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The Supreme Court of Canada building is shown in Ottawa on Oct. 15, 2014.SEAN KILPATRICK/The Canadian Press

A much-watched move by the Competition Bureau to undo a small $6-million merger in the oil-waste landfill business in remote northeastern British Columbia has been struck down by the Supreme Court of Canada in what is being hailed as a groundbreaking decision.

It is rare for a merger case like this to make it to the Supreme Court, so lawyers who specialize in competition law were watching it closely. Some say the decision could make it easier for merging companies in the future to convince the Competition Bureau that swallowing up a rival should be allowed because it creates "efficiencies."

Under the Competition Act, companies trying to do a deal that the bureau alleges would harm competition are entitled to argue that the merger would create efficiencies – such as those created by economies of scale – that would lower costs and outweigh any harm done. Thursday's ruling says the Competition Bureau will need to do more to counter this defence.

In a 6-1 decision, the top court agreed with an appeal by Burlington, Ont.-based Tervita Corp. that the Competition Tribunal was wrong to side with the Competition Bureau and order the firm to divest itself of a hazardous waste landfill site in northeastern B.C. that it acquired in 2011. The company already owned two other similar landfill sites in the area.

The deal was far too small to be reported to the Competition Bureau up front. But a rival company, Secure Energy Services Inc., complained to then-competition commissioner Melanie Aitken. SES had been interested in buying the site, and according to court documents, the bureau investigated and the commissioner warned the companies she would challenge the merger before it closed.

The bureau said it found internal Tervita e-mails in which executives planned to buy the site and warned of a possible "price war." The bureau also argued that securing the environmental and other approvals to open this kind of facility is difficult, making it hard for new competitors to move in.

In 2012, the Competition Tribunal agreed with the bureau and undid the deal, calling Tervita a "monopolist" in the local hazardous waste market and ruling that prices would have dropped by at least 10 per cent if a competitor had instead opened up shop. In 2013, the Federal Court of Appeal upheld that result. Tervita appealed to the Supreme Court of Canada.

In Thursday's ruling, the Supreme Court actually agrees with the tribunal's assessment that the deal would prevent future competition, a finding Tervita had also challenged as mere "speculation." But the court also ruled that the commissioner of competition had failed to quantify the merger's "anti-competitive effects" in order to show they would outweigh the gains in "efficiency" promised by Tervita that would come from the merger.

The dissenting judge, Justice Andromache Karakatsanis, argued that Tervita's merger was not entitled to the "efficiencies" defence outlined in the Competition Act, and that the Federal Court of Appeal was within its rights to rule that the "efficiency gains were marginal to the point of being negligible."

Lawyer Brian Facey, chair of the competition group at Blake Cassels & Graydon LLP, called the decision "groundbreaking" and said it could clear the way for more mergers. (His firm acted for SES, the original complainant in the case, but was not involved in the litigation.)

"It will make mergers much more acceptable, which is what Parliament had intended initially," Mr. Facey said. "It places a clear onus on the government to quantify problems, which means more strategic mergers will be approved in the future."

But Adam Fanaki, a former senior deputy commissioner of competition in charge of merger reviews and now a partner at Davies Ward Phillips & Vineberg LLP, said he did not think the ruling would make a large difference to the way mergers are reviewed by the bureau since the case hinged on questions specific to the Tervita case.

But he said it does mean in the future the bureau is going to have actually quantify the anti-competitive effects of a proposed merger, in order to show that they outweigh any promised efficiencies.

"Although the Supreme Court did largely endorse the commissioner's approach to determining whether a merger prevents competition, the case is clearly a significant loss for the commissioner," Mr. Fanaki said.

Follow Jeff Gray on Twitter: @jeffreybgrayOpens in a new window

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