Federal Court of Appeal Dismisses Competition Commissioner's Appeal in Rogers/Shaw/Videotron Deal

On January 24, 2023, the Federal Court of Appeal dismissed the Commissioner of Competition's appeal of the Competition Tribunal's decision to dismiss the Commissioner's application to block Rogers Communications Inc.'s $26 billion acquisition of Shaw Communications Inc. and sale of Shaw's wireless business, Freedom Mobile, to Videotron Ltd. for $2.85 billion. The Court of Appeal's decision, and the Tribunal's decision below, provide clear guidance on how Canada's courts will analyze so called fix-it-first cases, that is cases involving pre-closing remedies designed to address competition or other regulatory concerns.

Shortly after the Court of Appeal released its reasons, the Commissioner announced that he would not seek leave to appeal the Court of Appeal's decision to the Supreme Court of Canada, thereby ending his legal challenge of the transaction.

Bennett Jones LLP acted for Videotron in connection with the proceedings.

Background

On March 15, 2021, Rogers announced that it reached an agreement to acquire Shaw. After reviewing the transaction for 14 months, the Commissioner applied to block the transaction on the basis that it substantially lessened and prevented competition in wireless markets in Ontario, Alberta and British Columbia. To address the Commissioner's concerns, Rogers and Shaw agreed on June 17, 2022, to sell Shaw's wireless business, Freedom Mobile, to Videotron. However, the Commissioner continued his application and argued that Videotron would be a weaker competitor than an independent Shaw.

Following 18 days of trial, hearing from 40 lay and expert witnesses and considering thousands of pages of technical, documentary evidence, the Tribunal issued a decision on December 30, 2022, completely dismissing the Commissioner's application. The Tribunal found that Rogers' acquisition of Shaw coupled with Videotron's acquisition of Freedom Mobile would not be likely to prevent or lessen competition substantially in any market in Canada. Rather, the transactions are actually pro-competitive and enhance and promote competition in both the wireline and wireless markets across Canada. The Commissioner immediately appealed the Tribunal's decision before the Tribunal released its full reasons. The Court of Appeal expedited the appeal process so that the appeal could be heard and decided before the transaction's outside date of January 31, 2023.

The Court of Appeal's Reasons

The Court of Appeal unanimously dismissed the Commissioner's appeal. The Commissioner had alleged four legal errors, but the Court of Appeal rejected them all as being “without merit”, and concluded that the Tribunal’s findings and determinations were “unshakeable”.

1. The Commissioner argued that the Tribunal erred in considering the divestiture of Freedom to Videotron and should have only considered the original transaction, but the Court of Appeal rejected this position stating that, "the Competition Act aims to address truth and reality, not fiction and fantasy. Examining the merger alone – a merger that by itself, will not and cannot happen without the divestiture – would be a foray into fiction and fantasy". The Court of Appeal confirmed that the Tribunal may consider any revisions to the originally proposed transaction provided doing so does not cause procedural unfairness to a party. Since the Commissioner knew about the divestiture and the Tribunal's views on the burden of proof early enough to react and prosecute the case to the fullest, the Court of Appeal found there was no procedural unfairness that would result from considering the amended transaction.
2. The Commissioner argued the Tribunal erred by not providing reasons to support its conclusion that the outcome would not change even if the burden of proof were reversed, but the rejected this alleged error finding that "[t]he Tribunal's many clear, strong findings of fact … [w]e are not left to guess where the Tribunal is coming from".
3. The Commissioner argued that the Tribunal did not "holistically" consider the factors of magnitude, duration and scope under section 92 of the Competition Act. Again, the Court of Appeal rejected this alleged error as baseless.
4. Finally, the Commissioner argued that the Tribunal exceeded its remedial jurisdiction by considering certain behavioural commitments between Rogers and Videotron without the Commissioner's consent. The Court of Appeal stated that the Tribunal's remedial jurisdiction under para 92(1)(f) was not engaged because there was no substantial lessening of competition.

Significance of the Decision for Competition Law

The Court of Appeal and Tribunal's decisions are significant including because:

• This transaction is the first merger to be fully contested by the Commissioner prior to closing. The Tribunal and Court of Appeal were sensitive to the commercial realities associated with a challenge to a merger that has not yet closed and so both the Tribunal and Court of Appeal expedited their decisions. The Tribunal released its decision in the matter less than eight months from when the Commissioner challenged the transaction. The Court of Appeal released its reasons less than four weeks after the Commissioner served his Notice of Appeal. These expedited processes demonstrate that the Tribunal and Court of Appeal are able to make timely decisions relating to complex transactions that take into account commercial timing pressures.
• This is the first challenge of a transaction under the Competition Act that considered the "fix" proposed by the merging parties to resolve the Commissioner's competition concerns. The Court of Appeal confirmed that the Tribunal is not bound to consider the original transaction and that the Tribunal can consider an amended merger including a "fix-it-first" remedy. However, the Court of Appeal acknowledged that in another transaction with a different set of facts, the Tribunal could decline to consider a "fix" proposed by the parties to the merger if it would result in procedural unfairness, such as if the "fix" was proposed at a late stage and is so significant that the Tribunal is unable to effectively evaluate the changed transaction or the hearing before the Tribunal is no longer fair.

For further information, please contact John Rook or Emrys Davis.