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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Canada | Publication | februari 2022
In a recent decision, the Federal Court of Appeal (FCA) clarified that s. 104 of the Competition Act (the Act) empowers the Competition Tribunal (the tribunal) to temporarily block potential mergers pending the outcome of the commissioner of competition’s (the commissioner) application to prevent closing until the conclusion of litigation challenging the merger on substantive grounds.1 The decision has significant implications for merger review in Canada.
In June 2021, the commissioner filed two applications with the tribunal: one under s. 92 of the Act for an order blocking a planned merger of the respondents and another under s. 104 of the Act for an interlocutory order preventing the merger from closing while the s. 92 application was being determined. When the respondents refused to voluntarily delay their merger while the s. 104 application was pending, the commissioner sought an emergency order from the tribunal.
The commissioner asked the tribunal for an interim order temporarily blocking the merger until his s. 104 application could be decided by the tribunal. Outside the competition law context, such orders are commonly sought in Canada’s provincial superior courts pending the award of an interlocutory order. The tribunal dismissed the commissioner’s request, holding that the tribunal’s statutory jurisdiction under s. 104 of the Act was limited to a narrow set of circumstances, which did not apply here.
The commissioner appealed the tribunal’s decision to the FCA and brought an emergency motion to halt the transaction pending the appeal. The motion was dismissed and the transaction closed a few minutes later.
The commissioner is proceeding with his application to challenge the merger on substantive grounds, with the trial scheduled for May and June 2022.
The commissioner’s appeal was heard in January 2022. Although the transaction had closed by then, rendering the jurisdictional question moot, the FCA decided to hear the appeal to clarify the law for similar transactions in the future.
The FCA allowed the commissioner’s appeal and set aside the decision, holding that the tribunal had erred by concluding it lacked the jurisdiction to grant the commissioner’s request. The FCA clarified that the scope of interim relief available under s. 104 of the Act includes interim orders while s. 104 applications are pending (i.e., “interim interim” orders.) According to the FCA, this more generous interpretation of s. 104 is supported by the plain language of the provision and its overarching purpose, which is to provide the commissioner with the ability to review and, if necessary, challenge proposed mergers before they close.
The tribunal’s power to block potential mergers under s. 104 of the Act includes the ability to issue emergency “interim interim” relief. Whether such relief should be awarded in any particular case, however, will depend on the circumstances.
This case will likely affect how the Bureau conducts complex merger reviews, in particular where an efficiencies claim is being made. In remarks made in October 2021, the commissioner stated that, in complex cases, the Bureau may need to “pursue a litigation-focused approach that is costly and less predictable for merging parties,” which would “of necessity, mean less transparency and engagement from [Bureau] case teams in matters with no meaningful and reasonable timing commitment.”
Practically, this means both the commissioner and merging parties should think twice about playing a game of high-stakes “chicken” in which the commissioner assumes that the threat of litigation will cause parties to voluntarily extend the merger review (for example, by entering into a timing agreement) or where parties assume that the commissioner cannot obtain an injunction blocking a transaction at the last minute.
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