May 4th, 2006
Only third parties experiencing a first hand impact on a right or serious interest relating to competition can challenge consent agreements, the Competition Tribunal ruled in Burns Lake Native Development Corporation v. Commissioner of Competition and West Fraser Timber Co. Ltd. The applicants, Burns Lake Native Development Corporation (“Burns Lake”) and the Chiefs and Councils of the Bands who are shareholders of Burns Lake (“Chiefs and Band Councils”), participated as minority shareholders in a long-term joint venture with West Fraser in two sawmills and associated timber harvesting rights. However, as a condition of being allowed to buy Weldwood of Canada Ltd., West Fraser had agreed in December 2004 to a consent agreement requiring it to divest the two sawmills and associated timber harvesting rights. The applicants argued that their right to participate in the management of the joint venture was prejudiced and they were faced with the prospect of a new and unknown joint venture partner.
Subsection 106(2) of the Competition Act provides that only persons “directly affected” may apply within 60 days after registration of the consent agreement to have one or more terms rescinded or varied. Therefore, a key issue in this case, the first ever challenging a consent agreement, was whether the applicants had standing to challenge the consent agreement.
The Commissioner argued that to be “directly affected” a party must have a substantive right, either legal or pecuniary, that has been infringed by a consent agreement. Further, a party must show that the impact of the consent agreement is imminent and real, as opposed to speculative or hypothetical. The applicants argued for a more liberal interpretation, stating that the effect should relate to a legal interest but not one that is substantive, pecuniary or related to competition issues. The applicants also argued that a party’s interest can be “directly affected” even though the long term consequences of a consent agreement are not yet known
The Tribunal, however, adopted a restrictive interpretation of the meaning of “directly affected” in subsection 106(2) of the Act. The Tribunal held that a party seeking standing to challenge a consent agreement must be able to show, in definite and concrete terms, significant impact on a right or serious interest which relates to competition. Therefore, even if a party has not experienced the effects of the consent agreement at the time the application is made (applications to challenge a consent agreement must be made within 60 days of it being registered), the party must be able to show, in concrete terms, how a consent agreement will definitely adversely affect it. Further, “mere” interests will not be sufficient; only interests related to competition that are significant and very seriously affected by the terms of the consent agreement may be considered.
Applying this test, the Tribunal found that none of the applicants was directly affected by the consent agreement. Burns Lake would not be directly affected because, as a minority shareholder in the joint venture with only one seat out of ten on the management committee, it did not control the decision-making. In addition, concerns about the prospects of a new joint venture partner were entirely speculative and did not directly affect its contractual rights under the terms of the joint venture. The Tribunal held that the effectiveness of individual competitors is not a relevant issue because it is not related to competition concerns which led to the making of the consent agreement. Finally, the Chiefs and Band Councils were also not directly affected. Any concern that the joint venture would be less profitable with a new future partner is entirely speculative. The Tribunal also rejected the argument that the Crown breached the applicants’ aboriginal right to be consulted. This alleged breach of the duty to consult is not related to competition and is not caused by the consent agreement, the Tribunal held.
The other issue in this case was whether there is a requirement to file evidence of a substantial lessening or prevention of competition when a consent agreement is registered. The answer is no, according to the Tribunal. The Tribunal held that although a consent agreement “has the same force and effect” as an order of the Tribunal, it is not an order of the Tribunal and never becomes one. Further, when a consent agreement is registered under subsection 105(3) it is not required to be reviewed by the Tribunal. Therefore, there is no requirement under the Act to file evidence of a substantial lessening or prevention of competition when a consent agreement is filed for registration with the Tribunal.
The Tribunal’s decision is the first ever dealing with a consent agreement challenge and it may be its last. The test set out by the Tribunal to be "directly affected" under subsection 106(2) of the Act is an extremely difficult one to meet. It is difficult to imagine an effect on a third party caused by a consent agreement in a merger case that would impact a right or serious interest and, at the same time, relate to the very competition concerns that gave rise to the order. Moreover, is it realistic to expect a party to know in definite and concrete terms, within 60 days after the registration of a consent agreement, how the consent agreement will affect it?