Law Times

PAGE 12 FOCUS September 19, 2011 • Law timeS Nadeau offers guidance on refusal to deal S BY JULIUS MELNITZER For Law Times ection 75 of the Compe- tition Act allows parties that a supplier refuses to deal with a right of private ac- cess to the Competition Tribu- nal. On such an application, the Competition Bureau can, under certain circumstances, order a supplier to sell its prod- uct to the complainant. But the jurisprudence on s. 75 is sparse. "Th e diffi culty is that there are not a lot of private applica- tions to the tribunal, and even fewer that make their way to the Federal Court of Appeal," says Eliot Kolers of Stikeman Elliott LLP's Toronto offi ce. Fortunately, one such case, Nadeau Poultry Farm Ltd. v. Groupe Westco Inc., has recent- ly made its way to the appeal court. In its decision in June, the court shed considerable light on the meaning of key terms in the legislation, including "ample supply," "as a result of insuf- fi cient competition," "usual trade terms," and "adverse im- pact on competition." Th e terms are all key components in determining whether an applicant has sat- isfi ed the fi ve conditions re- quired for a s. 75 order: • Th e applicant was substan- tially aff ected because of its inability to obtain ad- equate supplies in the mar- ket on usual trade terms. • Th e inability was due to insuffi cient competition in the market. • It was willing to meet the usual terms of trade. • Th e product was available in ample supply. • Th e refusal to deal was having an adverse eff ect on competition in the relevant market. Th e case arose in January 2007 when Westco, a highly integrated chicken producer 'While the case does clarify certain legal issues, it does not represent a sea change in the jurisprudence,' says Eliot Kolers. whose corporate group con- trolled 66 per cent of New Brunswick's chicken produc- tion quota, advised Nadeau that it was interested in acquir- ing an interest in its processing plant — the only one in the province — so that it could fully integrate its operations. Nadeau was a subsidiary of one of Canada's largest chick- en processors. In March 2008, Westco gave notice that it would cease supplying Nadeau with chickens. Nadeau replied with an application under s. 75 seek- ing to force Westco to con- tinue to sell it all of its live chicken production despite the absence of a contractual obligation to do so. As it turned out, Westco had decided to slaughter the chickens it raised itself. Th e tribunal refused to make the s. 75 order, a deci- sion the federal appeal court upheld. Although the court agreed that the inability to obtain sup- plies would substantially aff ect Nadeau's business, it concluded that its diffi culty didn't result from insuffi cient competition but rather was due to the re- strictions imposed by Canada's complex regulatory regime that limited live-chicken produc- tion in the country. Th e court made a number of other rulings as well: • Ample supply refers to situa- tions where suppliers weren't obliged to choose between serving new customers and providing historic quantities to existing ones. • A refusal to deal couldn't be said to have an adverse ef- fect on a market unless the applicant demonstrated that the supplier's market power would grow as a result of the refusal. • Th e relevant market was the downstream market where the applicant sold its prod- uct and not the one where it obtained supplies. Th e decision is an important one for Canadian businesses, says Martha Healey of Norton Rose OR LLP's Ottawa offi ce. 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Price subject to change without notice and subject to applicable taxes. even if a customer's business may be substantially aff ected by a refusal to deal, the tribunal will not make an order forcing a supplier to accept the customer unless the customer demon- strates a causal relationship be- tween the refusal to deal and in- suffi cient competition, the pres- ence of the product in ample supply, and the adverse eff ect of competition in a market," says Healey, who with colleagues Denis Gascon, Eric Lefebvre, and Alexandre Bourbonnais represented Westco. Arguably, however, lawyers should approach Nadeau with caution. "It's important to remember that the case dealt with a regu- lated industry, which made for a unique fact situation, and that the appeal was limited to questions of law as the appel- lant did not seek leave to ap- peal issues of fact," says Kolers. "While the case does clarify certain legal issues, it does not represent a sea change in the jurisprudence." 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