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On May 30, 2005, the Competition Tribunal handed down an important decision in RONA inc. v. Commissioner of Competition,[1] marking the first time the Tribunal has had occasion to interpret the new wording of section 106 of the Competition Act. The section enables the Tribunal to rescind or vary consent agreements or orders issued in matters pertaining to mergers or restrictive trade practices where it finds, among other things, that the circumstances that led to the making of the agreement or order have changed. In the RONA case, the Tribunal noted that in amending sections 105 (dealing with consent agreements) and 106 of the Act in June 2002, the legislator had wanted to allow more flexibility in the consent agreement process for resolving the competition-related concerns that may arise in the context of a merger. In the Tribunal's view, the conditions set out in s. 106 for varying or rescinding such consent agreements had to be seen in that light.

This decision came about as a result of the April 2003 acquisition of Réno-Dépôt inc. ("Réno") by RONA inc. ("RONA") whereby RONA was to become the owner of twenty Réno home improvement stores in Quebec and Ontario. The Commissioner of Competition in office at the time had approved the transaction subject to the divestiture by RONA of a Réno store located in Sherbrooke, Quebec. At the time, the competitive environment was very similar in each of the geographic markets where RONA and Réno were operating their home improvement retail stores, with the exception of the Sherbrooke market where RONA and Réno were the only two big-box home improvement stores in the area.

On September 3, 2003, in an effort to dispel the Commissioner's concerns about the lessening of competition in the Sherbrooke area and allow the transaction to proceed, RONA agreed to divest the Réno store in Sherbrooke in accordance with a consent agreement entered into with the Commissioner pursuant to s. 105. The consent agreement set out the procedure that was to apply to the divestiture of the Réno store (RONA would first try to sell the store, and if it was unsuccessful, the divestiture would be placed in the hands of a trustee appointed by the Commissioner) and provided that the parties, in accordance with s. 106, could ask to have the consent agreement varied or rescinded if the circumstances changed.

In the months that followed the signing of the consent agreement in September 2003, evidence began to mount that RONA's major competitor, Home Depot, was in fact planning to enter the Sherbrooke market, and in January 2005, confirmation was finally obtained by RONA to the effect that a Home Depot store was scheduled to open in Sherbrooke in the fall of 2005. Accordingly, in January 2005, RONA made an application under s. 106 calling for the Tribunal to acknowledge the change of circumstances and rescind the consent agreement. At the time, the procedure for the divestiture of the Réno store was already quite well advanced and the trustee that had been appointed to sell the store in accordance with the consent agreement had entered into a purchase and sale agreement with a prospective buyer, which agreement was still subject to the Tribunal's approval.

Ruling on RONA's application, the Tribunal began by recalling that before the Act was amended in June 2002, it used to be up to the Tribunal to review the evidence submitted by the parties in order to ensure that the terms set out in a consent agreement would allow the competition-related concerns raised by the Commissioner to be overcome. Under the new system, consent agreements are simply filed with the Tribunal and the Tribunal is required to register them immediately, without assessing the worth or effectiveness of the corrective measures agreed to by the parties. That being the prescribed procedure, the Tribunal no longer has access to the evidence underlying the Commissioner's concerns as was formerly the case.

Mindful of this important distinction, the Tribunal noted that it was not necessary for the Tribunal to determine whether it would have issued an order confirming the terms agreed to by the parties in a consent agreement if the circumstances subsequently brought to light at the time of an application to vary or rescind had been known to it. Rather, its role is to determine whether the consent agreement would have been signed by the parties in such circumstances. In order to do this, the Tribunal considers the intent of the parties at the time of the signing of the consent agreement and again at the time of the filing of the application to vary or rescind.

Accordingly, in its decision, the Tribunal found, first, that the evidence had established that Home Depot would be coming to Sherbrooke in the fall of 2005 and that the entry in this geographic market of a major competitor like Home Depot did indeed amount to a change of circumstances for purposes of the first part of the test under s. 106(1)(a) of the Act. In the Tribunal's view, the proof and the certainty that Home Depot would be opening a store in Sherbrooke, which the Commissioner, throughout the entire divestiture process, had always characterized as "speculative", clearly represented a change of circumstances. The Tribunal then considered the second part of the test, which required a determination of whether the parties would have signed the consent agreement based on these new circumstances. The Tribunal found that the evidence showed that RONA would not have agreed to divest the Réno store in Sherbrooke had it known that Home Depot was in fact planning to open a store in the Sherbrooke area in the fall of 2005 and had the date of the arrival of its principal competitor been known in late summer 2003, when the consent agreement was signed. In addition, the Tribunal remarked that it was even unlikely that the Commissioner would have called for such a divestiture if this information about the opening of a Home Depot store had been known at the time.

However, seeing that the power to rescind or vary a consent agreement under s. 106 is discretionary, the Tribunal went on to consider whether it was appropriate, in the circumstances, for it to rescind the consent agreement. The new Commissioner[2] had submitted a number of reasons why the Tribunal should not exercise its discretion in RONA's favour. The Commissioner contended, first, that RONA had abused its rights and unduly delayed the divestiture process, and secondly, that rescinding the consent agreement would be prejudicial to the rights of a third party, namely, the prospective buyer that had entered into a purchase and sale agreement with the trustee for the Réno store and that was to have acquired the store. Lastly, it was argued that having a consent agreement in place would more effectively ensure that competition in Sherbrooke could be "re-established".

The Tribunal responded to the first point by stating that RONA's conduct during the divestiture process should be the subject of consideration only after a finding that both parts of the s. 106 test were in fact met (which was found to be the case). The Tribunal then went on to conclude that the evidence showed the allegation of abuse by RONA to be without foundation. The steps taken by RONA in the course of the divestiture process either were provided for in the consent agreement or reflected normal business practice in the circumstances.

On the second point, the Tribunal conceded that in exercising its discretionary power, it was required to take the aims of the Act into consideration. However, while it was important for consent agreements to be perceived by the public as stable and effective vehicles, it had to be borne in mind that the Act makes explicit provision for varying or rescinding them where circumstances warrant. Accordingly, the Tribunal found that the rights of a third party flowing from the signing of a purchase and sale agreement for the Réno store in Sherbrooke were not, in themselves, a sufficient basis for dismissing RONA's application to rescind the consent agreement. In point of fact, as the Tribunal noted, the prospective buyer had signed the purchase and sale agreement with the trustee knowing that the Réno store was being sold pursuant to the consent agreement and that the consent agreement could be set aside by the Tribunal.

On the third point, the Tribunal reasoned that it had to consider whether the arrival of Home Depot answered the concerns about a substantial lessening of competition in the Sherbrooke area. It found that the opening of the Home Depot store to take place in the fall of 2005 meant there was no longer any risk that there would be no competition; hence there was no reason for the Commissioner to insist on maintaining a corrective measure that was no longer necessary. In other words, the consent agreement no longer served any useful purpose since there was no longer any situation with regard to competition that needed correcting.

This ruling is important for the business community as it clarifies the interpretation to be given to the new test under s. 106 of the Act and provides an indication of the burden of proof that will have to be met by an applicant wishing to have a consent agreement made in connection with a merger, and registered in accordance with the new procedure under s. 105, varied or rescinded. The decision also affords some useful insights into the Competition Bureau's review and investigation process. Among other things, it illustrates the importance of properly documenting all exchanges with the Bureau and of being scrupulous in informing the Bureau of any changes that occur in market conditions that could affect the competitive environment. Lastly, it is worth noting that the decision was somewhat critical of the stance taken by the Commissioner in this matter. Indeed, the point was made that the Commissioner, in the spirit of the Act, cannot refuse on principle to acknowledge a change of circumstances and force implementation of the terms of a consent agreement purely on the basis that a consent agreement must be enforceable at all costs.

The attorneys for the Commissioner have indicated that she does not intend to appeal the ruling. RONA was represented by members of Ogilvy Renault's Competition/Antitrust Law practice area.

The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault or any member of the firm on the points of law discussed.

[1]. CT-2003-007.

[2]. Ms. Sheridan Scott succeeded Mr. Konrad von Finckenstein as Commissioner of Competition in January 2004.

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