of the operation of railway lines, and the appointment of police constables under the Railway Safety Act.

As the changes to the National Transportation Policy Statement and the mergers and acquisitions provisions are of particular importance to competition issues in the transportation sector, they are discussed further below.

National Transportation Policy Statement

According to the government, the new policy statement in Bill C-11, which amended s. 5 of the CTA, was intended to provide a simpler and clearer articulation of established principles, as well as embracing new objectives, such as security and protection of the environment. In addition, the changes made to the section elevate the importance of competition, which is now included in the opening line of the statement. The statement stipulates that its objectives "are most likely to be achieved when competition and market forces, both within and among the various modes of transportation, are the prime agents in providing viable and effective transportation services". Removed is the more tenuous reference to a reliance on competition and market forces "whenever possible".

The re-articulated pursuit of economic objectives and reliance on competition and market forces are the most obvious elements of the Bill C-11 amendments. The longer-term changes in the country’s transportation systems that will result from these new elements are unclear.

Review of Mergers and Acquisitions

One of the most striking changes to the CTA contained in Bill C-11 is the amendment of the merger and acquisition review provisions, now found in sections 53.1 to 53.6 (previously sections 56.1 to 56.7) of the CTA. These provisions, which previously applied only to transactions involving air transportation, now require that for any transaction involving a transportation undertaking and which requires notification of the Commissioner of Competition (the "Commissioner") under s. 114(1) of the Competition Act, notification is also required to be given to the Minister.

Subsection 114(1) of the Competition Act requires notification of an acquisition, combination or amalgamation involving parties that meet certain asset ("party size") and revenue ("transaction size") thresholds. Under the Competition Act, many transactions are exempt from notification if they receive an Advance Ruling Certificate or a waiver under s. 113(c). It would appear that these transactions do not require notice to the Minister under the amendments of Bill C-11, but this is not entirely clear.

A notice to the Minister must contain the information required to be contained in any notice under s. 114(1) of the Competition Act, as well as information relating "to the public interest as it relates to national transportation" as required by guidelines published by the Minister. The guidelines are to be issued by the Ministry of Transport in consultation with the Competition Bureau.

Where the Minister is of the opinion that the proposed transaction does not raise issues with respect to the public interest as it relates to national transportation, the Minister has up to 42 days following receipt of the notice to inform the applicant. Where the Minister is of the opinion that the proposed transaction does raise issues with respect to the public interest, the Minister may direct the Canadian Transportation Agency (the "Agency") or a third party to examine the relevant issues.

Any transaction raising public interest concerns may not be completed without approval of the Governor in Council. In the case of an air transportation undertaking, the Agency must also determine that the transaction would result in an undertaking that is "Canadian" (as defined in s. 55(1) of the CTA). The Commissioner of Competition is required to report to the Minister regarding any competition aspects of the transaction within 150 days after the Commissioner is notified of the proposed transaction. The Minister is required to make this report public immediately after receiving it.

After receiving the Commissioner’s report the Minister is required to consult with the Commissioner and the parties to the proposed transaction. The parties to the proposed transaction should inform the Minister and Commissioner of any actions they are prepared to undertake to address the public interest and competition concerns raised by the transaction. Before a final recommendation is made by the Minister to inform the federal Cabinet prior to their order, the Commissioner shall comment on the adequacy of any undertakings proposed by the parties to the transaction.

Uncertainties and Issues

There are many uncertainties surrounding the application of the Bill C-11 amendments, including:

• Because the term "transportation undertaking" is undefined in the CTA, what is the scope of that term for the purposes of s. 53.1(1)? For example, will the term apply to all businesses that transport goods or people or only those that provide such services to third parties? Will the term apply to all types of transportation undertakings or only those that have a national dimension?

• What criteria will be applied in determining whether a transaction raises public interest issues, thus triggering a public interest review?

• How will a public interest review mesh with existing regulation of certain transportation undertakings under the CTA, reviews of acquisitions by non-Canadians under the Investment Canada Act, and current reviews by the Commissioner under the Competition Act?

Hopefully, these and other uncertainties will be clarified when regulations and guidelines contemplated by the amendments are issued.

The impact of changes to the merger review provisions introduced by Bill C-11 will only become evident after several review processes have played themselves out in full. Until that time, Bill C-11's creation of a new, untested and uncertain bureaucratic review process may provide a disincentive effect upon potential transportation mergers. Apart from substantially enabling government review of transportation transactions, by placing ultimate discretion in the hands of the federal Cabinet, Bill C-11 is likely to introduce political considerations into the review process. What effect this will have on operators, shippers, and customers remains to be seen.

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