Proposed Amendments to Merger Review for Port-Related Transactions under the Canada Transportation Act and Competition Act
In November 2022, Bill C-33, Strengthening the Port System and Railway Safety in Canada Act, completed its first reading in the House of Commons. Among changes to various transportation-related legislation, Bill C-33 proposes to amend the mandatory pre-merger notification process under the Canada Transportation Act (the “CTA”). Currently, transactions involving “transportation undertakings” that are subject to mandatory pre-merger notification to the Competition Bureau (the “Bureau”) under the Competition Act must also be notified and approved by the Minister of Transport (the “Minister”). The proposed amendments would require notification to both the Minister and the Bureau of an additional category of mergers, namely those that involve transportation undertakings situated in ports, which would expand the federal government’s jurisdiction over port terminals in Canada.
Perhaps in response to the Bureau having, on its own initiative, reviewed non-notifiable port-related transactions in recent years, the proposed amendments would facilitate increased regulatory scrutiny by: (a) giving the Bureau advance notice of significantly more transactions related to ports through the use of a lower filing threshold; and (b) introducing parallel public interest review for those transactions by the Minister.
- Overview of Existing Merger Review Framework under the CTA
By way of background, pursuant to the CTA, pre-closing approval from the Minister is required for proposed transactions involving a “federal transportation undertaking” that are also notifiable under the Competition Act. Pre-merger notification under the Competition Act is generally required where the transaction involves the acquisition of control of an operating business, and the target, together with its subsidiaries, has aggregate assets in Canada or aggregate gross revenues in or from Canada generated from those assets of greater than $93 million (which value is subject to possible adjustment annually) and where the parties to the transaction, together with their affiliates, have aggregate assets in Canada or aggregate gross revenues from sales in, from or into Canada of greater than $400 million (“Notifiable Transactions”).
The term “transportation undertaking” is not defined in the CTA, creating some ambiguity as to the scope of services subject to the additional CTA filing requirement. As a general matter, transportation undertakings that involve cross (international or provincial) border, third-party for hire services qualify (as opposed to transportation services provided either entirely within a single province or intra-company). As well, businesses that provide transportation infrastructure that crosses a provincial border – such as gas pipelines and other energy transmission services – historically have been considered to fall within the CTA’s merger review provisions.
Where CTA jurisdiction applies, parties to a Notifiable Transaction must submit their filings made to the Bureau under the Competition Act to the Minister, along with a narrative submission explaining why the transaction is in the public interest as it relates to national transportation in Canada. The Minister and Bureau then review the Notifiable Transaction in parallel. If the Minister determines that the Notifiable Transaction raises issues with respect to the public interest as it relates to national transportation, which the Minister must decide within 42 days from when the parties submit their filing, the Minister effectively assumes sole jurisdiction, with the Bureau providing its views to the Minister for purposes of the Minister’s final determination. Otherwise, if the Minister determines that the Notifiable Transaction does not raise any public interest issues, the Bureau will complete its competitive effects assessment independently from the Minister and retains all of its statutory powers, including most particularly the right to challenge the Notifiable Transaction before the Competition Tribunal at any time within one year after closing.
- Proposed Amendments: Public Interest Review and Reduced Mandatory Notification Threshold for Port-Related Transactions
Bill C-33 would expand the jurisdiction of the current CTA merger regime for businesses that are situated in Canadian ports, which are not currently subject to automatic review by the Minister on public interest grounds:
- Lower Threshold for Bureau Notification: if Bill C-33 is passed, transactions involving a target that is a “transportation undertaking situated in a port” must be notified mandatorily to the Bureau if the aggregate value of the target’s assets in Canada that are subject to the transaction, or the gross revenues from sales in or from Canada generated from those assets exceed C$10 million (provided the other Competition Act thresholds are exceeded). This is a very significant reduction in the applicable size of transaction threshold: other businesses are required to have in excess of C$93m in Canadian assets or annual revenues to meet this limb of the test. Since port-related businesses tend to be asset heavy, we expect many transactions involving port terminals would be subject to mandatory Bureau review (and now also approval from the Minister). Although these proposed amendments are in the early stages of the legislative process, parties contemplating such transactions should begin to consider whether their transactions may be subject to additional regulatory scrutiny.
- Expanded Jurisdiction for Public Interest Review: By declaring terminals situated within a port to be “works for the general advantage of Canada”, Bill C-33 would also grant the Minister jurisdiction to undertake a public interest review of those port-related transactions that would now be subject to Bureau review. This declaratory power, pursuant to the division of powers under the Constitution Act, 1982, allows the federal government to expand its jurisdiction to “local works or undertakings” that would otherwise be exclusively under the jurisdiction of the provinces and territories. Widely used in respect of railway undertakings, Bill C-33 would include a declaration granting the federal government permission to regulate any activities occurring in or related to port terminals, even where those activities are wholly situated within one province or territory.
- Discrepancies with the Competition Act: Bill C-33 does not include reciprocal amendments to the Competition Act Therefore, the review provisions and enforcement powers available to the Bureau in respect of transactions that must be notified to it pursuant to the Competition Act would appear not to apply to this new category of transaction. For example, while the amendments would require the parties to notify the Bureau and provide materials as if the merger was notifiable under the Competition Act, the Bureau would not have the power to issue a Supplementary Information Request to gather additional evidence, instead relying on voluntary responses by the parties and a court-issued subpoena, if necessary, to compel information.
- Exemptions from the New Regime: Bill C-33 contemplates exemptions that could apply according to the circumstances:
- Existing Competition Act Exemptions: as for all potentially notifiable mergers, port-related transactions targeted in Bill C-33 may benefit from a range of exemptions from notification under the Competition Act. These include transactions between affiliates, transactions for certain types of joint ventures, and acquisitions of real or personal property in the ordinary course of business operations. None of these exemptions would be available to a foreign-controlled purchaser of a port terminal business owned by an unaffiliated third party.
New Exemption: Bill C-33 itself includes an exemption solely applicable to port-related transactions that otherwise require mandatory review. Where the purchaser is a “natural person” or “enterprise of a Party that is an investor” from the United Kingdom or the European Union, the transaction would be exempt from notification.
This would include transactions where the purchaser is (i) a citizen or permanent resident of the UK or an EU member state, (ii) an entity formed under the laws of the UK or an EU member state that has substantial business activities in that country or (iii) an entity formed under the laws of the UK or an EU member state that is directly or indirectly owned or controlled by a citizen or permanent resident of that jurisdiction or by an entity that is formed in and carries on substantial business activities in that jurisdiction (e.g., an entity formed for the purpose of acquiring the target).
It remains to be seen whether the exemption will be expanded to investors from other large trading partners as the amendments are debated in Parliament.
Bill C-33 will now work its way through the remainder of the legislative process, receiving another two readings and a vote in the House of Commons and three readings and a vote in the Senate before it can receive Royal Assent. As the bill is further debated in both chambers of Parliament, it remains to be seen whether the legislative text will be amended in any way to provide further clarity on the scope of these new provisions.
For more information, please consult our Competition/Antitrust & Foreign Investment Group.
 The terms “natural person” and “enterprise of a Party” are defined in the Canada-UK Trade Continuity Agreement (the “TCA”) and the Canada-European Union Comprehensive Economic and Trade Agreement (“CETA”).