A recent series of amendments to the Competition Act (the Act) represent some of the most important changes to Canadian competition law in almost 40 years.
On September 21, 2023, the Canadian government introduced a “first set” of changes to the Act in The Affordable Housing and Groceries Act (Bill C-56) which became law on December 15, 2023. Then, on June 20, 2024, the government passed an omnibus bill (Bill C-59) which included what it described as “generational” changes to Canadian competition law.
The Government's Amendments
The key changes to the Canadian merger regime are outlined below. In short, these changes promise more notifications, more time-consuming and expensive reviews, and more litigation.
More Merger Notifications: Bill C-59 has expanded the categories of revenues to be counted in determining whether a proposed transaction is subject to mandatory pre-closing notification under the Act. More particularly, in determining whether the transaction size threshold is met, the target's sales “into Canada” (generated from assets outside Canada) will now have to be accounted for. As a result of this change, a transaction could be subject to pre-merger notification in Canada if the target has export sales into Canada, even if it has limited operations in Canada.
Extended Limitation Period: Bill C-59 has extended the limitation period for the Commissioner of Competition to challenge completed transactions that were not notified to the Competition Bureau from one to three years.
Automatic Interim Interim Relief: Bill C-59 has changed the law on “interim interim” injunctive relief. Where the Commissioner files an application for an interim injunction in respect of a proposed transaction, the parties are now automatically enjoined from closing until that interim application has been heard and determined.
New Importance of Labour Market Effects: Bill C-59 expressly authorizes the Tribunal to issue a remedial order in respect of (proposed) transactions that substantially lessen or prevent competition in labour markets.
Repeal of Efficiencies Defence: Historically, merging parties were able to invoke a statutory efficiencies defence which allowed otherwise anticompetitive mergers to proceed if the merging parties could prove that the efficiency gains from their (proposed) transaction would be greater than and offset the anticompetitive effects of the merger and would not likely be attained if the transaction were prohibited. Bill C-56 has repealed this defence.
Presumption Against Cost Awards Against the Commissioner: As a result of Bill C-59, the Commissioner may now bring merger challenges without the risk or discipline of adverse costs awards. The Commissioner had been pushing for some time to be exempted from the traditional loser-pays costs rule that applies to litigants in most Canadian litigation. Costs will now not be awarded against the Commissioner unless the Tribunal or court is satisfied that (i) an award is necessary to maintain confidence in the administration of justice or (ii) the absence of an award would have a substantial adverse effect on the other party's ability to carry on business.
Rebuttable Structural Presumptions: Bill C-59 created presumptions of illegality for mergers that exceed specified market-share or concentration thresholds. The presumptions are consistent with the thresholds established in the 2023 US Merger Guidelines.
The presumptions use a measure of concentration called the Herfindahl-Hirschman Index (HHI) to measure market concentration and changes in concentration resulting from a proposed transaction.1 Now, a transaction with a post-merger HHI above 1,800 and a change in HHI of 100 is presumptively unlawful as is a transaction with a post-merger market share above 30 percent accompanied by a change in HHI greater than 100. Applying these thresholds, a “7-to-6” merger in a market where competitors have equal market shares will be presumptively anticompetitive. So too would a combination of two companies with shares of 28% and 2%.
Revision to the Remedial Standard: Historically, when the Tribunal determined that a merger was or was likely to substantially lessen or prevent competition, the remedy imposed was required to be the “least intrusive” remedy that “restore[d] competition to the point at which it can no longer be said to be substantially less than it was before the merger.” Bill C-59 revised the standard so that any remedies granted by the Tribunal must restore competition to the level that would have existed without the merger.
Increased Scrutiny of Private Equity
PE investors should also take note of the Competition Bureau's Bulletin on Amendments to the Abuse of Dominance Provisions (the Bulletin). Those amendments, which came into effect in June 2022, broaden the scope of the abuse of dominance provision in section 79 of the Act to include conduct intended to “harm competition” (whereas the provision was previously confined to conduct intended to have a predatory, exclusionary, or disciplinary negative effect on a competitor).
Among other conduct, the Bulletin identifies serial acquisitions (either alone or coupled with other anticompetitive conduct) as potentially reviewable (having regard to their collective impact and purpose) under the expanded abuse of dominance provision.
In his annual address to the Canadian competition bar in October 2023, the Commissioner emphasized the concern about serial acquisitions in the private equity space, noting: “We clearly see what's happening in terms of evolving business practices. We are alert to the risks of creeping acquisitions, including private equity roll-up strategies, and the potential harm they may pose to competition.”
Importantly, the maximum fine for breaching the abuse of dominance provision has also now been increased as a result of the enactment of Bill C-56. It is now the greater of $25M (or $35M for a subsequent order) or three times value of the benefit derived from the abusive conduct by the dominant firm or, if that amount cannot be determined, 3% of the dominant firm's worldwide turnover.
Footnote
1. HHI is calculated by squaring the market share of each firm competing in the relevant market and then summing the resulting numbers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.