On September 21, 2023, the Federal Government introduced Bill C-56: An Act to amend the Excise Tax Act and the Competition Act ("Bill C-56"), with the short name: "Affordable Housing and Groceries Act".1 The full text of Bill C-56 can be found online, and you can track the progress of Bill C-56 through the Parliamentary system as it continues on its journey to become law.
The Government of Canada has indicated that the proposed amendments to the Competition Act (the "Act") are intended to target the grocery industry in particular, however the effects of Bill C-56 are not limited to grocery chains and have the potential to impact the conduct of businesses in every sector.
What changes are proposed for the Competition Act?
Broadly speaking, the changes to the Act proposed in Bill C-56 can be categorized into the following three categories:
- Review of non-competitor collaboration. Extending the powers of the Competition Bureau (the "Bureau") to review and object to collaborations between non-competitors if a significant purpose of the agreement or arrangement, or any part of it, is to prevent or lessen competition in any market;
- Increased investigative powers. Granting the Minister of Innovation, Science and Industry (the "Minister") the ability to direct the Bureau to investigate the competitiveness of any industry and providing the power for the Bureau to compel disclosure and testimony in so doing; and
- Eliminating the efficiencies defence. Repealing the "efficiencies defence"2 to mergers that are found to substantially prevent or lessen competition in a market.
Review of non-competitor collaboration
Section 90.1 of the Act currently provides the Bureau with the power to challenge arrangements between competitors that prevent or lessen, or are likely to prevent or lessen, competition substantially in a market (the "Civil Review Power") – as such the scrutiny is on arrangements between "competitors". Bill C-56 will add language to the Act to extend the scope of the Civil Review Power such that if the Competition Tribunal finds that a significant purpose of the agreement or arrangement, or any part of it, is to prevent or lessen competition, it may make an order even if none of the persons are competitors. The new, expanded power is not limited to the grocery industry.
The example most cited by the Government in justifying this expansion is a scenario in which a retail business enters into a lease for space in a shopping centre that includes a restriction on the landlord's ability to lease space to competing or similar businesses. The landlord and the retailer are not competitors, but their agreement may prevent or lessen competition. These restrictive covenants may be in leases for grocers, but they also appear in leases for retailers, restaurants and service providers of all types. In addition to restrictive covenants in commercial leases, this expansion of the Civil Review Power has the potential to affect other business relationships. Without guidance on what constitutes a "significant purpose" of an agreement, the Bureau could target for review any number of common clauses in employment, franchise, service, supply, purchase or any other commercial contracts. Clauses likely to be targeted are territory designations, non-compete provisions and exclusivity clauses.
Increased investigative powers
Bill C-56 contains a suite of new provisions giving the Minister (but not the Bureau, on its own) the power to order an investigation into the competitive status of any industry in Canada. A recent example of this process can be seen in the Bureau's recent review of and report on Canada's national grocery industry.
The primary danger in this proposed change is that it has the potential to degrade the Bureau's status as an independent law enforcement agency, and changes it into a tool of the Federal Government to be pointed at the unpopular industry of the day. This could distract the Bureau from its true enforcement work and occupy its limited resources. It remains to be seen whether this section of Bill C-56 will be enacted as proposed, as the concept of Bureau independence has been raised at debates in the House of Commons. It would seem to be more in line with the objects and intent of the Act to provide the Bureau with the mechanism to investigate the industries it – in its expertise – considers to be the highest priority in Canada.
Repeal of the efficiencies defence
Section 96 of the Act currently provides that if a proposed merger would result in a substantial prevention or lessening of competition in a market, it can be saved if such negative results are set off by gains in efficiency (often referred to as the "efficiencies defence").
Bill C-56 proposes to repeal this section entirely, eliminating a unique feature of Canadian competition law that has been used to frustrate the Bureau's ability to prevent mergers in the past.
Key take-aways
- The Federal Government is continuing its overarching review and amendment of Canada's competition law regime.
- An expansion of the Competition Bureau's power to review agreements between non-competitors may have positive effects on competition but has the potential to fundamentally impact several common commercial arrangements.
- An increase in the Competition Bureau's power to compel disclosure has been proposed, but only in respect of industry investigations ordered by the Minister of Innovation, Science and Industry. This is a step in the right direction but potentially affects the independence of the Competition Bureau as a law-enforcement agency.
- The efficiencies defence will no longer be available to justify a proposed merger that substantially prevents or lessens competition once Bill C-56 becomes law.
Stewart McKelvey will continue to monitor the status of Bill C-56 and provide further updates as and when more information becomes available.
Footnotes
1. Bill C-56 remains under debate in the House of Commons, so its final form – and full impact on Canadian Competition law – remains unknown as of the date of this article.
2. The efficiencies defence currently allows anti-competitive mergers to survive challenges if corporate efficiencies offset the harm to competition (https://www.pm.gc.ca/en/news/news-releases/2023/09/14/fighting-for-the-middle-class)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
