Law Times

Law Times • January 25, 2010 FOCUS Analyzing effects of new competition rules Amendments prompt 'resistance to change' as Canada mimics U.S. BY JULIUS MELNITZER For Law Times pushed through last March brought the Canadian merger re- view process much closer to the U.S. "second-request" system. Among other things, the new T regime required the commis- sioner of competition to grant or withhold approval within 30 days of receiving the standard dis- closure required on a fi ling. But it also allowed the commissioner, within that same period, to issue a supplementary information request seeking "additional in- formation that is relevant to the commissioner's assessment of the proposed transaction." Th e changes gave the com- missioner the sole right to de- termine what was relevant and made no provision for judicial oversight. After the parties comply with the request, the commissioner has an addition- al 30 days to make a decision. Under the former regime, the parties could close unilater- ally — without the Competi- tion Bureau's consent — after a 42-day mandatory waiting period for the commissioner to review the transaction had lapsed. However, s. 100 of the act allowed the commissioner to seek an injunction prevent- ing a unilateral closing for an additional 30 days. "Th e old system aff orded more balance between the parties and the public interest," says Neil Campbell of McMillan LLP. But Dany Assaf of Bennett Jones LLP says there's more cer- tainty in the new system. "You never knew when s. 11 orders [for production of infor- mation through an ex parte ap- plication to a judge] would come under the old system," he says. "In the new system, you at least know he amendments to the Competition Act that the federal government that the bureau has to make a de- cision about a [request for infor- mation] in the fi rst 30 days." Still, the U.S. experience with second requests has aggra- vated the bar's concerns. "For years, all we'd been hearing about the American system was the nightmare costs of complying with second re- quests," says Paul Collins of Stikeman Elliott LLP. Indeed, the second-request regime has been under attack for years as slow, uncertain, expen- sive, and ineffi cient. As recently as October, Paul Yde of Fresh- fi elds Bruckhaus Deringer LLP's Washington, D.C., offi ce who is also former counsel for the U.S. Federal Trade Commission told the Canadian Bar Association's competition law conference that his fi rm had not acted on a second-request transaction in the last decade that cost less than US$4 or $5 million. "Most of the second requests cost substantially more with the bulk of it in attorneys' fees," he said. "And that's just one party's compliance." Driving the controversy was the common but mistaken no- tion that the Competition Bu- reau could hold up a merger until it was satisfi ed that the parties had complied with the special infor- mation request. Nothing could be further from the truth. Th e bureau gets only one kick at the can in the sense that it can issue just one special re- quest. As well, it doesn't get to determine whether the parties have complied. "Once the merging parties be- lieve they have complied with the [request], s. 118 of the act allows them to certify that they have done so, and the transaction can close 30 days after certifi cation," says Neil Finkelstein of McCa- rthy Tétrault LLP. "Th e point is that the commissioner cannot unilaterally block closing." 'The point is that the commis- sioner cannot unilaterally block closing,' says Neil Finkelstein. Th e commissioner neverthe- less has several remedies, includ- ing applying to the Competition Tribunal for an injunction under s. 100 in order to have more time to review. "But if the par- ties have already complied with substantial [requests], the tribu- nal may be unlikely to grant the application," Finkelstein says. Alternatively, the commis- sioner can apply to the "court," defi ned as the tribunal, the Fed- eral Court or a provincial supe- rior court, for an injunction if there is a belief the parties are likely to close without comply- ing with the request. "Th e merging parties can de- feat the application by showing they have good and suffi cient cause to believe they have com- plied and that the time permit- ted for closing under the act has passed," Finkelstein says. Th e commissioner also has a year to make a post-merger challenge. "Th e upshot is that in large complex transactions, one strategy for merging parties is to consider closing as soon as it is legally permitted with or without the commissioner's ap- proval," Finkelstein says. But what's often overlooked in the debate is that American- ization was becoming a creeping feature of Canadian competition law in any event. "Th e U.S. is our largest and closest trading partner and they do things in a certain way," Assaf says. "As a practical matter, things were converging even before the amendments." In international deals, for ex- ample, U.S. timelines — not the Canadian rules — tended to drive the agendas of both the bu- reau and the merging parties. "In my view, the reaction of outrage to the amendments was primarily a resistance to change, which can cause uncertainty," As- saf says. "And lawyers were upset because they feel passionate about their areas of the law and don't like it when they're not involved in a hands-on way in the specifi cs of change." 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• Cover
• Leader Passes Away
• Traffic Woes
• Focus On Mergers and Acquisitions