Court File No. CT-2004-013 COMPETITION TRIBUNAL IN THE MATTER OF the Competition Act, R.S.C. 1985, c.C-34, as amended; and Sections 3 and 49 of the Competition Tribunal Rules, Can. Reg. SOR/94/290;
AND IN THE MATTER OF the acquisition by West Fraser Timber Co. Ltd. of Weldwood of Canada Limited;
AND IN THE MATTER OF an application under Section 106(2) of the Competition Act by Burns Lake Native Development Corporation, Lake Babine Nation, Burns Lake Band, Nee Tahi Buhn Indian Band to rescind or vary the Consent Agreement between the Commissioner of Competition and West Fraser Timber Co. Ltd. and West Fraser Mills Ltd. filed and registered with the Competition Tribunal on December?, 2004, under Section 105 of the Competition Act.
BETWEEN: BURNS LAKE NATIVE DEVELOPMENT CORPORATION, COUNCIL OF LAKE BABINE NATION AND EMMA PALMANTIER, ON HER OWN BEHALF AND ON BEHALF OF ALL MEMBERS OF LAKE BABINE NATION, COUNCIL OF BURNS LAKE BAND AND ROBERT CHARLIE, ON ms OWN BEHALF AND ON BEHALF OF ALL MEMBERS OF BURNS LAKE BAND AND COUNCIL OF NEE TAm BUHN INDIAN BAND AND RA y MORRIS, ON ms OWN BEHALF AND ON BEHALF OF ALL MEMBERS OF NEE TAID BUHN INDIAN BAND
Applicants - and-COMMISSIONER OF COMPETITION, WEST FRASER TIMBER CO. LTD. and WEST FRASER MILLS LTD.
Respondents
MEMORANDUM OF ARGUMENT OF THE COMMISSIONER OF COMPETITION (Reference re. Section 106 of the Competition Act)
COMPETITION TRtBUNAL TRIBUNAL DE LA CONCURRENCE ~ ~~ o~ L ~e~ 4 2005 D ~ y REGISTRAR • REGISTRAIRE T ' OTTAWA, Cr.J D I DMSTORLegal\OS16S4\00006\322443v7
BENNETT JONES LLP Barristers and Solicitors Suite 3400, P.O. Box 130 One First Canadian Place Toronto, ON M5X 1A4 Melanie L. Aitken (LSUC #34531Q) Derek J. Bell (LSUC # 43420J) Tel.: 416.777.4662 Fax: 416.863.1716
2 DEPARTMENT OF JUSTICE Competition Law Division Place du Portage, Phase I 50 Victoria Street, 22nd Floor Hull,PQ K1AOC9
Duane Schippers Tel: 819.953.3898 Fax: 819.953.9267 Solicitors for the Respondent, the Commissioner of Competition
TO: OGILVY RENAULT Barristers & Solicitors 200 Bay Street, Suite 3800 Royal Bank Plaza, South Tower Toronto, Ontario M5J 2Z4
Dany H. Assaf Tel: 416.216.4072 Fax: 416.216.3930 Orestes Pasparakis Tel: 416.216.4815 Fax: 416.216.3930 Solicitors for the Applicants AND TO: LANG MICHENER Barristers & Solicitors BCE Place, P.O. Box 747 Suite 2500, 181 Bay Street Toronto, Ontario MSJ 2T7
James B. Musgrove Larry S. Hughes , Tel: 416.360.8600 Fax: 416.365.1719 Solicitors for the Respondents, West Fraser Timber Co. Ltd and West Fraser Mills Ltd.
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3 Court File No. CT-2004-013 COMPETITION TRIBUNAL IN THE MATTER OF the Competition Act, R.S.C. 1985, c.C-34, as amended; and Sections 3 and 49 of the Competition Tribunal Rules, Can. Reg. SOR/94/290;
AND IN THE MATTER OF the acquisition by West Fraser Timber Co. Ltd. of Weldwood of Canada Limited;
AND IN THE MAT IER OF an application under Section 106(2) of the Competition Act by Bums Lake Native Development Corporation, Lake Babine Nation, Bums Lake Bank, Tee Tahi Buhn Indian Band to rescind or vary the Consent Agreement between the Commissioner of Competition and West Fraser Timber Co. Ltd. and West Fraser Mills Ltd. filed and registered with the Competition Tribunal on December 7, 2004, under Section 105 of the Competition Act.
BETWEEN: BURNS LAKE NATIVE DEVELOPMENT CORPORATION, COUNCIL OF LAKE BABINE NATION AND EMMA PALMANTIER, ON HER OWN BEHALF AND ON BEHALF OF ALL MEMBERS OF LAKE BABINE NATION, COUNCIL OF BURNS LAKE BAND AND ROBERT CHARLIE, ON ms OWN BEHALF AND ON BEHALF OF ALL MEMBERS OF BURNS LAKE BAND AND COUNCIL OF NEE TAm BUHN INDIAN BAND AND RAy MORRIS, ON ms OWN BEHALF AND ON BEHALF OF ALL ME:MBERS OF NEE TAm BUHN INDIAN BAND
Applicants - and-COMMISSIONER OF COMPETITION, WEST FRASER TIMBER CO. LTD. and WEST FRASER MILLS LTD.
Respondents
MEMORANDUM OF ARGUMENT OF THE COMMISSIONER OF COMPETITION (Reference re. Section 106 of the Competition Act)
PART I .... OVERVIEW 1. The Competition Act, R.S.C. 1985, c.C-34 (the "Act"), as amended in 2002, permits the Commissioner and parties to a merger or proposed merger to register a negotiated remedial agreement with the Competition Tribunal (the "Tribunal"). On registration, such consent agreements have the same force and effect as orders of the Tribunal. The only check, in this consensual context, on the Commissioner's authority over the remedies necessary to cure a
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4 likely substantial lessening or prevention of competition is a narrow one. Specifically, section 106 of the Act authorizes a person directly affected by a consent agreement to apply to the Tribunal to vary or rescind one or more of the tenns of the agreement. However, consistent with the legislative intent to streamline and expedite the mergers' approval process and the implementation of protections deemed necessary by the Commissioner to safeguard competition (and agreed to by the parties), the Tribunal can only interfere with a consent agreement if it finds that the terms of the agreement could not be the subject of an order of the Tribunal. If so satisfied, the Tribunal has the discretion, but need not exercise it, to vary or rescind the agreement.
2. The Applicants herein seek to challenge a consent agreement registered with the Tribunal by the Commissioner and West Fraser Timber Co. Ltd. and West Fraser Mills Ltd. (collectively, "West Fraser") on December 7, 2004. To expedite the resolution of this putative challenge, the Commissioner respectfully submits this Reference pursuant to subsection 124.2(2) of the Act, to clarify the scope for third party challenges to consent agreements duly registered under the recently enacted summary procedure in the Act, in accordance with the Tribunal's Practice Directions. Specifically, the Commissioner seeks an interpretation, and application to the pleading filed, of subsection 106(2) as follows: (i) who has standing as "directly affected" persons?; and (ii) what must an applicant establish to demonstrate that the "terms could not be the subject of an order of the Tribunal"? As no facts are at issue for the determination of those questions (the facts in the Applicants' pleading being treated for this purpose as proved), the Commissioner respectfully submits that this is an ideal opportunity to resolve fundamental issues by way of preliminary Reference; it may well dispose of the Application in its entirety.
3. It is trite law that the standing and other requirements in subsection 106(2) must be interpreted in accordance with the purpose of the Act as a whole, and the specific provision in particular. As such, the dominant economic purpose of the Act, together with Parliament's clear initiative to introduce a summary registration process to facilitate resolutions negotiated between the Commissioner and merging parties, with only limited Tribunal review save in extraordinary circumstances, must inform the construction of subsection 106(2). In particular, sections 105 and 106 of the Act must be construed in light of the 2002 refonns to the Act dispensing with even the "limited" review of consent agreements required under the old Act. In introducing the summary registration process, Parliament signalled, in the clearest possible terms, that Tribunal
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5 review would be available in only the narrowest circumstances. Parliament's determination of how best to advance the public interest in the expeditious resolution of competitive issues identified by the Commissioner cannot be trumped by vague assertions, such as those pleaded by the Applicants, of remote "harm" or inchoate notions of fairness.
4. In such circumstances, standing to advance a challenge under subsection 106(2) is only available to persons who can establish that they are "directly affected" by the terms of the impugned agreement. To be "directly affected" by a consent agreement, it is insufficient for an applicant to show merely an ancillary, hypothetical or remote interest affected by the agreement. Rather, to be "directly affected" in a manner consistent with the purpose of the Act generally, and subsection 106(2) in particular, requires an applicant to demonstrate that it is affected in a manner that relates to competition. This is likewise consistent with the parameters of authority vested in the Tribunal and the Commissioner. The Tribunal's jurisdiction, and the Commissioner's authority as a statutory actor, are defined and delimited by the terms of the statutes that create them. Those statutes are confined in their terms to competitive effects. As such, a simple minority shareholder interest in an affected company cannot constitute a sufficient interest to secure standing. Likewise, claims of remote impact or inchoate "entitlement" will not suffice. Accordingly, as considered below, the Applicants in this proceeding are not "directly affected" in a way that would entitle them to standing to make this Application.
5. In addition to the heavy onus to secure standing, an applicant must establish that the "terms [of a consent agreement] could not be the subject of an order of the Tribunal". Unless this strict condition precedent is satisfied, the Tribunal has no power to even consider exercising a discretion to vary or rescind a registered consent agreement. This narrow right of review reflects Parliament's intent to facilitate the ease and speed of merger review, and to establish the Commissioner's role as gatekeeper to Tribunal proceedings on merger matters, as distinct from those matters in Part vm which can be the subject of private access proceedings. Nothing short of a true extra-jurisdictional exercise of the Tribunal's remedial powers will suffice. Accordingly, it is insufficient to question the Commissioner's assessment of the proposed merger as having the potential to cause a substantial lessening or prevention of competition or the efficacy of the remedies negotiated. Likewise, it is insufficient to argue that the applicant believes that a de novo review should be conducted by the Tribunal. Furthermore, it is insufficient to complain that the consent agreement was procedurally irregular or that there was a
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6 deprivation .o f natural justice, challenges which have no scope within subsection 106(2) and which, in any event, are reserved to the exclusive judicial review jurisdiction of the Federal Court.
6. Rather, to trigger the Tribunal's discretion, an applicant must show that the consent agreement contains terms that exceed the Tribunal's remedial powers, such as a damages award or an order that is designed for ulterior objects not related to the Act have made no such allegations.
7. For these reasons, the Commissioner respectfully submits that the Application must fail. The Applicants cannot satisfy the stringent standing requirement to launch a challenge, nor could they establish the condition precedent to empower this Tribunal to interfere with the validly registered consent agreement in issue.
PART II .... FACTS 8. On December 7, 2004, the Commissioner and West Fraser entered into a consent agreement (the "Consent Agreement") with the Tribunal addressing the Commissioner's concerns that the acquisition by West Fraser (the "Acquisition") of Weldwood Canada Limited ("Weldwood") was likely to prevent or lessen competition substantially. By operation of law, upon registration, the Consent Agreement acquired the same force and effect as a Tribunal order. Among other steps, that Consent Agreement requires West Fraser to divest the merging parties' 89.8% direct and indirect interests in the Burns Lake Mill, the Decker Lake Mill, and the associated tenures and related assets (the "Divestiture"). The Divestiture, in turn, requires West Fraser to sell its majority shareholding interest in Babine Forest Products Limited ("BFPL"), which was a joint venturer with certain mill ownership and harvesting timber and other rights (the joint venture, an unincorporated entity named Babine Forest Products Company, is referred to herein as the "Joint Venture").
Consent Agreement among the Commissioner of Competition, West Fraser Timber Co. Ltd., and West Fraser Mills Ltd. dated December 7, 2004, Public Version ("Consent Agreement"), section 3.
9. To effectively register the Consent Agreement, and in accordance with the Tribunal's 2002 Practice Direction, the Commissioner and West Fraser filed the signed Consent
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7 Agreement; they did not file or seek to file any evidence as none is required. As required by section 105 of the Act, the Tribunal duly registered the Consent Agreement.
Practice Directions for the Competition Tribunal, August 30, 2002, s. 77.1 Competition Act, R.S.C. 1985, c. C-34, s. 105
10. On February 3, 2005, the Applicants filed a Notice of Application, naming the Commissioner as Respondent, purporting to challenge the Consent Agreement under subsection 106(2) of the Act. On February 11, 2005, the Applicants amended their Notice of Application to add the West Fraser entities as Respondents.
Notice of Application of Burns Lake Native Development Corporation et al. dated February 3, 2005
Amended Notice of Application of Burns Lake Native Development Corporation et al. dated February 11, 2005
11. The Applicant, Burns Lake Native Development Corporation ("BLNDC"), is a not-for-profit corporation registered in British Columbia whose activities, so tlie Applicants plead, "support and promote [the First Nations of Burns Lake] efforts towards economic autonomy and self determination" by "funding and delivering social programs, training and education to Aboriginal peoples". The Applicants plead that BLNDC will be "directly affected", so as to acquire standing, by reason of the BLNDC's minority shareholder interest in BFPL, and by reason of BFPL's party status to the Joint Venture Agreement among BFPL, Weldwood, BLNDC, and others, dated May 31, 1984, as amended (the "Joint Venture Agreement"). In fact, pursuant to the terms of the Joint Venture Agreement, BLNDC is entirely unaffected by the Divestiture in its rights, interests or obligations. Indeed, the only possible consequence is that there will be a new majority shareholder in BFPL, and there will be a new party to the Joint Venture Agreement-two consequences that BLNDC never had the power to control. Contrary to the Applicants' loose and unsubstantiated allegations, BLNDC remains in exactly the same (minority) shareholder position, with no dilution or variation of its interest, or the value thereof. In fact, according to the terms of the Joint Venture Agreement, BLNDC itself could purchase West Fraser's interest in BFPL by exercising its right of first refusal, thereby avoiding any new joint venture partner.
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8 Amended Statement of Grounds and Material Facts, Schedule A to the Amended Notice of Application, supra, at para. 29.
Joint Venture Agreement among Babine Forest Products Limited, Eurocan Pulp & Paper Co. Ltd., and others dated May 30, 1984, as amended ("Joint Venture Agreement")
12. As to the Applicant Bands (Lake Babine Nation, Burns Lake Band and Nee Tahi Buhn Indian Band (the "Bands")), their claim to be "directly affected" is even more remote. The Bands claim that their shareholder interest in BLNDC (which, in tum, has a shareholding interest in BFPL, which, in turn, is a party to the Joint Venture Agreement), and/or their non-cognizable claim to aboriginal title over some of the land on which the Joint Venture exercises certain timber rights, constitute the necessary impact for standing herein. As noted above, BLNDC cannot demonstrate the requisite impact; the Bands, as mere shareholders of a shareholder, are yet further removed from the effects of the Consent Agreement.
Amended Statement of Grounds and Material Facts, supra, at paras. 5, 7 Joint Venture Agreement, supra
13. As to the Applicant Chiefs (Emma Palmantier, Robert Charlie and Ray Morris (the "Chiefs")), the Applicants plead only that they are "Aboriginal Persons", and live in the Burns Lake region. As members of a Band which, in turn, can claim only a shareholder interest in BLNDC, whose interest, in tum, is simply as a minority shareholder in BFPL, whose interest, in tum, is as a party to the Joint Venture Agreement, there can be no doubt these Applicants fail to satisfy the standing requirement.
Amended Statement of Grounds and Material Facts, supra at paras 10-11 14. By Order dated March 29, 2005, on consent, the Applicants were provided with the confidential terms of the Consent Agreement stipulating the time within which West Fraser is required to implement the Divestiture.
· Order for Limited Production of Confidential Consent Agreement dated March 29, 2005, Commissioner of Competition v. West Fraser Timber Co. Ltd., 2005 Comp. Trib. 11
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9 PART III..., ISSUES 15. The issues on this Reference are as follows: (i) Can the Commissioner bring a Reference under subsection 124.2(2) at this stage of proceedings?;
(ii) What must an applicant establish to secure standing under subsection 106(2) as a "directly affected" person?;
(iii) In applying subsection 106(2) to the facts pleaded in the Amended Notice of Application and Amended Statement of Grounds and Material Facts, have the Applicants, or any one of them, demonstrated they are "directly affected" as required?;
(iv) In registering a consent agreement under section 105 of the Act, must the parties file evidence to substantiate a likely substantial lessening or prevention of competition and/or the effectiveness of the remedies agreed upon?
(a) If so, is a failure to do so grounds for Tribunal interference? (b) If so, is the Tribunal authorized to engage in a de novo review of whether the merger or proposed merger is likely to substantially lessen or prevent competition, or the efficacy of the remedies selected?
PART IV..., ARGUMENT A. The Commissioner Can Bring This Reference 16. Subsection 124.2(2) of the Act permits the Commissioner to refer to the Tribunal a question of law, jurisdiction, practice or procedure in relation to the application or interpretation of Parts VII.l to IX of the Act. The Commissioner may file a Reference whether or not proceedings have been commenced by the Commissioner, or otherwise.
Competition Ac~ s. 124.2(2) DMSTORLegal\051654\00006\322443v7
10 17. Unlike subsection 124.2(1) of the Act, which requires an outstanding inquiry under section 10 of the Act to authorize a Reference on consent of the Commissioner and the parties, or subsection 124.2(3) of the Act, which requires Tribunal consent in a private access context, the Commissioner-initiated Reference procedure is not so limited. A Reference may be made "at any time".
Competition Act, s. 124.2(3) 18. Clearly, references are contemplated in the context of pending applications. Subsection 124.1(1) permits a Reference "whether or not an application has been made"; in turn, subsection 124.1(3) is not engaged unless an application has already been made (and leave granted to proceed). Consistently, the authorization granted to the Commissioner to bring a Reference "at any time" is unconditioned by whether or not an application has been commenced.
Competition Act, s. 124.1(1), 124.1(3) 19. Any question of law, including whether an application can be sustained as a matter of law, is appropriate for such a Commissioner Reference under subsection 124.2(2).
20. In other words, the Reference procedure is available to dispense with applications which, as a matter of law (even accepting the facts pleaded as proved), could not succeed. In such circumstances, there is no issue of evidence being required to resolve the question of law either the pleading supports a cause of action or it does not.
21. In this case, while the Applicants claim that the issue of their standing is somehow bound up with their substantive grounds for challenging the Consent Agreement, and as such requires evidence and a full hearing, that cannot be right. Standing is a necessary precondition for bringing a justiciable proceeding. The applicants cannot collapse their substantive grievances to manufacture standing; as considered herein, the standing test of "directly affected" must be interpreted according to the purpose of the Act; such an inquiry does not descend into the particulars of the Applicants' specific dispute.
B. Standing to Challenge a Consent Agreement is Limited 22. A third party is only entitled to challenge a consent agreement if it can establish that it is "directly affected" thereby: DMSTORLegal\051654\00006\322443v7
11 (2) A person directly affected by a consent agreement, other than a party to that agreement, may apply to the Tribunal within 60 days after the registration of the agreement to have one or more of its terms rescinded or varied. The Tribunal may grant the application if it finds that the person has established that the terms could not be the subject of an order of the Tribunal.
Competition Act, R.S.C. 1985, c. C-34, s. 106(2)
(i) "Directly Affected" Means In Relation to Competition 23. The meaning of "directly affected" must be discerned through the ordinary rules of statutory interpretation, which are well established:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
Rizzo & Rizzo Shoes (Re), [1998] 1 S.C.R. 27, at para. 21 [adopting Drieger, Construction of Statutes (2nd ed. 1991)]
Marche v. Halifax Insurance Co., 2005 SCC 6, at para. 54
24. Indeed, the Supreme Court has confirmed that a court or tribunal's principal "duty" is to interpret legislation in a manner that is consistent with the purpose of the Act. The Interpretation Act demands no less.
Marche v. Halifax Insurance, supra at para. 57 Interpretation Act, R.S.C. 1985, c. 1-21, s. 12 25. The purpose of the Act is set out in section 1.1 of the Act: The pw:pose of this Act is to maintain and encourage comoetition in Canada in order to promote the efficiency and adaptability of the Canadian economy, in order to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competition in Canada, in order to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and in order to provide consumers with competitive prices and product choices. [emphasis added]
Competition Act, R.S.C. 1985, c. C-34, s. 1.1 26. As such, the Act is concerned to maintain and encourage healthy competition throughout the economy by, among other means, discouraging abuses of dominant positions and undesirable business practices that affect consumers and the economy as a whole, and reviewing
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12 mergers consistent with that controlling purpose. In turn, the Commissioner, in fulfilling her statutory duty to enforce the Act, and the Tribunal in its supervisory capacity, are bound to the statutory mandate, the parameters of which, as defined in the Act, not only inform, but restrict, their respective powers:
[T]he Act as a whole embodies a complex scheme of economic regulation. The purpose of the Act is to eliminate activities that reduce competition in the market-place. The entire Act is geared to achieving this objective. The Act identifies and defines anti-competitive conduct. It establishes an investigatory mechanism for revealing prohibited activities and provides an extensive range of criminal and administrative redress against companies engaging in behaviour that tends to reduce competition.
General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641 at p. 676 Samson v. Canada, [1995] 3 F.C. 306 (C.A.) at paras. 27-40 [reviewing caselaw interpreting the Act]
27. Those parameters are limited to macro effects on the economy, and do not include disputes or dealings between individuals or companies that bear no relationship to competitive issues more generally.
28. Subsection 106(2) must be interpreted in light of this regulatory purpose. In merger cases, it must also be read with reference to section 92 - the provision empowering the Tribunal to make orders relating to mergers. Section 92 confers remedial powers upon the Tribunal if the Tribunal finds, when matters are submitted to it, that there is or is likely to be a "substantial lessening or prevention of competition". No other assessment is relevant; no other determination can activate the Tribunal's remedial jurisdiction. Accordingly, as is the case for all provisions in the Act, in interpreting section 106(2), it is clear that only competitive consequences matter.
29. The regulatory scheme as a whole reinforces that a "competitive" effect is demanded. Specifically, subsection 9(3) of the Competition Tribunal Act permits interventions in Tribunal proceedings, including contested mergers under section 92, by "persons affected". Those seeking to intervene in section 92 applications must demonstrate that they have submissions that are relevant to the issues before the Tribunal, and that they bring a perspective that will assist the Tribunal in deciding the issues before it. By definition, the issues "before the Tribunal" on a section 92 application are limited to the likelihood of a substantial lessening or prevention of competition and/or the efficacy of possible remedies therefor.
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13 Competition Tribunal Act, R.S.C. 1985, c. 19 (2nd supp.), as am., s. 9(3) Competition Act, supra, s. 92 Canada (Commissioner of Competition) v. United Grain Growers (2002), 19 C.P.R. (4~ 157 (Competition Tribunal)
30. As confirmed by Noel J. in Canada (Director of Investigation & Research) v. Canadian Pacific Ltd., and the Competition Tribunal Rules themselves, to merit standing on a section 92 application, an intervener necessarily must show the "competitive consequences" arising from the order affecting the intervener.
Competition Tribunal Rules, SOR/94-290, s. 86(2)(d) Canada (Commissioner of Competition) v. United Grain Growers, supra [marketing organization was in a unique position to comment on the effectiveness of proposed remedies to alleviate the detrimental competitive effects of a merger]
Canada (Commissioner of Competition) v. Air Canada, [2001] C.C.T.D. 5 (Competition Tribunal) [Westjet granted leave to intervene because of being directly affected in a competitive way by alleged dominance of Air Canada]
Canada (Director of Investigation & Research) v. Canadian Pacific Ltd. (1997), 74 C.P.R. (3d) 37 (Competition Tribunal) [Newfoundland Capital Corporation denied leave because it failed to identify competitive consequences of order; Port of Montreal granted leave to intervene because its efficiency and competitiveness were at issue in the proceeding]
31. It is significant that, in the intervention context, the only additional burden on the Tribunal and the parties i~ the marginal time and cost associated with having another party present. In such circumstances, where a proceeding is already underway and time and resources committed to it, a potential intervener is nonetheless required to meet this material standard to justify participation.
32. If all this is required of a mere intervener, something more must be required to establish that a person is "directly affected" and, thereby, entitled to activate the subsection 106(2) process with all the disruption it entails. In contrast to intervention, a person seeking to disturb a consent agreement seeks:
(a) to commence a proceeding when the parties have already resolved their differences without resort to litigation;
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14 (b) to set aside a consent agreement duly anived at by the Commissioner, as statutorily designated representative of the public interest in maintaining and promoting competition, and the private parties; and
(c) to delay a process designed to be expeditious and to hinder the effective implementation of an accord designed to ameliorate the material deleterious effects of, in the merger context, a transaction or proposed transaction.
33. In such circumstances, the onus on the applicant must be much greater than that faced by interveners. At the bare minimum, the applicant must be "directly affected" in a manner relating to competition and in a manner that would assist the Tribunal in determining the is~mes before it - this Tribunal expects no less from simple interveners. However, it is submitted that, given the intrusive effect of a section 106 application, the applicant must meet a higher threshold. Specifically, an applicant must demonstrate not only that it is "directly affected" in a manner relating to competition, the defining consideration under the Act and, as such, the only subject matter with which the Tribunal can be engaged, but further, as discussed in the following section, that this direct effect relates to a substantive interest, and is an immediate consequence of the consent agreement. In other words, it must be able to demonstrate to the Tribunal that its competitive, substantive interest is immediately affected by that term of the consent agreement that is alleged could not be the subject of an order of the Tribunal.
(ii) "Directly Affected" Relates to Substantive and/or Pecuniary Interests 34. As a general rule, where a third party seeks leave to intervene in an ongoing proceeding, the court or Tribunal will require that person to demonstrate that it has or will be adversely affected in relation to its substantive or pecuniary rights. As stated by Prothonotary Morneau in Astral Media Inc. v. Canada (Commissioner of Competition), an intervener must demonstrate a direct impact on its "financial interests or property rights". That impact must flow from the order itself or the direct consequences of the order.
Astral Media Inc. v. Canada (Commissioner of Competition) (2002), 20 C.P.R. (4th) 356 (F.C.T.D.)
35. Indeed, that an applicant must demonstrate a direct and tangible effect on its pecuniary, financial, property, or legal rights to secure standing before a Court is well established
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15 beyond the competition context. In constitutional and other cases where standing is in issue, "there must be a cognizable threat to a legal interest before the Court will entertain the use of its process as a preventative measure"; moreover, a person cannot complain where that threat is "too indirect, remote or speculative to be a sufficient causative relationship for standing".
Finlay v. Canada (Minister of Finance), [1986) 2. S.C.R. 607, at p. 623 (constitutional]
Operation Dismantle Inc. v. R., [1985] 1 S.C.R. 441 at p. 457 [constitutional] Pepsico Inc. v. Canada (Register of Trademarks), [1974] F.C.J. No. 421 at para. 7 [trade marks - no "substantive rights" or "legal rights" affected; therefore not "directly affected"]
36. Likewise, other regulatory tribunals, such as the Ontario and B.C. Securities Commissions, specifically impose an obligation on interveners to show that the impugned orde:i:: or activity will "directly affect" their financial rights. In Ontario, by way of example, an intervener must demonstrate a "clear financial interest" in addition to establishing that it can make a useful contribution without prejudice to the parties, before the Commission will confer standing; even then, participation rights in the already constituted proceeding are narrowly prescribed.
Re Crabbe Huson Group, Inc. (1999), 22 OSCB 5310 (Aug. 27199) at p. 5311 Re Meier, [1999] 18 BCSCWS 62 (May 7/99) at p. 6
37. In the present case, the Applicants, who seek not merely a right of intervention, but to initiate proceedings to undo the negotiated resolution between the Commissioner and the merging parties, have made no allegations in the Amended Statement of Grounds and Material Facts that support a finding that their pecuniary rights or substantive interests are in any way "directly affected":
(a) First, the Applicants claim that BLNDC's (indirect) interest through BFPL in the Mill assets and Timber rights in issue has a "direct and important impact on the ... First Nations peoples of Burns Lake's ability to achieve economic autonomy and pursue self-determination." (paragraph 28). Whether or not that is the case, the fact is that the Consent Agreement changes none of BLNDC's rights. Before the Consent Agreement, BLNDC held a 10.2% indirect interest in the Mill assets and DMSTORLegal\OS16S4\00006\322443v7
16 Timber rights; after implementation of the Consent Agreement, BLNDC will continue to hold that same uncompromised 10.2% indirect interest. By definition then, whatever indirect benefit First Nations' peoples may enjoy from the fruits of BLNDC's activities are entirely unaffected.
(b) Second, the Applicants claim that BLNDC's shareholders are "directly affected" as they have, in the past, been able to .communicate their concerns and be informed about the use of land by the Joint Venture through what they considered good relations with West Fraser and Weldwood (paras. 37-38). Whether correct or not, good communication, voluntarily c;;onferred, is not a legal right - for BLNDC, or its shareholders. The fact is that the totality of BLNDC's legal rights is set out in the Joint Venture Agreement and the Shareholders' Agreement. These "rights" are effectively limited to a right of first refusal under the Shareholders' Agreement, which right is unaffected by the Consent Agreement, and still may be exercised by BLNDC so as to preclude a new joint venture partner, should BLNDC so choose. fu any event, the legal rights of BLNDC's shareholders are set out in, and limited to, whatever constituent corporate documents exist for BLNDC. Accordingly, whatever legal rights BLNDC's shareholders have, they are not susceptible to compromise or affected by the Consent Agreement.
(c) Third, the Applicants claim that BLNDC itself will be directly affected "in terms of its contractual and proprietary interests in BFPL and its working relations with Weldwood and West Fraser." The very pleadings and documents, incorporated by reference in the Application, defeat this allegation. The Consent Agreement does not alter or in any way derogate from BLNDC's contractual righ~s under the Shareholders' Agreement, the Joint Venture Agreement, or otherwise. Nor does the Consent Agreement in any way deprive BLNDC of its proprietary interests. All that the Consent Agreement contemplates is a change to BFPL's joint venture partner and shareholders-variables which BLNDC never did have the right to control (or to be consulted on).
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17 (iii) A "Direct" Effect Must be the Immediate Consequence and not Hypothetical 38. It is well established that a person cannot complain about a possible or hypothetical effect on their rights. A "hypothetical" effect cannot, by definition, be "direct". Further, a "direct" affect must be one where the harm suffered (or to be suffered) follows exclusively as a consequence of the order itself, and is not dependent on other factors, influences or circumstances. Canadian Telecommunications Union v. C.B.R.T. & G. W., [1982] 1 F.C. 603 at p. 611: "In my opinion the applicant is only affected indirectly by that decision which merely creates a situation that may, eventually, affect the applicant."
cf. Finlay v. Canada, supra at para. 26: "the prejudice allegedly caused ... is too indirect, remote or speculative to be a sufficient causative relationship for standing under the general rule."
39. The plain meaning of the words "directly affected" demonstrates that there must be an immediate causal relationship between the order and the harm. "Direct" has been defined as being "characterized by close logical, causal, or consequential relationship" with an "absence of an intervening agency, instrumentality, or influence", and being "in a straight line; without deviation; linearly ... " The word "affected" is generally described as "influencing" or "producing an effect on" something. Accordingly, the plain meaning of the phrase confirn;is that a qualifying "affect" must be the immediate result of the order; intervening factors cannot play a role. By definition, such an "affect" could not be hypothetical.
Websters' New Collegiate Dictionary (1980), pp. 19, 320. Black's Law Dictionary (8th ed., 2004), p. 491.
40. In this case, the Applicants themselves admit that much of the harm alleged is unknown and hypothetical; as such it cannot be causally related to the Consent Agreement so required. At paragraph 45, the Applicants candidly acknowledge that "at this juncture the full effect of the Consent Agreement on the Applicants is still unknown." Elsewhere, the Applicants admit that their interest is only indirect (e.g. paragraph 44(a)). Indeed, the Applicants' interests are even more hypothetical and remote than admitted:
(a) BLNDC is the only one of the Applicants with any interest whatsoever in the Joint Venture. It is a minority shareholder in BFPL, which, in turn, is a party to
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18 the Joint Venture Agreement 1 • As a minority shareholder in BFPL, BLNDC has no preferential .voting rights or other rights of control over BFPL. No additional substantive rights are conferred onto BLNDC through the Shareholders' Agreement, other than a right of first refusal in case any of the parties to the Shareholders' Agreement sells its interest. As to the Joint Venture, BLNDC has no right of control, or even input into, the operations of the Joint Venture;
(b) The various Band Applicants allege to be shareholders in BLNDC, one very significant remove from BLNDC's minority stake in BFPL, the Joint Venture partner;
(c) The various individual Applicants are Aboriginal persons who, as Band members, are therefore, at most, beneficiaries of activities undertaken by BLNDC, itself <;>nly a minority shareholder in one of the Joint Venture partners.
(iv) The Notice Of Application Does Not Disclose Facts Which, If Proved, Could Demonstrate a "Direct Affect"
41. Contrary to the Applicants' vague claims to being directly affected, the effect of the Consent Agreement is, in fact, merely to change the parties to the Joint Venture Agreement and the Shareholders' Agreement. This change will not dilute BLNDC's minority interest in BFPL. Moreover, this change will not affect any of BLNDC's legal rights as set out in the various agreements to which it is a party. This change does not have any immediate or foreseeable effects on BLNDC; in fact, the only way in which BLNDC could be said to be "affected" is in positively triggering a BLNDC right of first refusal to purchase West Fraser's interest in the operations.
42. In effect, the Applicants alleged "direct effects" are as follows: (a) there will be a new shareholder in BFPL and a new joint venturer; (b) that new joint venturer might not consult with BLNDC in the manner to which the Applicants have become accustomed; (c) this indirectly affects the Applicant Bands, who are shareholders in BLNDC; and (d) this further indirectly trickles down to certain Applicant and absent Band members, who claim that the new
1 The BLNDC is nominally a party to the Joint Venture Agreement but only to acknowledge its right of first refusal to the transfer of any shares in BFPL (Article XI) and to prohibit them from encumbering any shares of BFPL (s. 16.1). BLNDC is not considered to be one of the "Joint Venturers": see Joint Venture Agreement, s. 1.1, page 6.
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19 ~hareholder I joint venturer might operate in a manner that threatens their aboriginal rights to economic autonomy, self-government and the right to the use of their lands.
43. At its core, however, the within Application reveals only one party who even remotely has an interest - BLNDC. BLNDC's alleged interest flows from a minority stake in BFPL which, in tum, is a partner in the Joint Venture. While it is conceivable that a consent agreement could affect a shareholder's rights (although such a case must be rare: the Air Canada case, for example, would have involved hundreds of thousands of shareholders, and it would be absurd to grant standing to shareholders in such a case), that is not the case here. The Applicants' complaints are simple corporate governance grievances, such as: (i) who will our fellow shareholders be?; and (ii) should the majority shareholder be allowed to divest its shares in BFPL as it sees fit?
44. If the Applicant BLNDC, as shareholder in BFPL, feels aggrieved by the actions of the J.?lajority shareholder, it has corporate governance remedies, such as the oppression remedy, to pursue, as well as potential tort and contract claims. Section 106 of the Act, however~ cannot be used to create a veto power to a minority shareholder, or to confer a novel right to initiate third party proceedings to attack mergers that have been the subject of properly negotiated consent agreements.
P. Davis, Gower and Davis' Principles of Modern Company Law (7th ed. 2003), at p. 619
H. Sutherland, Company Law of Canada (6tll ed.1993), at p. 693. Peoples Department Stores Inc. (Trustee of) v. Wise, [2004] 3 S.C.R. 461 at paras. 48, 53.
Epstein v. First Marathon Inc. (2000), 2 B.L.R. (3d) 30 (Ont. S.C.J.) C. The Tribunal's Discretion to Interfere with a Consent Agreement is Narrowly Prescribed
45. Both a plain reading of the Act and the legislative history of sections 105 and 106 demonstrate that the phrase "terms could not be the subject of an order of the Tribunal" refers to the remedial powers of the Tribunal only. In other words, it is not open to a person challenging a consent agreement to ask the Tribunal to consider whether the substantive component(s) of the underlying provision in question have been satisfied.
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20 46. First, the very words of subsection 106(2) clearly confine the inquiry to whether the "terms" of the Consent Agreement could have been the subject of a Tribunal order. Order "terms" are necessarily direct and remedial in nature; "findings" (as disclosed in Tribunal Reasons) are not orders, nor are they expressed as "terms". As such, there is no scope for inquiring into any substantive requirements under the Act or related "findings" a Tribunal might make or be required to make in the context of a contested proceeding.
47. Further, if a subsection 106(2) applicant is successful, the possible remedy is to "vary or rescind" terms of the consent agreement. However, if the Applicants herein are correct, and the Tribunal must be satisfied that the substantive underpinning was established (i.e., there was a likely substantial lessening or prevention of competition) to support the terms of the Consent Agreement, then there would never be circumstances in which a "variance" of the consent agreement could be made; if the Tribunal was not satisfied, no order at all could have been issued, and the entire impugned Consent Agreement would have to be rescinded. Significantly, that is not what subsection 106(2) contemplates, as "variance" is among the relief the Tribunal can award on a subsection 106(2) application.
48. Second, subsection 106(2) cannot have been intended to provide third parties with an independent right to initiate Tribunal proceedings involving substantive review. The decision as to wh~ther to contest a merger or proposed merger, for example, is the Commissioner's, and the Commissioner's alone, in the exercise of the statutory power, pursuant to section 92 of the Act. If subsection 106(2) allowed a third party to commence proceedings in the Tribunal contesting the substantive considerations in section 92; namely, whether a substantial lessening or prevention of competition is likely, that would effectively confer a right clearly denied under the Act. Only certain specific provisions (such as section 75 of the Act) admit any private access proceedings; Parliament cannot have intended that third parties be allowed to do through the back door (subsection 106(2)) what they are precluded from doing through the front. Accordingly, the sole inquiry under subsection 106(2) is whether, assuming the Tribunal had made whatever findings were required under the provision in question, would the Tribunal have had the power to order the relief contained in the consent agreement.
49. Third, as to legislative history, the amendments to sections 105 and 106 of the Act reflect a conscious introduction by Parliament of a regime streamlining the resolution of
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21 competitive issues arising under the Act by promoting consent agreements. This was in contrast to the substantive review by the Tribunal previously required; that review, while limited, necessarily extended the time within which resolutions agreed to between the Commissioner and private parties could be implemented, and exposed the agreement to attack by those who could secure intervention status before the Tribunal on the regular intervener test.
50. To advance the goal of expeditious resolution, and implementation of measures deemed by the Commissioner in the exercise of her statutory power to be in the public interest, the Tribunal's supervisory role under the old Act was dramatically curtailed; in particular, the previously mandatory review of substantive competitive issues was removed. All that now remains is a "check" that the Commissioner and private parties restrict the remedies imposed to those that would have been within the power of the Tribunal to include in its operative order.
51. A review of the introduction of amendments to sections 105 and 106 of the Act is revealing.
52. The first proposed amendment to the consent order provision, section 105, was drafted to give the Commissioner and consenting parties a very broad discretion as to appropriate relief. Specifically, section 105 was proposed to read:
The consent agreement shall be based on terms that could be the subject of an order of the Tribunal against that person and may include other terms, whether or not they could be imposed by the Tribunal.
Bill C-23, 1st Sess. 37tb Parliament (First Reading April 4, 2001) 53. The broad scope of this proposed section 105 - permitting consent agreements to include terms that could not be imposed by the Tribunal itself - received a strong negative response from the competition bar, who questioned why the Commissioner should be given more remedial powers than the Tribunal itself. The Canadian Bar Association queried why consent agreements would "purport to extend beyond the remedies you could obtain in contested proceedings."
Standing Committee on Industry, Science and Technology, Oct. 23, 2001, [CBA comments], and Nov. 6, 2001 [other submissions on remedial breadth of proposed draft]
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22 54. Subsequently, in the Standing Committee hearings preceding the passage of amended sections 105 and 106 (and the companion section 106.1 for certain private proceedings), the proposed scope for the Commissioner's remedial discretion was narrowed, to correspond to that of the Tribunal. In the context of the hearings, it was obvious that the limits to "what could be ordered" referred to the remedial jurisdiction of the Tribunal.
On consent agreements, concern has also been expressed that proposed subsection 105(2), dealing with the possible terms of a consent agreement between the Commissioner and a person against whom an order from the Tribunal has or might be sought is too broad.
We do not agree with this view. Our intent was to provide a provision that would allow us to address competition concerns in a flexible manner. Nevertheless, because of the concerns that were raised, the bureau proposes changing proposed subsection 105(2) on page 29 so that it only reads:
The consent agreement shall be based on terms that could be the subject of an order of the Tribunal against that person.
In other words, the rest of the proposed subsection, "and may include other terms, whether or not they could be imposed by the Tribunal" should be taken out.
In order to make the latter change meaningful, the bureau would also suggest changes to proposed section 106, which would make it possible for a third party directly affected by · a consent agreement to apply to the tribunal for a change to an agreement, on the grounds that the relevant terms could not have been subject to an order by the tribunal.
Standing Committee on Industry, Science and Technology, Nov. 7, 2001, at 1630 55. Again, in the Standing Committee hearings, the Commissioner explained the ability of a third party to apply to have one or more terms of a private access consent agreement rescinded. In that context as well, the check is clearly one defined by the Tribunal's powers to impose remedies:
... it has to be something that is within the four comers of the tribunal's authority. It's something the tribunal could have done, but we can save ourselves the necessity of going through a trial if both parties agree, "Yes, this is a fair resolution." We do it, we sign it, we register it, it becomes effective.
Now if it affects a third party and somebody gets sideswiped by it whom we didn't think of-unlikely, but it's this kind of...that third party should have in our view a right to have a term rescinded as of right, if we did something the tribunal couldn't have done. If the tribunal could have done the same thing, then the case is exactly what we have here: we have something that is within the power of the tribunal to do. [emphasis added]
Standing Committee on Industry, Science and Technology, Nov. 7, 2001 Competition Act, ss. 75, 77, 103.1, 106.1 DMSTORLegal\0516S4\00006\322443v7
23 56. Accordingly, subsection 106(2) does not contemplate a third party revisiting a consent agreement, in the merger context, for example, on the substantive ground that there was no likely substantial lessening or prevention of competition, or that there should be a de novo determination of that fact. That this must be so is aptly illustrated by the private access provisions: in the case of consent agreements registered by private parties who must already have been granted leave to proceed under section 103.1 of the Act, to permit third party intervention on such grounds would trigger a redundant hearing as to whether there had been a substantial lessening or prevention of competition, a matter settled at the leave stage.
57. Likewise, subsection 106(2) does not contemplate a third party opening a debate on the efficacy of negotiated remedies. To do so would necessarily require, in the mergers context, an inquiry by the Tribunal into the nature and scope of any substantial lessening or prevention of competition, in order to evaluate the remedy. For the reasons above, that cannot have been the legislative intent, and is not supported by the language of section 106(2).
58. While there are limits to the Tribunal's re~edial powers that must be respected (parties cannot consent, for example, to terms that are vague or uncertain, or that involve the never-ending supervisory jurisdiction of the Tribunal, or that are virtually impossible to monitor, or which are made for ulterior objects not related to the Act), the Applicants herein make no such allegations. To the contrary, the Applicants' complaint is summarized at paragraph 76 of their Amended Statement of Grounds and Material Facts:
The Consent Agreement purports to remedy a substantial lessening of competition. However the Consent Agreement could not properly be the subject of an Order of the Tribunal as no evidence has been furnished by the Commissioner to demonstrate that there has been a substantial lessening of competition. In the absence of any such evidence, there is no basis in law for the Tribunal to make or enforce an order for the divestiture of the Mill Assets and Timber Rights.
Amended Statement of Grounds and Material Facts, p. 17, at para. 76 Director of Investigation and Research v. Palm Dairies Ud. (1986), 12 C.P.R. (3d) 425 (Comp. Trib.)
Canada (Director of Investigation and Research) v. Air Canada (1989), 27 C.P.R. (3d) 476 (Comp. Trib.)
cf. Pyx Granite Co. Ud. v. Ministry of Housing and Local Government, [1958] 1 All E.R. 625 per Denning L.J. (C.A., rev'd on other grounds [1959] 3 All.E.R. 1 (H.L.)) [discretionary powers cannot be used for ulterior purposes not related to the Act]
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24 59. Moreover, quite apart from the fact that the Applicants' allegations are, if anything, in the nature of judicial review complaints and, as such, outside the scope of subsection 106(2), the Applicants' argument, if accepted, would defeat a clear legislative intent. In an effort to avoid the deliberate policy initiative to make it easier to file and give effect to consent agreements, the promotion of which Parliament determined to be in the public interest, the Applicants argue that the parties are still required to prepare, and file with the Tribunal, evidence as they would for a contested proceeding, and then defend it substantively. If that were so, the whole policy underpinning the new regime would be frustrated. By way of illustration, consent agreements could never be entered into where the merging parties disputed the allegation of a substantial lessening or prevention of competition (which is commonplace and promotes the use of consent agreements). Further, significant time and resources would be required to articulate a case for the Tribunal, an exercise Parliament expressly sought to avoid. Finally, Parliament's interests in expedition and the ease of resolution informing the amendments would be effectively frustrated.
Commissioner of Competition v. Trilogy Retail Enterprises LP, 2001 Comp. Trib. 29 at para. 20
Commissioner of Competition v. Bayer AG 2002 Comp. Trib. 29 (July 18, 2002) Canada (Director of Investigation & Research) v. Washington (1997), 73 C.P.R. (3d) 538 (Comp. Trib.) at para. 6
Canada (Director of Investigations and Research) v. ADM Agri-lndustries, Ltd., (May 8, 1998) (Comp. Trib.)
PART V .... ORDER REQUESTED 60. For the foregoing reasons, the Commissioner respectfully requests that the questions appearing on the Notice of Reference be answered. Further, the Commissioner respectfully requests that the Notice of Application herein be struck, as the Applicants cannot satisfy the standing requirement, even accepting the facts pleaded as true.
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25 AlL OF WHICH IS RESPECTFULLY SUBMITTED. April 1, 2005
Tel.: 416.863.1200 Fax: 416.863-1716 Duane Schippers DEP ARThffiNT OF JUSTICE Competition Law Division Place du Portage, Phase I 50 Victoria Street, 22nd Floor Hull, PQ KlA OC9
Tel: 819.953.3898 Fax: 819.953.9267 Solicitors for the Respondent, the Commissioner of Competition
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