Case Documents

CT-2003/05 COMPETITION TRIBUNAL IN THE MATTER OF the Competition Act, R.S.C. 1985, c. C-34, as amended; AND IN THE MATTER OF an application by Canadian Waste Services Holdings Inc., Canadian Waste Services Inc. and Waste Management Inc. under s. 106 of the Competition Act;

AND IN THE MATTER OF the acquisition by Canadian Waste Serv_i""!ic~.e. s.,.. In.-c,.. .,..o. f... ,th'"""".-...._......, ___, ... Ridge Landfill in Blenheim, Ontario from Browning-Ferris Industries BETWEEN: CANADIAN WASTE SERVICES HOLDINGS INC. 1 CANADIAN WASTE SERVICES INC. and WASTE MANAGEMENT INC. - and-

COMMISSIONER OF COMPETITION

AMENDED REPLY BORDEN LADNER GERVAIS LLP Barristers & Solicitors 1000-60 Queen St. Ottawa, Ontario KlP 5Y7 David W. Scott, Q.C.

Tel: (613) 787-3525 Shawn C.D. Neylan Fax: (613) 230-8842 Tel: (416) 869-5545 Fax: (416) 947-0866 Nicholas McHaffie Tel: (613) 566-0546 Fax: (613) 230-8877

Solicitors for the Applicants Solicitors for the Applicants

d. CO~APET!TION U!Rt!NA\ Tl'UllUNAL IJE tA 'CGNCllk:::::'\~~·i:...-.-a ·F I ·1' u I. Cb -·-- --- _____ _ T' ~ft~ O-NT. 10027

Respondent

STIKEMAN ELLIOTT LLP Barristers & Solicitors Commerce Court West 53rd Floor, P.O. Box 85 Toronto, Ontario M5L 1B 9

- 2 -PART I - OVERVIEW 1. In response to the Applicants' application, the Commissioner argues that various factual findings made by the Tribunal are not "circumstances" that led to the Tribunal's Divestiture Order, as that term is used in section 106 of the Competition Act. This argument is unsupportable. The Tribunal rendered its decision on the basis of the facts as it found them to be. The Tribunal set out in its reasons the factual circumstances, i.e., its factual findings, that led it to make the Divestiture Order. Some of these factual circumstances were circumstances which pertained to future events, and thus involved predictions made by the Tribunal at the request of the Commissioner. However, this does not change the fact that these were the factual circumstances on which the Tribunal relied and which led the Tribunal to make the Divestiture Order. As described in the Amended Statement of Grounds and Material Facts ("SGMF") of the Applicants, several of these circumstances, including those central to the Tribunal's decisions, have changed. 2. The Commissioner would have the facts that he asked the Tribunal to predict, and which were consequently the most difficult for the Tribunal to find as they were not historical in nature, immune from a change of circumstances application. Not only does this not make sense from an interpretation perspective, it is obviously illogical. If the Commissioner invites the Tribunal to make findings of fact as to the future, he should be prepared to stand before the Tribunal and defend those future facts in the event that reality does not conform with his or the Tribunal's predictions, not take the technical position that if the Tribunal accepts his predictions, the findings are immune from review under section 106 and that the Tribunal is bound by them regardless of reality. 3. The Commissioner attempts to distract attention away from a consideration of the merits of this application and the changes in the underlying circumstances by trying to cast various aspersions on the Applicants and their actions. None

- 3 ­of these attacks are either well founded or relevant to the within proceeding and they are appropriately ignored by the Tribunal. 4. With respect to the merits, the Commissioner's Response is notable for what it does not deny. The Tribunal based its conclusion as to the relevant geographic market in 2003 on the existence of an excess of capacity for waste from the GT A at landfills in Southern Ontario, a lower price for such waste and reduced flows of such waste to Michigan. The Commissioner does not deny that the excess capacity predicted by the Tribunal has not emerged, and indeed he expressly confirms it at paragraph 98 of his Response. The Commissioner does not deny that the price decrease predicted by the Tribunal has not occurred and indeed he expressly confirms it at paragraph 96A. The Commissioner similarly does not deny that waste from the GTA continues to be shipped to Michigan, but rather relies on the difficulties in precisely converting cubic yards to tonnes of waste. The Commissioner does not deny that the competitive circumstances which he alleged and the Tribunal adopted and sought to address by the Divestiture Order have not arisen. Yet the Commissioner seeks to maintain the Divestiture Order and require the Applicants to divest the Ridge Landfill immediately, on the basis of an assertion that his new predictions as to the future ought to be adopted and that a substantial lessening or prevention of competition can be predicted at some unspecified date in the future. 5. The Commissioner goes so far as to suggest that the Tribunal was not addressing a particular time frame in its reasons. In addition to being contrary to the Commissioner's own submissions to the Tribunal and to the Federal Court of Appeal, this allegation is contrary to the Tribunal's Merits Reasons and Remedy Reasons.

6. The allegations and arguments in the Commissioner's Response therefore do not change the reality that the circumstances which led the Tribunal to make the Divestiture Order have changed, and that in the circumstances which presently exist, the Tribunal would not have made the Divestiture Order.

- 4 -PART II - ADMISSIONS AND DENIALS 7. Except as expressly admitted herein, the Applicants deny all of the allegations contained in the Response of the Commissioner of Competition. With respect to all matters, the Applicants repeat and rely on the allegations contained in the SGMF.

8. The Applicants admit the allegations contained in paragraphs 2, 5, 6, 14, 21 to 24, 25 (except that the Applicants say that the type of waste in issue is SNHW and not just ICI), 26 to 29, 31to34, 36, 37, 59, 60 to 62, 69, 70, 71 (save that such approval was granted on September 16, 1999 and such approval has since been quashed by order of the Divisional Court), 83 and 123 of the Response of the Commissioner of Competition.

9. The Applicants deny the allegations contained in paragraphs 1, 3, 4, 7 to 13, 15 to 18, 20, 35, 40 (third sentence), 48 (third sentence), 53 to 58, 64 to 68, 73 to 82, 84, 85, 87 to 90, 90A (last two sentences), 91A (last sentence), 92, 93, 95, 96A (last sentence), 96B, 97 to 99, 101 to 103, 106 (second sentence), 107, 108 (second sentence), 109 to 112, 114 to 121, 124 and 125 of the Response of the Commissioner of Competition.

10. With respect to paragraphs 38, 39, 40 (remaining allegations) 41 to 47, 48 (remaining allegations), 49 to 52, 63, 72, 91, 94, 100, 104 to 106 (first sentence), 108 (first sentence), 113 and 122 of the Response of the Commissioner of Competition, the Applicants refer to the Tribunal's reasons and orders, and deny that there has been no change in the circumstances that led to those reasons and orders.

11. With respect to paragraph 30 of the Response of the Commissioner of Competition, the Applicants agree that landfills charge different prices to customers from the GT A than are charged to customers from other areas, but deny that landfills charge meaningfully different prices to different customers within the GTA.

5 -12. With respect to paragraph 86 of the Response of the Commissioner of Competition, the Applicants agree that the Certificate of Approval for the Ridge is such that it cannot accept Residential Waste from the GTA. However, this Certificate of Approval can potentially be amended upon application to the Minister of Environment.

13. With respect to paragraph 96 of the Response of the Commissioner of Competition, the Applicants refer to and rely on the SGMF and the allegations raised therein.

PART III - PARTICULAR REPLY TO THE COMMISSIONER'S RESPONSE 14. The allegations in the Commissioner's Response fall into eight general headings, as follows: A) Allegations regarding the conduct of the Applicants. B) Allegations that findings of the Tribunal are not "circumstances". C) Allegations that the Applicants' landfill expansions are still likely. D) Allegations that the Tribunal relied on matters other than excess capacity. E) Allegations that the City of Toronto cannot be interested in the Ridge. F) Allegations that continued shipments to the United States are not a change of circumstances.

F.1) Allegations that the absence of a reduction in tipping fees is not a change of circumstances.

G) Allegations that the circumstances leading to the finding of a substantial lessening have not changed.

H) An allegation that the remedy proposed by the Applicants may not be granted.

15. The Applicants' reply to these allegations follows in sequence.

- 6 -A) Commissioner's Allegations Regarding the Conduct of the Applicants. 16. The Commissioner has attacked four different aspects of the Applicants' conduct, in what can only be seen as an effort to divert attention from the merits of this application. The Applicants must reply to each of these four allegations.

1) The Applicants' Appeal is Irrelevant 17. The Commissioner has alleged that the Applicants have acted inappropriately by pursuing an appeal of the Competition Tribunal's decisions and orders and by seeking to stay the Divestiture Order pending that appeal. The Commissioner has described the pursuit of this appeal as "engaging in further litigation", "using the litigation process to delay divestiture" and "successfully delaying the divestiture of the Ridge" to suggest that pursuing the appeal was inappropriate.

18. Respondents to a section 92 application have a statutory right to appeal the Tribunal's decisions and orders, a right that the Commissioner has also exercised. It is instructive that the Commissioner consented to a stay pending the hearing of the Applicants' appeal of the Tribunal's earlier decisions and orders, and that the Federal Court of Appeal granted the Applicants leave to appeal on certain issues, considering such issues to be worthy of consideration. In terms of timing, the hearing of the appeal was delayed, in part, to accommodate the schedule of counsel for the Commissioner. The Federal Court of Appeal dismissed the Applicants' appeal, deferring to the expertise of the Tribunal.

19. The Applicants' appeal to the Federal Court of Appeal is wholly irrelevant to this application, and the Commissioner's attempts to impugn the Applicants' conduct in bringing that appeal ought to be ignored by the Tribunal.

- 7 -2) This Application is Properly Brought 20. The Commissioner also attempts to impugn the conduct of the Applicants in bringing this application. This application does not, notwithstanding the Commissioner's attempts to characterize it as such, "attack the same findings of the Tribunal". This application is based on changes to the underlying factual circumstances on which the Tribunal relied in reaching its decision.

21. The Applicants have throughout been forthcoming regarding co-operating with the Commissioner in the divestiture process and providing information relating to the divestiture and the present application. Prior to commencing this application the Applicants provided the Commissioner with extensive documentation concerning relevant matters in this proceeding. At the same time as fulfilling its extensive and time-consuming obligations under the Divestiture Order, the Applicants prepared the within application within eight weeks of the Federal Court of Appeal's dismissal of its appeal, considerably shorter than the four to five months the Commissioner required to prepare the notice of application and statement of grounds and material facts for the initial application after the parties decided to deal with the issue of the Ridge Landfill by way of contested application.

22. The timing of this application is not relevant to this application, and the Commissioner's attempts to impugn the Applicants' conduct in bringing this application ought to be ignored by the Tribunal.

3) CWS has diligently pursued its landfill expansion applications. 23. The Commissioner has repeatedly alleged that the timing of CWS' landfill expansion applications is "largely within CWS' control." In addition to mischaracterizing the environmental assessment process surrounding a landfill expansion application, the Commissioner's allegations that the delays in the landfill expansion process ought to be held against CWS are unsupportable and unfounded in light of CWS' diligent pursuit of the applications.

- 8 -24. Further, the Commissioner suggests that CWS "ought to have known" that the significant delays and increased opposition which have arisen in the environmental assessment process with respect to each landfill, and the quashing of the Minister's approval of its Terms of Reference for the Richmond application, were likely. This attributes an unreasonable degree of prescience to CWS. It also perversely misappropriates the good faith effort of the Applicants when they executed the Agreed Statement of Facts in the earlier proceeding which included a prediction that, if the expansion applications were successful, they would be operational by the fall of 2002. The Applicants agreed to the Agreed Statement of Facts in order to facilitate an expeditious hearing, and to this end CWS gave its best view of the anticipated timing. The Commissioner relied on that date in the last hearing before the Tribunal, against the interest of CWS, and apparently seeks to hold the Applicants to it now, notwithstanding that this view of the anticipated timing was clearly wrong.

4) Earnings of the Applicants are irrelevant. 25. Although not raised in the body of his Response, the Commissioner has pleaded in his overview that prior to divestiture CWS "has received all of the profits from the Ridge". As the within application (and, indeed, the Competition Act) pertains to the state of competition in the marketplace and not to the earnings or revenue of a particular competitor, and as the Ridge is being operated independently pursuant to the terms of the Consent Interim Order, this allegation is irrelevant and spurious, and attempts to divert attention from the merits of the application.

B) Commissioner's Allegations that the Findings of the Tribunal are not "Circumstances".

1) The Commissioner's interpretation of the term "circumstances" is untenable 26. Much of the Commissioner's Response rests on the peculiar and unsupportable distinction that the Commissioner tries to draw between "findings" of the

- 9 -Tribunal as to the competitive landscape and the "circumstances" on which the Tribunal based its order, as that term is used in section 106 of the Competition Act. The findings of the Tribunal are precisely the "circumstances" on which the Tribunal based its order and which led it to issue the Divestiture Order.

27. The Competition Tribunal rendered its Merits Reasons and Remedy Reasons, and issued the Divestiture Order, on the basis of a variety of circumstances. Many of these circumstances were factual in nature - some were submitted to the Tribunal on the agreement of the parties, while some were contested, and the Tribunal therefore had to make a number of factual findings. A number of the key factual circumstances on which the Tribunal based its Merits Reasons and ultimately its Divestiture Order have changed since those decisions were rendered. The Applicants have brought this application on the basis of those changes in circumstances.

28. The fact that the circumstances in question involved future facts rather than historical facts does not make them any less "circumstances" under section 106 of the Competition Act, and does not make them any less subject to change. Section 106 expressly contemplates that the future may hold additional information or a changed state of affairs compared to what was known or the case at the time of the hearing before the Tribunal. This is precisely what has occurred in this case, and precisely the situation which section 106 is designed to address.

2) The Commissioner's attempt to bind the Tribunal is untenable 29. The Commissioner also attempts to tie the hands of the Tribunal and the Applicants by arguing that both are bound by the Tribunal's earlier decisions and by the earlier pleadings and agreed statements of fact.

30. This allegation undermines the very purpose behind section 106 of the Competition Act. That section expressly contemplates that the facts as pleaded or agreed to by the parties and as found by the Tribunal may have changed subsequent to the determination of the Tribunal. Many of the facts in the

- 10 -Agreed Statement of Facts are clearly time sensitive and have clearly changed since the document was signed, such as, for example, the status of CWS' landfill expansions. Indeed, some of the facts, notably those pertaining to the City of Toronto's bidding process had changed even prior to the conclusion of the first hearing before the Tribunal. To suggest that the Applicants or the Tribunal are bound by such outdated facts is absurd. It is worth noting that the Commissioner has relied on a change in circumstances from his earlier pleadings and agreed statements of fact in connection with the expansion of the Petrolia Landfill

C) Commissioner's Allegations that the Applicants' Landfill Expansions are Still Likely.

1) The Warwick Landfill Expansion Application a) The Tribunal's finding was that the landfill would be expanded by 2002. 31. The Tribunal considered the landfill scenario in Southern Ontario, and determined that there would be an excess of capacity for waste from the GT A. This conclusion was based on a number of circumstances, including the finding that the expansion of the Warwick Landfill was "likely to be approved."

32. The Commissioner suggests that the Tribunal did not "make a specific finding as to when the application would be approved." This allegation is incredible in light of the the Tribunal's reasons and the Commissioner's original allegations.

33. The Tribunal's finding was that the Warwick Landfill expansion would occur by 2002. This is confirmed by the Tribunal's Table 1 at paragraph 193 of the Merits Reasons, which includes a column headed "Tribunal's Estimates of Capacity Available for ICI Waste from GTA, 2002" which clearly shows the expanded 750,000 tonne figure for Warwick.

34. The Tribunal also made this finding as to timing clear at paragraph 136 of its Merits Reasons:

- 11 -[136) Although it appears that the Blackwell and LaSalle landfills are scheduled to close in 2002, the anticipated expansion of CWS Warwick landfill is expected to replace the capacity at these two sites.

35. This finding was further confirmed at the outset of the Tribunal's Remedy Reasons, where it summarized the import of its Merits Reasons and particularly the time frame that it was speaking about: (2) ... The Tribunal found that if CWS would have been permitted to keep the Ridge, it would have controlled over 70 percent of that if CWS would have been permitted to keep the Ridge, it would have controlled over 70 percent of the Southern Ontario landfill capacity for ICI Waste from the GTA in 2002 and 100 percent of the capacity for this type of waste from the Municipality of Chatham-Kent ("Chatham-Kent"). [emphasis added]

36. That the Tribunal made its findings regarding this time frame is not surprising given the Commissioner's case as pleaded. The Commissioner expressly alleged in his Statement of Grounds and Material Facts on the original application that the competitive impact would be seen by the end of 2002, alleging that "several changes are anticipated by 2002, including the ... expansions at CWS landfills." [emphasis added] The Commissioner's submission at the hearing before the Tribunal (which was ultimately accepted by the Tribunal) was the same, as summarized by the Tribunal in paragraphs 5 and 63 of its Merits Reasons: (5) The Commissioner alleges that the acquisition of the Ridge is likely to result in a substantial prevention and lessening of competition in the disposal of institutional, commercial and industrial waste in two Southern Ontario markets: the GTA and the Chatham-Kent area. The respondents already own or control six landfill facilities in Southern Ontario. According to the Commissioner, if CWS is permitted to keep the Ridge, it will control 70 percent of the Southern Ontario landfill capacity for ICI Waste from the GTA in 2002 and 100 percent of the capacity for ICI Waste from Chatham-Kent.

[6 3] The Commissioner contends that the relevant geographic market is Southern Ontario only, thus excluding the states of Michigan and New York whose disposal facilities receive ICI Waste from the GTA. The Commissioner asserts that these sites receive such waste only because of the non­competitive market structure of the waste disposal industry in Southern Ontario in which prices for disposal generally significantly exceed marginal cost. The Commissioner attributes the non-competitive pricing to a current dearth of landfill capacity in Southern Ontario, which dearth will tum into

- 12 ­excess capacity by 2002 due to expansions and new facilities (some currently in the planning stage) which would cause the price of ICI Waste disposal from the GT A to fall, but for the transaction.

37. Thus the Tribunal's entire analysis was based on this end of 2002/beginning of 2003 time frame, and the Tribunal's conclusion of an excess of capacity in this time frame was based on its prediction of the Warwick Landfill expansion occuring by this time.

38. Nonetheless, the Commissioner alleges, notwithstanding that the entire case of the Commissioner was pleaded and argued with reference to the end of 2002/beginning of 2003, and in the face of these numerous passages from the Tribunal's reasons, that the Tribunal "did not make a specific finding as to when the application would be approved; it simply held that it would be." This is untenable. The Tribunal relied on a circumstance whereby the Warwick Landfill was expanded by the end of 2002. That circumstance has changed. The Warwick Landfill has not expanded, and it is not possible that it will expand before the fall of 2005.

b) The timing oft he Warwick Landfill expansion is not "largely in CWS hands". 39. CWS has diligently pursued the Warwick Landfill expansion application. To suggest, as the Commissioner does, that CWS' inability to complete the environmental assessment process and seek the Minister's final approval within the originally anticipated time frames ought to be held against it is unsupportable. Similarly, to suggest, as the Commissioner does, that CWS "knew or ought to have known or foreseen" the increased extent of local government and community opposition and the nature of technical issues which parties would raise during the course of the environmental assessment (which had only just begun), is again unsupportable.

40. The Applicants agreed to the Agreed Statement of Facts to facilitate an expeditious hearing, and gave their best indication of the anticipated time frames for the Warwick Landfill expansion application if it were approved.

- 13 -The reality of the applications have proved this estimate overly optimistic, and the Commissioner now attempts to hold the Applicants' best estimate against them in the face of reality. There is no support for the insinuation of the Commissioner that the Applicants have been somehow responsible for any delays in the application or environmental assessment process, and the Applicants put the Commissioner to the proof thereof.