On October 31, 2005, the Competition Bureau made public the report submitted by its Advisory Panel on Efficiencies (the "Panel"). The Panel was appointed in September 2004 to provide an expert opinion on the role that efficiency gains should play in the merger review process under the Competition Act (the "Act"). In particular, the Panel was asked to consider whether changes should be made to section 96 of the Act, which provides that the Competition Tribunal cannot prevent a merger that "has brought about or is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that will result or is likely to result from the merger".

In its report, the Panel concluded that Canadian competition policy should continue to encourage efficiency gains. In addition, they recommended that not only should the efficiency defence in section 96 be retained but efficiencies should be a regular and explicit consideration in the Act's merger review process. Specifically, the Panel stated that:

• The Act should be amended to include efficiency gains as a factor to be considered in determining the threshold issue of whether a merger prevents or lessens competition substantially. The Panel added that parties should be free to bring their claims of efficiency gains to the Bureau at the outset of a merger review without this being taken as an explicit or implicit admission that the merger creates competition issues.

• The Act should also retain some form of efficiency defence for those rare butimportant cases in which a trade-off between efficiency gains and a substantial lessening or prevention of competition may be justified.

• The current standard for assessing efficiency gains developed in the case law (the
"balancing weights approach") is unsatisfactory. There should be a clear, predictable and politically acceptable standard to be applied. This is fundamentally a policy question for Parliament to decide.

• Under whatever standard may be adopted, the efficiency defence should not be permitted in cases of merger-to-monopoly.

The efficiencies issue has been a matter of acute interest in Canadian competition law ever since the Superior Propane case was litigated. In that case, the Tribunal applied theefficiency defence in section 96 to uphold a merger that created a monopoly or nearmonopoly in many propane markets in Canada. Since its loss in Superior Propane, the Competition Bureau has sought to revisit the whole issue of efficiencies under the Act, the Panel's appointment being the most recent aspect of this process.

The Panel's recognition of the continuing importance of efficiencies to merger review in Canada is a positive step. As the Panel stated, efficiency-enhancing mergers can be an important part of the solution to Canada's continuing decline in productivity, which has persisted despite the opening up of the Canadian economy over the last 35 years. However, it is somewhat disappointing that the Panel shied away from offering its opinion on what standard should be used in applying the Act's efficiency defence, leaving it for Parliament to articulate the appropriate standard at some undetermined point.

Also questionable is the Panel's recommendation that the efficiency defence not be applied in cases of merger-to-monopoly. The Panel did not attempt to define what it meant by "monopoly", thus leaving open for argument how much scope the efficiency defence might have in practice. Another potential problem is what would happen in the case of a merger that affected several markets, but resulted in a "monopoly" (however defined) in only one or a few of them.

For additional information on the Report, please see http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=1954&lg=e

Davies Ward Phillips & Vineberg LLP acted on behalf of Superior Propane in its acquisition of ICG.

If you have any questions regarding the foregoing, please contact George Addy, John Bodrug, Mark Katz, Richard Elliott or Elisa Kearney in the Toronto office (416-863- 900) and Hillel Rosen in the Montréal office (514.841.6400).

Davies Ward Phillips & Vineberg LLP, with over 225 lawyers, practises nationally and internationally from offices in Toronto, Montréal, New York and Paris and is  consistently at the heart of the largest and most complex commercial and financial matters on behalf of its North American and overseas clients.

The information and comments contained herein are for the general information of the reader and are not intended as advice or opinions to be relied upon in relation to any particular circumstances. For particular applications of the law to specific situations, the reader should seek professional advice.