Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 5 - Evidence - May 5, 2004
OTTAWA, Wednesday, May 5, 2004
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-249, to amend the Competition Act, met this day at 4:10 p.m. to give consideration to the bill.
Senator Richard H. Kroft (Chairman) in the Chair.
[English]
The Chairman: Our first witnesses today are both lawyers at Blake, Cassels & Graydon. Mr. Brian A. Facey and Mr. Neil Finkelstein are both appearing as individuals. Gentlemen please proceed.
Mr. Neil Finkelstein, Lawyer, Blake, Cassels & Graydon, LLP, as an individual: Honourable senators, let me be blunt. This proposed amendment, in my view, is here because the Commissioner of Competition chooses the wrong cases to litigate. The commissioner has brought five contested merger cases in the Competition Tribunal since 1986 when the Competition Act was enacted. I have been counsel opposite the commissioner in four of those five cases, and the commissioner lost all four of them. Now the commissioner wants to change the ground rules in order to win even the wrong cases despite public policy.
I will be discussing Canada (Commissioner of Competition) v. Superior Propane Inc. (C.A.). I was lead counsel for the case. Superior Propane Inc. has no interest whatsoever in this proposed bill, and I am here solely in a personal capacity.
In Superior Propane, the efficiencies were $29 million and all of the bad effects combined were $8.6 million. The efficiencies exceeded all the bad effects by a factor of 3.5 to 1.
In other words, the transaction was of a net benefit to Canada by a factor of 3.5 to 1. That means that the resource savings to the Canadian economy were $29 million. All of the bad effects in terms of the transfer from poor consumers to Superior Propane were $8.6 million.
Let us be clear about this. Transfers from foreign consumers, or transfers from very large corporations here in Canada controlled by foreign shareholders, which were transferred to Superior Propane Inc. through higher prices, were not included as bad effects.
The reason, I would say, is obvious. Queen Beatrice of the Netherlands is a large shareholder in Royal Dutch Shell, which is a British and Netherlands company. Why is it a bad thing if assets are transferred from the Netherlands to Canada? Why is that bad Canadian public policy? Exxon Mobile Corporation owns 70 odd per cent of Imperial Oil Limited. Why is it a bad thing if assets are transferred from U.S. shareholders to the Canadian holders of Superior Propane through price increases? The Competition Tribunal considered those questions and decided that they are not bad effects, but actually good effects and from the perspective of the Canadian economy they did not count them against the merger.
Honourable senators, I ask you to turn to tab one, page nine of our submission. It is a passage from Honourable Mr. Justice Rothstein's decision in Superior Propane in the Federal Court of Appeal. Justice Marshall Rothstein was a member of the Competition Tribunal and was one of the leading competition practitioners in Canada until his elevation to the Federal Court bench. He is now a member of the Court of Appeal. He understands competition law. What he says at page 9 is this:
While the Tribunal did not adopt the precise model proposed by Professor Townley, it did use the model as a foundation for its assessment of the extent of the anti-competitive effects. To this end, having regard to the purposes set out in section 1.1 of the act, the tribunal specifically considered the following effects: dead weight loss, interdependent and coordinated behaviour of competitors, service quality and programs, impact on Atlantic Canada, interrelated markets, loss of potential dynamic efficiency gains, monopoly, and small- and medium-sized enterprises.
This is important:
The Tribunal's consideration of the balancing weights approach of Professor Townley and the regard it had for the purposes of section 1.1 of the Act, accord with both the direction and latitude given to it by the Court.
Justice Rothstein found that what the tribunal did under section 96 was consider all of the factors and that accorded with the purpose clause of the Competition Act in section 1.1.
Please now turn to tab nine, page 11, and you will see section 1.1 which is the unifying provision of the act. It tells the purpose of the Competition Act, and so the issue for you, or one of them is, does proposed subsection 96 fit within the unifying purpose of the act? If it does, it belongs there.
Justice Rothstein says it does. Look at the purposes of the act. There are four of them.
1.1 The purpose of the act is to maintain, encourage competition 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.
Whereas the commissioner's amendment here is focused only on item 4, in fact, the purpose clause is a delicate balance of four interests, and Justice Rothstein says what the tribunal did in Superior Propane was balance all four of those interests.
The Chairman: Mr. Finkelstein, could I ask you to pause for a moment because I want to make sure all my colleagues are on the same page.
Mr. Finkelstein: Literally speaking. My first quote was tab one, page nine. The second was tab nine, page 11.
Mr. Finkelstein: The tab nine, from our brief to you last November, Bill C-249, An Act to amend the Competition Act, Neil Finkelstein, Brian Facey, et cetera. I appeared here in November, but the submission was dated October 30. Mr. Facey and I were here November 6. It is paragraph 37. Is that helpful?
The Chairman: Thank you very much.
Mr. Finkelstein: Our submission is that section 96, as it is written, is number one, good policy. It is good policy to permit a merger where the efficiencies outweigh the bad effects by a factor to of three and one-half to one, and it is good policy to leave a provision that has been tested in court, where the court says that it is consistent with the purpose clause.
Therefore, we should leave the current rules in place so that the commissioner will be able to block mergers that are bad for Canada, in other words, where the efficiencies are less than the bad effects, but not able to block mergers that are good for Canada as she would have been able to do or as Mr. von Finckenstein would been able to do, had this amendment been in place at the time of Superior Propane.
When the commissioner comes tomorrow, I submit that you should ask her these questions. Many of the price increases in Superior Propane were to large foreign concerns or foreign controlled Canadian companies, thus transferring wealth from foreign shareholders to Canadian shareholders. Why is that a bad thing?
Many price increases were from huge companies many times Superior's size: Shell, Imperial Oil, Tech Mines, Bombardier, CN and CP. There was a transfer from one shareholder group to another. Why is that a bad thing?
While Mr. Jorré was the acting commissioner, he heard our submissions on November 6. He wrote you a letter that is date stamped November 10. On the second page, he responds to my comments, and says,
While it is true the large petroleum companies are important customers of Superior Propane, notably because they buy propane for resale to automotive customers, the largest segment of Superior Propane's sales are to customers who use propane for heating, cooking and farming. These are residential and commercial customers and agricultural customers who are being damaged by the merger.
You have to ask the commissioner to come clean. Mr. Jorré said that propane is used for heating. This is the function of propane. Petroleum companies use it when they mine. Propane is used to heat large commercial buildings and large construction companies; it is used to heat swimming pools and country houses; it is used to heat trailer parks. The tribunal considered all of that mix.
Mr. Jorré said it is used for cooking. Yes. It is used for barbecues. We heard from many of McDonalds operators. People use it in trailer parks. The tribunal took all of these parties into consideration. He referred to agriculture where propane is used by both huge agricultural concerns, and by small farmers.
When Mr. Jorré wrote this letter he did not; mention that the tribunal considered all of these factors and figured out which effects were bad and which effects were not bad. The tribunal said that after considering all of this, the bad effects were $8.6 million. Mr. Jorré did not think that the legislation was bad but that he disagreed with the tribunal's assessment. He disagrees with the tribunal's finding as to what was bad and what was not. I do not believe that is good enough reason to change the legislation.
I have heard it said that the commissioner lost the Superior Propane case because he led a bad case and made errors in calculation. I am not here to protect the commissioner, as you may have guessed. However, that assessment of the commissioner's performance is harsh. The criticism has been made by academics that were not in the courtroom, and if they had been present I would have cross-examined them myself, and then we would have seen what the tribunal would have done.
Second, you do not change legislation because the commissioner may have goofed in one case. You wait until more cases are decided and the legislation has been shown to be bad policy. That was not the case in the Superior Propane case.
The Chairman: You know how your presentations are structured. I need your advice. Are we better off to wait for questions until you both have given your presentations?
Mr. Finkelstein: You give us too much credit when you say we know how our presentations will go. We have anticipated we would do it this way. I would speak first. Mr. Facey would speak second for not more than 15 minutes, and then the senators would ask us questions.
The Chairman: Please proceed. Mr. Facey. That is fine with us.
Mr. Brian A. Facey, Lawyer, Blake, Cassels & Graydon, LLP, as an individual: I have three points to make this afternoon. The first point is that Bill C-249 has not been the subject of sufficient input for such complex framework legislation. The language of Bill C-249 has been a moving target, so to speak, and has existed in its current form only since March 2003, when it was last amended significantly. It is reaction to the Superior Propane case, which is obvious. It is not supported by any studies or empirical analyses calling for the reform of this country's merger laws.
The second point is that at its best, proposed Bill C-249 greatly reduces the role of efficiencies in merger review in Canada. At its worst, it eliminates them altogether.
The third point is that the current Canadian approach is not, contrary to what some have said before you, ridiculed in other nations. In fact, if anything, it is envied by other nations.
Let me turn to my first point. No empirical studies or economic studies have been called for or shown that there is a need to amend the country's merger laws. We are talking about a reaction to one case.
I submit that the proposed legislation before you has not been sufficiently studied for the following reasons: First, it has been a bit of a moving target. Bill C-249 first appeared as Bill C-509.
The merger laws remained the same in Bill C-248 and then in Bill C-249 until March 31, 2003. On that date, the Honourable Dan McTeague, the author of the various iterations of the bill, introduced an amendment, which removed the contents entirely and replaced them with a different provision. Those who were to testify before the industry committee at that time basically admitted that their submissions were of little relevance to the bill that was in place.
In the package of materials that we have provided to you, we have included Bill C-509. I know that your materials are not tabbed, but it is at the end of our first submission. It is labelled as Bill C-509. If you would please turn to that, I will spend a few moments going through it with you.
Bill C-509 did not make a change in terms of deleting section 96(1). It added two subsections: subsection 4 and subsection 5. Subsections 4 and 5 read as follows:
(4) For the purposes of subsection (1), gains in efficiency cannot offset the effects of a lessening or prevention of competition unless the majority of the benefits derived or to be derived from such gains in efficiency are being or likely to be passed on to customers within a reasonable time in the form of lower prices.
(5) This section does not apply where, after the transaction has been completed, the merger or proposed merger, will result or is likely to result in the creation or strengthening of a dominant market position.
There are seven significant changes from that bill to the amendment that was introduced on March 31. The first change is that subsection 5, which deals with the creation of a dominant position, has been deleted. The second change is that the bill before you now refers to section 93 of the Competition Act. In other words, it is no longer just changing 96(1) it is now referring you back indirectly, making a change into section 93. I will return to that, because it is critically important in terms of changing the definition of what is a substantial lessening of competition.
The third change is that it kept the concept of ``greater than'' and ``offset,'' as it initially appeared in section 96(1).
Fourth, it refers to the majority of benefits being derived from the transaction being passed on. That is a change from the current provision, which requires them all to be passed on.
Fifth, it talks about these things being passed on in a reasonable time. There is no mention of time in the current provision.
Sixth, it talks about it being done in the form of lower prices, whereas currently it talks about it in terms of competitive prices and product choices.
Those are the six changes from the amendment from the Honourable Dan McTeague on that date. I submit that they are significant.
On the same day the Commissioner of Competition at the time, appeared before the industry committee on the same day and suggested a further change. That was to change the word ``shall'' to ``may.'' Therefore, the bill that is before you now had one other change, where it says that the tribunal ``may consider efficiencies,'' it used to say ``shall consider efficiencies.'' That change was made on March 30.
Some witnesses before you have suggested that this is not a significant change, that ``may'' means ``shall'' and it is not a big deal. I submit to you that it is a very significant change. It gives the tribunal the power to completely ignore efficiencies in the context of any given case.
In our submission, on page 6, there is a passage I would like to draw your attention to. In response to questioning from Mr. McTeague questioning the former commissioner about the change from ``shall'' to ``may,'' the commissioner stated:
If you put in the word ``shall'' as you have, it is automatically part of every challenged merger. I do not think that is the intent you had in mind. You want to ensure the tribunal would look at these things this context.
In response, Mr. McTeague commented:
I was convinced the word was significant, so I thank you for pointing that out.
I will return to that in a moment.
In addition, I want to draw to your attention a recent publication by the Public Policy Forum. The Public Policy Forum has been retained by the Competition Bureau in respect of other changes that are going on to the Competition Act. We outlined some of those changes the last time we were here. That process was completed, and on April 8, the Public Policy Forum issued its report entitled ``The National Consultation on the Competition Act Final Report.''
In that report, there is an amendment to what is currently section 45 of the Competition Act. It is a rather large amendment, which is in a new section, section 79.11. In that, it sets out language identical to Bill C-249, although note that it is not a stand-alone provision. It is built into the provision. In any event, here is what the PPF has to say about the same language as Bill C-249. I am reading from page 7 of our submission.
The Chairman: Is this April 2004?
Mr. Facey: Yes, April 8, 2004.
The highlighted portion in our submission says:
At some round tables, intervenors discussed the treatment of efficiencies proposed in the draft civil strategic alliances provisions, as well as the role of efficiencies under the act generally, and the approach proposed in Bill C-249. Although intervenors agreed that efficiencies ought to be considered in the review of strategic alliances and mergers, opinions diverged on how best to deal with efficiencies in those contexts.
Then they conclude the following:
A large majority of intervenors reported concerns with the draft provisions proposed in the discussion paper and indicated that any changes should be approached with more study and careful consideration.
Two observations are important here. First, there is agreement that efficiencies should be considered in the review of mergers; yet the change from ``shall'' to ``may,'' as I have discussed, clearly runs counter to this agreed upon view.
Second, a large majority of intervenors reported concerns and indicated that further study and careful consideration ought to be had before we tinker with legislation of this importance. That is my conclusion on the first point.
At best, Bill C-249 greatly reduces the role of efficiencies and merger review, and at worst, it eliminates them altogether. This is rather technical in terms of being a matter of economics and law and economics, but I have three points to make here.
The first is that efficiencies do not affect the determination of whether there has been a substantial lessening of competition. The ability to reduce your costs has nothing to do with your ability to raise prices. That is why changing the legislation to say that in considering substantial lessening of competition you look at efficiencies is significant, because efficiencies do not impact on the ability to raise price.
Point two is that the requirement of a pass on to consumers in the form of price reductions as a matter of basic economics eliminates all fixed-cost savings from being submitted. Fixed-cost savings are the reduction of things that do not vary with your output. They are all irrelevant because they have no direct impact on price, yet they are an important aspect of resource savings to an economy like ours.
Last, the use of word ``may'' rather than ``shall'' further reduces the role of efficiencies in Canada's merger policies because the tribunal can completely ignore them, at its discretion.
I note that Mr. Tom Fina from Howrey and Simon will be here tomorrow and he will speak to this issue in greater detail. He will be able to address this issue from an American perspective. However, a witness before you has suggested that other countries ridicule the current Canadian approach.
The current Canadian approach is not ridiculed in other countries. It is instead a sophisticated, made-in-Canada approach that requires us to look at the net benefit of the Canadian economy. Neither Mr. Finkelstein nor myself, or any of the members of our firm have had that experience.
We would be happy now to take questions.
Senator Harb: You mentioned the consumer as well as the economy as a whole, when you discussed efficiencies.
At what point in time would you determine that a particular merger would benefit the consumer in reduced prices as opposed to the merger benefiting the Canadian economy?
How do you manage that balancing act?
I am referring to your statement that the merger would create a company that would become one of the largest 15 in the world, and, therefore, benefit the Canadian economy as a whole.
Mr. Finkelstein: To clarify, I did not say anything about top 15.
Senator Harb: It is in your brief.
Mr. Finkelstein: I see.
Senator Harb: The brief is part of your presentation, is it not?
Mr. Finkelstein: Yes, I just misunderstood. I thought you were saying I said something, but let me answer your questions.
If prices go down as a consequence of the merger, then this amendment is irrelevant because there will be no substantial lessening of competition.
You will recall that the tribunal only has jurisdiction to take apart a merger if there are price increases. That is where there is a substantial lessening of competition. If there are decreases in price to consumers, this whole discussion is irrelevant.
The discussion only becomes relevant when there are price increases. At that point, you must refer to section 96 that says that when the efficiencies are greater than and offset the effects of lessening of competition, the merger must proceed. In other words, if they cause a transfer from a foreign corporation or foreign shareholders to a Canadian corporation or Canadian shareholders they are not bad. If the bad effects are less than the efficiencies, the merger goes through. That is consistent with the purpose clause, which says that a balance has to be made of the four factors that I recited to you. That is what the tribunal does on a case-by-case basis.
The tribunal asks about the efficiencies and the bad effects. They question the bad effects based on whether they are poor consumers, or whether they are bad because of the nature of consumers. In other words, the example given by Peter Townley is of a very poor group of producers creating a type of car seat that is used only by owners of Rolls Royce and Mercedes Benz cars. If you raise the price of those car seats, there is a transfer from the very rich consumer to the poor producer. That would be considered a good transfer.
You have asked me if I have considered any particular case. It is not a consideration, sir, of a particular case. It is a set of principles enunciated in section 1.1, given effect to by section 96, which the tribunal deals with on a case-by-case basis.
Senator Harb: What would you say to some who may achieve merger, notwithstanding whether or not it will improve on the whole issue of competition in the marketplace, efficiency in the marketplace, or the national interests in terms of economic benefit to society as a whole? What would you say to those who achieve mergers through acquisitions? In other words, what would you say in the case where a merger is achieved through the back door of acquisitions?
Mr. Finkelstein: Well, again, section 96, as it is written now, only allows the efficiencies to be counted, which would not be achieved absent the merger. I understand the premise of your question to be this: If efficiencies could be achieved with a merger, or they could be achieved in a different way without the merger, what would I say to that merger?
What the current section says is those efficiencies that would be achieved other than through the merger do not count, and so, for example, we had what in Superior Propane. ICG Superior Propane was a merger between Superior and ICG. ICG was going to set up call centres to achieve enormous efficiencies through the use of these call centres. They had not been achieved yet at the time of the merger, but they were on the drawing board very close to implementation. Those efficiencies were not counted in favour of the merger and were not part of the $25 million.
Your question is a good one, but it is already comprehended by the section that is in force now.
Senator Tkachuk: Please help me with this concept of efficiencies. I have always thought that efficiencies would result in cheaper prices. I need to understand how economists can mark up efficiencies.
I believe one of the witnesses used the example of two or three trucks hauling when one truck could do the job. It reminded me of when a socialist candidate for the NDP in Saskatoon in the 1970s ran a campaign on getting rid of service stations because there were too many of them. The candidate said it would be more efficient to have a gas station every five blocks rather than have three in one block. Someone would have to control that kind of monopoly, which would not decrease the price of gas but would make it more expensive. It would create a situation where everyone would then be lining up rather than having the convenience of a service station at his or her disposal. There are also other factors.
I just do not understand how people can add up non-existent efficiencies when they are charging higher prices to absorb them. If they are more efficient, then the price of propane should be cheaper.
How can it be more expensive? How can they possibly justify the higher price?
I do not care where the transfers come from because sooner or later, there should be a price decrease to affect that efficiency or, put simply, they are not efficient. They are price gouging, if they are a monopoly. That is what everyone wants to be: a monopoly.
How do you add that up and justify it? In three to five years, how can someone say that they are more efficient?
Mr. Finkelstein: Let us talk for a moment about the difference between the monopolist you are talking about in Saskatoon and the case we are talking about here.
It may well be that simply closing service stations is not efficient in the way that we are talking. Allow me to give you the example in Superior Propane. I am exaggerating to make a point but this is how the logistical efficiencies were achieved in the Superior Propane case.
Assume a situation where you have a street with houses on both sides, and Superior Propane has all the customers on the left side of the street and ICG has all the customers on the right side of the street. You will have one Superior truck driving up the left side of the street to serve customers and one ICG truck driving up the other side of street to serve ICG customers. That is not efficient. You can have one truck driving up the street to serve customers on both sides of the street.
Senator Tkachuk: Yes, but at a higher price.
Mr. Finkelstein: One minute, senator. Pricing is different. The point is —
Senator Tkachuk: No, it is not different.
Mr. Finkelstein: The point is that a real saving can occur with one truck serving both sides of the street. Everyone is being served. Will prices go down? Maybe. Will prices go up? Maybe.
The issue I suggest to you is the question that the tribunal asked: Who is paying the higher prices? How big are the efficiencies savings to the Canadian economy? To what other use can that truck be put?
I know that Mr. Facey is dying to give you the economic answer to your question. I have given you the practical answer to your question, which was dealt with in this case.
Mr. Facey: Very few mergers rely on the efficiencies defence and in few cases does this arise. There can be multiple effects in a troublesome merger where you have both an increase in prices and a huge resource savings to the Canadian economy. You can have multiple effects: prices can go up and costs can go down; trucks that used to deliver propane can now be used to do something else; and head offices for one process can be now used for something else. It is all part of being put back into the economy.
The question is: What does current law do? The current law asks: Do we care about the price increase to the customer? Yes, we do. We look at that when we look at the deadweight loss. We also look at it in terms of price increases.
The current law states that you have to know who the customers are, how serious the price increases are, whether the customers are low-income Canadians, or people who can bear higher prices because of other benefits to the economy.
The current law says that where the efficiencies are substantial and the socially adverse effects of higher prices are not substantial, we, as a whole, benefit the economy by allowing the merger. In other words, we do not try to protect the small group of customers when there is a much larger benefit for Canada. That is what current law says. In our submission, that is a good test. It looks at the net welfare of Canada over time.
Senator Tkachuk: I am trying hard to understand the economics of the subject. Perhaps it is because I am a little slow but it seems to me that you are justifying efficiencies on the basis that you will be charging a higher price for people who are rich. If you are creating efficiencies, you do not identify to which consumers they apply. You are creating efficiencies so that you have cheaper prices. If there are five competitors, they compete, and the best price wins. Everyone who wants to buy will buy. Government should not decide who buys what or whether rich or poor people should pay. You cannot say that this product is from the Netherlands so they can pay more; who cares about them? What has that to do with anything? Certainly, what has that to do with economics?
I do not understand the scenario with the one truck versus two trucks. If the truck is used for one thing in one place and then used somewhere else for another purpose, what has that to do with the truck because the truck is running? What has that to do with saving anything on the economy?
If you were to bomb the truck and never have to use it again, and not have to pay for the depreciation, I suppose that would be a saving to the economy. If the truck is running somewhere else, what saving is that? Someone else is simply paying for that truck.
Mr. Finkelstein: I will try it another way. I guess if it is your view that, as a matter of public policy it does not matter whether dollars are transferred from a foreign country or foreign shareholders to Canada, if that is not a matter of Canadian policy, then I do not have an answer to that question.
My view is that transfers from outside into Canada are good things but, of course, it is not my choice because it is your choice.
On the issue of what that has to do with economics, the current law is not dealt with solely on an economic basis; that is the point.
The Federal Court of Appeal said that section 96 means you consider all of the bad effects. I was careful in my comments to phrase it that way: all of the bad effects. That means economic effects, which are small in this case. The deadweight loss transfer is small. The Federal Court of Appeal said you must also consider bad social effects.
My submission to you is that, as a matter of policy when you are considering social effects, income distribution is important. That is not new. We do that in the Income Tax Act and have done so for many years since the 1919 temporary Income War Tax Act.
Senator Tkachuk: That does not mean it is good.
Mr. Finkelstein: It may not, but I suggest that it is an important variant of Canadian public policy. You may disagree with that, as you are entitled.
You have to be clear that we are talking about are these propositions. Transfers from foreign companies to Canadian companies are good. Section 96 is not just a piece of economic legislation. The court has made it clear that it is socio-economic because social factors must be and are considered.
Senator Tkachuk: I have one more question.
How can you justify taking money from foreign companies, and not giving it to poor people who use propane? How can you justify putting that money into the company's coffers?
What has that got to do with the price of the product? How does that help the poor customer? What does that have to do with income redistribution? What does it have to do with anything? It did not help the poor people in the trailer park; they all paid higher prices.
Mr. Finkelstein: I say this with respect: We are dealing only with the Competition Act. If there are problems of redistribution, those problems are dealt with in many other ways through the Income Tax Act, through various regional grants, and through various social programs.
The Competition Act is concerned only with balancing the four purposes in section 1.1. It is not omnibus legislation; it deals with industrial organization. If there is a problem of rich companies being too rich, that is dealt with in other ways.
The Chairman: In these hearing we are constantly made aware of the fact that the Superior Propane case was the one and only case of this type. Can you explain why you think there has only been one such case?
Does the existence of the efficiency defence have some kind of a chilling effect to keep other cases away? I am interested and I invite you to explain why there has only been one such case is 16 years.
One of the questions we have in going through all this is whether this is one response to one case. Do you think there might be more cases? I would like to put that case in a context based on your experience.
Mr. Finkelstein: Honourable senators, both Mr. Facey and I will try to answer those questions. I am a litigator; I only do litigation. Mr. Facey is more broadly based; he deals with the bureau, which I do not, and as well, he helps me litigate, thank goodness.
I would broaden the question. I told you at the outset there have been only five contested merger cases since 1986, and I have been counsel in four of them.
The Canada (Director of Investigation and Research) v. Southam Inc. case started in 1991 and finished in the Supreme Court of Canada in 1997. There was enormous uncertainty in the organization throughout that six-year period and Southam Inc. won the case.
In Director of Investigations and Research v. Hillsdown Holdings (Canada) Ltd., the commissioner stopped at first instance, and it took only one year.
We had a hearing in the national transportation agency concerning the CP Ships merger case that took two weeks; CP Ships won. The commissioner did not agree with the national transportation agency, started proceedings, spent over a million dollars in fees, took almost two more years, and dropped the case before hearing it. The result was enormous cost and enormous uncertainty.
Superior Propane took four years, two Competition Tribunal hearings, and two trips to the Federal Court of Appeal.
Despite the fact that the commissioner lost all those cases it remains that there is an enormous deterrent to taking on the commissioner. The pain that the commissioner can impose is enormous, even though at the end of the day in those four cases it was no more than a heckler's veto.
One of the reasons why there have been so few cases litigated is because, win or lose, the commissioner can make it so painful for a company to take the bureau on, the commissioner has so much power in his or her ability to take the case to the Competition Tribunal, that the vast majority of cases are either dropped or settled by divestiture before they ever get to the tribunal. This is because people do not have the stomach to take on the bureau.
The Chairman: Of those five cases, only one would be affected by the change in Bill C-249?
Mr. Finkelstein: CP Ships, as I told you, was never litigated. We raised an efficiencies issue and the commissioner dropped the case. I do not know whether that would have been affected or not.
The Chairman: There is only one clear-cut case where it was raised?
Mr. Finkelstein: Yes, in Superior Propane.
Mr. Facey: No client really wants to be another Superior Propane and spend that kind of time in the courts. The vast majority of cases do settle. The bureau at one point was looking at 400 cases a year. I am sure that figure is down now. Very rarely do they get litigated. There is also a section 100 power that the Competition Bureau has and that is to get an injunction preventing closing for a period of time. It is very easy to get that kind of injunction, and that is another impediment. If the bureau succeeds, the parties may not want to go ahead with the deal. In terms of the standards, it is interesting, because they all affect how significant efficiencies are in merger analysis.
Over the last few years, the initial standard has been the total surplus standard. That was the bureau's position from 1991-99. That is the most permissive standard. You do not have to look at anything other than inefficiency loss or the deadweight loss. All these wealth transfers, small business, and all that stuff are totally irrelevant when you are doing the balance.
In 1999-2002, the Competition Bureau adopted the balancing weights approach of Professor Townley. In 2002-03, it adopted the consumer welfare standard. At the present time it is the modified price standard.
These are the different standards that have been articulated over time. The point is that we do not have the total surplus standard any more. Superior Propane clearly changed that standard. We used to look at only deadweight loss, whereas, now we look at wealth transfers, whether they are socially adverse, the effects on small business, and the effect on international trade.
Given that larger basket of effects that must be balanced against efficiency gains, I do not think we will see more cases. We should see fewer cases, which is hard to imagine.
Currently, we have a very difficult standard. This is not a blueprint for monopoly in Canada. It is not, it never was, and certainly since Superior Propane, it is a harder test.
Senator Harb: Have you have had a chance to go over a Government of Canada discussion paper that was produced in June 2003 with regard to an amendment to the Competition Act? Are you aware of that discussion paper?
Mr. Facey: What is the title of that paper?
Senator Harb: ``Discussion Paper — Options for Amending the Competition Act: Fostering the Competitive Marketplace.''
Mr. Facey: Yes, I am familiar with that paper.
Senator Harb: In your presentation you brought up the fact that Bill C-249 was amended a number of times, and evolved over a period of time.
A part of that discussion paper, there is an element where the government supposedly will consider whether or not they will agree to a merger if the merger meets certain criteria.
One of the criteria, on page 36 of that particular paper states:
(h) whether the agreement or arrangement has brought about or is likely to bring about gains in efficiency that will provide benefits to consumers, including competitive prices or product choices, and that would not likely be attained in the absence of the agreement or arrangement.
I suggest that this particular paragraph is almost the same as what is in Bill C-249. It seems that you are a bit fixated on the issue of efficiencies.
You have taken the position that sometimes you can have efficiency in the marketplace even though the prices are higher because there would be a side effect to the economy, and there is a net benefit. You have fewer trucks on the road, therefore you are saving, and so on.
If the word ``efficiency'' is taken out and everything else left in the paragraph how would you see your position vis-à- vis Bill C-29?
Mr. Finkelstein: Honourable senators, my view is that it would be a disaster. I told you at the beginning that I wanted you to let me be blunt. It would be a disaster for this reason. I already took you to the four purposes of the purpose clause.
If you eliminate the word ``efficiency'' from it, you will have one purpose covered, which is the benefit to consumer. This act was enacted with four purposes. If you look only at benefit to consumers, without regard to anything else, without regard to the degree of inefficiency in the economy, Canada will be poorer.
I use Superior Propane as an example. All things considered, and that includes the social and economic losses, the Superior Propane case cost us $8.6 million. On the test you have just proposed, the merger would have failed and the Canadian economy would have lost the $29 million.
That is not consistent with the purpose clause of the act, and it is, for what it is worth in my opinion, bad policy because you leave $29 million on the table for an $8 million gain. The numbers do not work.
Senator Harb: Mr. Chairman, I am extremely interested in what the witnesses are putting before us. However, the question again is: Have you had a chance to see the position paper? Have you made a presentation to the government in terms of how you see the package as it is proposed?
The fact is that we are dealing with one element of the Competition Act rather than dealing with it as a whole. Therefore, you do not have all the things that you would need. There are missing elements.
Have you had a chance to see the paper and, if you have, have you made a submission to the Government of Canada vis-à-vis their discussion paper?
Mr. Facey: Yes. Part of that package is in our submission that we sent to you today. I was speaking earlier about the paragraph you just mentioned.
I have not made submissions to the PPF on this paper; I was not invited to do so. However, I have written on this topic. It is a slightly different topic in the sense that we are looking at section 45, which is the conspiracy section of our Competition Act. The proposal is that we would get rid of a certain word, ``unduly,'' and this is far beyond the scope of Bill C-249.
The Chairman: I am concerned that we are wandering from the subject.
Is it fair to say that you are inviting this committee to face the fact that this is a piece of economic framework legislation and not a piece of social legislation, and that we have to accept the fact of what we have to do in order to achieve the purposes of the act?
Are you saying that if it gets us to a social purpose or it gets us to a consumer purpose, your position is that this is outside the bounds of this act?
Mr. Finkelstein: Sir, I would refine it this way: This clearly is, as you put it, framework legislation, that the factors to be considered are those in section 1.1, and that having regard to that, section 96 is a balancing of a host of factors that are not exclusively economic. They consider consumer interests, social interests and economic interests. That is what the Federal Court of Appeal said section 96 means. That is the way that the Competition Tribunal applies it. It is a very delicate balancing of a whole series of interests.
What it does not do is go so far as to become omnibus legislation, as was suggested to me, dealing with redistribution of income from foreign trading partners or redistribution of income from rich to poor in a host of ways.
Senator Oliver: I wonder if the reason there is so little litigation is because there is some ADR that is employed. If that is the case, what form does it take or is it just that it is so expensive and it is just that the commission has so much power and influence that they can drag it out for years?
Is there an alternative method being used to the litigation?
Mr. Facey: There is not really a formal ADR process in merger review, but are you exactly right. The way it works is that businesses are very time-sensitive to making a major merger transaction. We are talking often of months or weeks, and certainly not years. Years will kill a deal. It will kill 99 per cent of the deals.
You are right in the sense that the government has much discretion and power. It has many formal tools. It can use section 11 orders to compel the production of documents. There is a notification procedure. They can easily to go to the tribunal and block or delay closing. That is why as a business reality, people do not want to fight these things on a regular basis. There have been five cases since 1986.
Senator Oliver: Earlier you were talking generally about the difference in a type one error and a type two error, and you gave us a brief description of the efficiency defence approach and the price standard approach.
One question that had been suggested to put to you involves the burden of proof. I wanted to know if you could compare the evidentiary burden imposed on the parties to a proposed merger and the Commissioner of Competition entailed in both the modified total surplus standard and under the efficiency defence and the price standard approach taken in Bill C-249.
In other words will there be a shifting in the burden of proof and in what way will it be affected?
Mr. Finkelstein: The burden of proof is on the commissioner to show that there is a substantial lessening of competition.
Senator Oliver: Is it under Bill C-249 or elsewhere?
Mr. Finkelstein: Both.
Senator Oliver: There is no change in Bill C-249?
Mr. Finkelstein: There is no change. You asked about persuasive burden and legal burden. The legal burden is on the commissioner. I have always approached it on the basis that if I do not lead any evidence about that, I am dead. Therefore, as a persuasive matter, we lead evidence on that issue too.
The burden to prove efficiencies is on the merging parties. That is the legal burden.
Senator Oliver: That is where you would naturally expect it to be.
Mr. Finkelstein: Precisely. The commissioner is in a better position to prove the price increases, because he can find out what competitors are doing. He can subpoena their prices; the merging parties cannot. In fact, if they tried to get hold of their competitors' pricing, they would be charged with conspiracy. So the commissioner can prove that, the parties can prove efficiencies and, as I understand it, the burdens will not change under Bill C-249.
The Chairman: Thank you very much. We appreciate the ongoing efforts to enlighten us on this subject.
Our next witness is Mr. Tim Kennish.
Mr. Tim Kennish, Past Chair of the National Competition Law Section, Canadian Bar Association: Mr. Chairman, Joan Bercovitch, Director of Legal and Public Affairs sends her regrets, as she is unable to be here today.
Thank you for the opportunity to present our views on this proposed legislation. It is an important piece of competition law. You have a copy of our prior submission from last fall. In the time available, I plan to highlight the main points from that submission, and also to elaborate on a number of issues that I think may be of particular interest to you.
The changes proposed in Bill C-249 are important and because of their importance we consider it would be preferable to include them in the broader Competition Act amendment package that is being developed by the Competition Bureau. We would like to see this done with a view to including it in the public consultation process already under way in order to obtain the views of interested members of the public.
The CBA's section on competition law is opposed to the proposed legislation because it would confine the recognition of efficiencies to those that are of benefit to consumers, and which are demonstrably merger-specific. We believe that will prevent efficiencies from having any real consequence in the merger review process.
If it is your determination, notwithstanding what we said today, to proceed with this proposed legislation, then the proposed amending legislation should be revised, in our view, to remove two of the features of it: the consumer pass on requirement, and the merger specificity requirement.
I should explain we are lawyers, not economists, and I do not propose to weigh into the debate concerning the relative competing merits of the various economic theories of efficiency. However, because of the role we play in advising our clients in planning their business affairs, including mergers, and in presenting submissions to the bureau in respect of mergers that they are proposing, we are very interested in how efficiencies factor into the merger review process. We are aware also of the treatment of efficiencies, which is in the bureau's existing practice.
You have probably heard this all before. The current provisions of the act permit the Competition Tribunal to enjoin or prevent or unwind a merger that would substantially prevent or lessen competition. Section 96, though, provides a defence or exception for mergers that would otherwise be found to be offside of that standard, where the efficiencies expected to be generated by the merger are sufficient to offset and are greater than the adverse effects of lessening of competition. The tribunal must also conclude that the efficiencies would unlikely be obtained otherwise than through the merger.
This proposed legislation would effectively replace that defence with what is called a ``factorial'' approach. That would mean that it would become one of the factors, along with other factors such as the effect of potential entry into the business, or the strength of the remaining competitors, that would be considered in determining whether, at the outset, there would be a substantial lessening of competition. It would not be a situation in which there would be an absolute defence.
The Superior Propane case is critical to this whole area because it has definitively, so far at least, interpreted section 96. As has been mentioned, it is the only case in the history of the section in which the defence has been successfully invoked or, indeed, in which it has even been attempted to be invoked in a contested case, so far as I am aware.
You were talking about this earlier, and one of the reasons why the provision is not invoked more frequently has to do with it being a defence; I am talking about section 96. You have to conclude that there is a substantial lessening of competition in the first place in order to bring it into play. In fact, the bureau essentially does not consider claims of efficiency unless they get to the point where they conclude there is a substantial lessening of competition.
Many parties have also encountered a grudging approach on the part of the bureau in considering efficiencies in circumstances where they might override, or be thought to override, a substantial lessening of competition. There is an attitude, I think, whereby the bureau tends to take the position that if a party is going to assert that the efficiencies defence is operative, they will leave it to the Competition Tribunal, as opposed to the bureau making its own decision, to determine whether that is the case.
The decision of the Competition Tribunal in Superior Propane probably narrows the scope of section 96 from what we all thought it had, but it is now the definitive interpretation. The requirement for invocation of the defence is demonstrating that the efficiencies, as measured under this statute, offset and outweigh both the deadweight loss and the portion of the increased prices expected to result from the merger, which represent the wealth transfer from the customers, if you like, of the business that has merged to the business which is judged to be socially adverse.
Needless to say, the identification and measurement of these elements pose significant problems in terms of forecasting when the defence might be available. It is really a tough call, and I think you will find there are relatively few parties that are prepared to stake a lot in litigation on this issue because of the uncertainty of how it would be applied.
Whether or not you agree with the view expressed in Superior Propane, that attainment of efficiencies is the paramount objective of competition law, it is certainly an important objective of the legislation. It is therefore desirable, in proposing changes to the law in that area, that it has the benefit of full public consultation. Due to the particular process followed in regard to this proposed legislation that has not happened. However, there is a public consultation process currently under way that is considering other significant proposed reforms to the act, as outlined in the discussion paper issued in June of last year.
Given the importance of the subject matter of the proposed changes, and the desirability of enlisting public consultation in regard to it, our strong preference would be for the legislation not to go forward, and that its proposed amendments should instead be considered as part of the this broader amendment process.
It is regrettable that the opportunity was not taken earlier to include this proposal in that legislative package since it clearly has government support. However, it is not too late, in our view, to do so.
This might be achieved by providing a special abbreviated public consultation, specifically with regard to the efficiencies proposal, before the overall reform package enters the more formal parliamentary process.
Of course, extensive public consultation is not required of private members bills such as this. Although the industry committee and your committee have received comments from a number of witnesses, that is not full public consultation.
At the same time, although this proposed legislation continues in life as a private members bill, it is now effectively a government-sponsored or bureau-sponsored or supported initiative, and logically should be the subject of public consultation.
Moreover, I think most practising lawyers in this field would say that, in terms of its relative importance, it is at least as significant a reform of the law as many of the other elements in the discussion paper, which are going through a public process. While it is trite to observe this, it is nevertheless relevant to say that the proposed bill is framework legislation of general application and should be adopted after appropriate deliberation, and with the receipt of appropriate public input.
As was pointed out in the earlier session, there is already a link between the proposed Bill C-249 and the discussion paper proposals, in that one of the provisions proposed, the amendment of section 45, actually contemplates incorporating an efficiency factor provision in that legislation in regard to horizontal agreements of a noncriminal character. This, of course, presupposes that the approach being taken in the proposed legislation before you will be adopted, because they are virtually identical provisions.
It is also worth recalling that the industry committee — in its report, I believe in April of 2002 — recommended that the whole subject of efficiencies be studied by a panel of economist experts, with a view to considering how that subject is dealt with elsewhere in the world, and also to make recommendations concerning how it should be addressed going forward. This did not happen. The more limited study on a comparative law basis of the treatment of efficiencies in other countries was commissioned and resulted in a report on the subject, but it did not conclude with any recommendations for or against reform in the area.
We think there is time to undertake this kind of consultation. We do not believe there is any urgency to legislate away the precedent created by Superior Propane. It seems very clear that the proposed legislation you are considering today is a direct response to the outcome in Superior Propane. That is even more obvious when you look at the preceding version of the bill, which would have simply eviscerated the section 96 defence without providing anything to replace it.
I believe there was a misplaced concern about the possibility that section 96, as interpreted in Superior Propane, could lead to a series of industry-monopolizing mergers being legitimized through reliance on merger efficiencies to the detriment of consumers, and to the benefit of merging parties. I say misplaced, because Superior Propane is the only case in the history of the merger efficiency defence where the defence has been successfully invoked.
If some of our respected competition economists had studied this, the defence would not even have been available in that case if the evidence regarding the deadweight loss had been properly presented to the tribunal. I have not independently studied that but I respect the people who have that view. I do not think there is any crisis or urgency that you have to deal with in that regard. I think there is time to take a proper look at this to get it right.
Is there a need for reform? In our view, the role played by efficiencies under the act to date has been marginal at best, which is unfortunate. One reason efficiencies have received so little attention in merger review undoubtedly has to do with the fact that section 96 only comes into play when there has been determined to be a substantial lessening of competition.
In the ordinary case, where you do not have that, efficiencies simply do not come up for any discussion whatsoever, which is unfortunate because in many cases merging parties are actually entering into a combination for the explicit purpose of achieving efficiencies, which is the desirable objective of our policy in this area.
That is not to say that preserving section 96 in its present form is the only answer. While economists may applaud the theoretical elegance of the Superior Propane test, I defy any lawyers in fact advising their clients to predict with any degree of confidence whether the merger-efficiency defence may be invoked in a given case in light of the need to show the socially adverse portion of the wealth transfer and how it should be, whether it has been appropriately covered by the efficiencies generated.
Are there problems with Bill C-249? We do not advocate embracing Bill C-249, quite the opposite. While merger- efficiency defence, as interpreted in Superior Propane, is fraught with uncertainty in its application, what is proposed in Bill C-249 in our view is considerably worse. The limitations that are included in the proposed amendments are such that if the proposal is adopted, with those limitations, the role of efficiencies in merger review will be relegated to a non-meaningful role.
These limitations are twofold. I have referred to the consumer pass-on requirement. In this situation, the proposed amendment limits consideration of efficiencies to those where consumers benefit, whether through competitive prices or product choices. Merger efficiencies would first be realized upstream of consumers so it would be necessary to demonstrate that the benefit of the efficiencies is likely to be passed on to consumers by the merged enterprise. It is really difficult to understand why that should be the case in the context of a factor as opposed to a defence. First, it does create significant further difficulties of proof beyond just showing that the efficiencies you claim for the merger may be attained. That is often the difficult predictive exercise.
Imposing limitations on the recognition of efficiencies inevitably will lead to a number of the less tangible ones being not being recognized. Innovation gains, dynamic efficiencies, synergies arising through the combination of complementary assets are all things that make for efficiencies in a broader sense, but would likely not be properly considered under such a requirement. You have to demonstrate consumers enjoy the advantages of them.
More important, it raises the basic question as to why a proposed merger that will increase the net wealth to the Canadian economy as a whole, and through the efficiencies or otherwise would not be considered to have a substantial lessening of competition, should be required to conform to a higher consumer welfare standard.
I digress to say that our act does not, unlike the U.S. anti-trust laws, our counterpart of the Competition Act, assign any pre-eminence to protecting the interests of consumers. It is just one of the constituent interests along with small- and medium-sized businesses and other mentioned in the act's purpose clause. Indeed, if you go back prior to Superior Propane, which interpreted section 96, in light of the purpose clause, the prevailing mantra was that competition itself was the most efficient method of allocating economic resources. The act was therefore directed towards enabling competition to operate without interference or restraint in the belief that if that object were to be achieved everything else would be taken care of. However, even as interpreted in the Superior Propane case, the interests of consumers, albeit important, do not occupy a position of primacy in terms of the objectives of the act. That being the case, I have particular concern about provision would effectively limit the recognition of efficiencies for the purposes of the act to those which only benefit consumers.
The other limitation is the merger specificity requirement and that is that the efficiencies must be shown to be related solely to the merger and not be achievable in any other reasonable manner.
It seems to me that, again, with a factor, this is really an unnecessary additional requirement because efficiencies will now only form one element of a mix of considerations in the assessment process. Also, the limitation implies a requirement to prove the negative, that the efficiencies in question could not have been achieved in any other way, something that is notoriously difficult to demonstrate.
Certain types of efficiencies might fail a merger specificity test such as scale economies. I do not believe that competition authorities should force firms to choose less desirable means of achieving efficiencies or forgo them altogether because of some theoretical possibility that they could have done them on their own, independent of the merger, if in fact the result of the merger is that efficiencies are achieved and there is no substantial lessening of competition.
To conclude, with the third point I mentioned earlier, if a decision is taken to proceed with this proposed legislation, notwithstanding the other comments made about it, we would urge you to consider deleting both of these limitations because I think it would add considerably to the value of what was intended by providing these as factors and I do not think there will would be any loss in terms of protection.
Senator Tkachuk: For the benefit of the people who might be watching this committee on television, please tell us how many lawyers you represent. How many lawyers would have been consulted on this particular proposal?
Mr. Kennish: That is a fair question. The membership of the Canadian Bar Association is in the several thousands, 30,000. The membership of the National Competition Law Section is in roughly the 1,400 range. Of that, there are possibly some 200 active members who are engaged in this full-time practice in the competition law field. Most of these people participate in one way or another in the activities of the Canadian Bar Association, but not each and every element of it. We have a variety of committees.
There is an executive of the national competition section, comprised of people who have been promoted through the organization and held responsible positions below.
In this case, the mergers section and the economics and law section combined to put in a brief on, what was then, Bill C-248. We were then given time before the industry committee, but as you may know, they changed the bill radically at the doorstep. Only the executive was able to consider the change.
We have not varied much from the position we took with the industry committee. We have promoted broader consultations in regard to this proposed legislation. Therefore, it is not as broadly consulted as we would ordinarily have done, but in this case that is the reason for it.
Normally, when the Canadian Bar Association comes here, they have people who are actively interested and involved. Certainly all the people who did review it are active practitioners and are respected within the group in general. We did not send out a survey to ask people whether they agreed with each and every line.
Senator Tkachuk: I do not know whom you would consult on the other bill I was talking about, C-250, which was the hate propaganda legislation of Svend Robinson.
The process that we are talking about today is kind of important. Would the people involved in this have a self- interest in some way? In other words, the factor of efficiencies is a defence of some sort and it would be taken away. Do the people who you consult have a self-interest in the proposed legislation being more complicated, giving more work for lawyers, or making it easier for lawyers? How do you know on what basis a person is saying that this is a good thing or a bad thing if you are not asking for clarity and good law, which is a big difference from a personal or political point of view, which is what you have enunciated twice now?
Mr. Kennish: The political point of view.
Senator Tkachuk: Well, you have.
Mr. Kennish: I believe that I was talking about the process. In any event, most of the people involved represent business clients and advise them on how to manage their way through the process.
On a number of occasions with a merger, you would be representing a party who is promoting a merger, but on other occasions you may in fact be representing a person who is intervening against a particular merger, and so you do not invariably have the same interests each and every time. It is likely that you will want to have a workable provision that can be relied upon for fair treatment irrespective of which side you are on of the particular issue.
I do not think that people go into this out of regard for their personal professional opportunities. For example, one of the amendments currently being considered to the Competition Act would decriminalize the pricing provisions of the act. Most competition lawyers will tell you that they are called to give advise on this because being a criminal provision it is very hard to apply.
In the decriminalized world, most of those issues go away and so it is really contrary to the lawyer's interest to have that change come about in terms of business opportunities, but I think they recognize the virtue of having a better law.
Senator Tkachuk: I am asking those questions because when we get the Chamber of Commerce or Canadian Bankers, we are aware of their self-interest. I am not saying the self-interest is wrong, I am just saying we know what it is and here we are five, six senators, and we have this bill and we will have disagreements.
I am always amazed at how the Canadian Bar Association can take a political issue like this, or take one like Bill C- 250 and have such unanimity or is it a percentage of your association?
How do you figure all this out and how do you get such unanimity when you are dealing with such a large number of lawyers?
Mr. Kennish: One of the reasons the consultation was not as broad was the way in which it was encountered. We had a broad consultation on the original private member bill process. Also, we do not cover the private member bills with the same intensity as others simply because they do not as frequently emerge as laws. We tend to submit on most things but people do not take as much interest in them as when it is a government-sponsored initiative. This, of course, is a private member's bill, so there was not quite as much independent interest.
In terms of the discussion paper, that is a proposal supported and being put forward by the government and the bureau, and there is widespread interest and the bar presents it's viewpoints.
You will find there are other lawyers who present different viewpoints, but the group that gets involved in commenting on this reaches its own consensus that may be 60 per cent to 40 per cent or 90 per cent to 10 per cent.
There tends to be a high level of support for the positions that we put forward. A good example is the private rights of action. The litigation bar was quite supportive of these rights, yet the bar that counsels corporations was less supportive. The CBA did not take a strong position but indicated the different viewpoints of the people involved. Therefore, we do not take a position each time, but we try to because otherwise we are always presenting two sides of every picture, and it would not be very helpful to you or be very influential.
The Chairman: We are certainly familiar with having lawyers here who do not all agree with each other and we have been watching that in the course of the hearings.
Thank you for the brief.
I have been able to understand a number of issues in light of your presentation that have not been entirely clear. You have put a great deal of emphasis on the fact that it is regrettable that efficiency is an important element of consideration, but it only comes into play at the point in which the bureau has decided there is a non-competitive merger and it is at the tribunal stage. It could be properly considered at the point in which the evaluation is being made, and that does not happen now.
Mr. Kennish: That is correct. I do not know that I expressed a regret.
The Chairman: That is why I wanted to be sure I understood what you said on top of page 5 of your brief, where you say:
Therefore, to the extent the efficiencies are not being considered in merger analysis, this is not merely unfortunate. It is, in our view, a miscarriage of the Act's purpose.
Mr. Kennish: Yes. We were saying that there is not extensive consideration of efficiencies, and that is regrettable because it is an objective of the legislation, and it is often the purpose of the parties in going into these arrangements.
The Chairman: Would you like to see it considered before it even gets to the tribunal stage?
Mr. Kennish: If I can answer your question, if it is a defence, and we put in an efficiency argument or claim, I would like it if the bureau would consider it upfront, let us know whether they see it working, or see how much of the efficiencies they would be inclined to agree would be recognized for this purpose.
The Chairman: One thing there seems to be complete agreement on is that the whole issue of efficiency is important.
Mr. Kennish: Yes.
The Chairman: I do not think we have had one witness who has taken another position. It is just that there are different ways of getting at it.
Are there any other questions?
Senator Massicotte: Sorry I was late. You may have answered these questions already, so please be patient with me. Further to the comment of Senator Kroft regarding the efficiency argument, your presentation also notes that, as a lawyer, you would not be confident of how one would interpret that efficiency clause. In your sense, I gather, the definition or the application of the clause is complex and therefore unpredictable with regard to the result. Am I correct?
Mr. Kennish: That is correct.
Senator Massicotte: Therefore, further to that comment, are you suggesting it should not be a defence, rather as part of the factor to be considered, if one were to rewrite the act completely?
Mr. Kennish: When we all started out, we did not appreciate that it would lead to the court coming to the conclusion that in applying the defence it would be necessary to show efficiencies exceeded some portion of the wealth transfer that represented socially adverse transfers. That seems to be extraordinarily complicated.
I can tell you, I will not be recommending to our clients to take on many cases advancing an efficiency defence when I am having a hard time figuring out who is the good guy and who is the bad guy.
Senator Massicotte: Are you suggesting that despite the Superior Propane case, we will not see a flood of new arguments using this precedent?
Mr. Kennish: I think there are two things. One, I said the fact there has only been the one case is testament to the disinclination of people to raise the issue. Mergers are time-sensitive. To the extent that after a long, extensive merger review process at the Competition Bureau, which can last five months, they can then inform you that they think this merger is not something that they would allow to go forward because it involves a substantial lessening of competition.
If you argue the efficiency defence, and they say if you want to assert it, you have to go to the Competition Tribunal, you have to wait another year. There are not many mergers that can wait that amount of time without putting stress on the organization, particularly in light of the uncertainty, particularly if there are job consolidations that may come out of the merger. Customers and suppliers may start to wonder who they are dealing with, and it can have a bad effect on business. People are disinclined to invest that much time in pursuing this kind of an issue.
That is one thing. Second, the uncertainty of how this thing will be applied on a case-by-case basis is another reason why you will not see much of activity.
Senator Massicotte: As a member of the bar and a lawyer, when you read the current proposed act, in your mind, how would the word ``consumer'' be defined?
How do you think the courts would interpret the word? Is it very broad or is it only consumer of those units?
Mr. Kennish: You may be blindsiding me here, because I am not sure I have read every decided case on the act where the term has come up. I interpret this as the private individual consuming a product as opposed to a business person acquiring it for use in their business.
The Chairman: Thank you very much. I appreciate your time in helping us with this very complicated subject.
Senator Tkachuk: It is just a couple of lines.
The Chairman: We usually find that the shorter the bill, the tougher it is.
The committee adjourned.