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Transactions & Business

Practical Law Canada | Transactions &

Business

Fall 2015

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of the CompetitionPutting Compliance on the Agenda

Introducing Practical Law Canada - Competition

COMPETITIONCovers issues relating to Competition Law Compliance, Conspiracy (Cartels), General Competition Law, Investment Canada Act, Merger Control, Unilateral Conduct, and Vertical Agreements. HELP ON

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On June 3, 2015, the Canadian Competition Bureau finalized its

new core competition law compliance materials. The message underscoring the Bureau’s new compliance materials is that companies, associations and other organizations need to consider adopting a credible and effective competition compliance program. In keeping with that important development, it is my great pleasure to introduce our latest Thomson Reuters Practical Law Canada - Transactions & Business magazine, issued to coincide with the launch of our new Competition service on Practical Law Canada.

As the new Managing Director of Thomson Reuter Legal for Canada, Australia & New Zealand, I couldn’t be prouder of the success we have had to date with Practical Law Canada. It started last year with the launch of our Corporate, M&A, Capital Markets and Securities services then this summer we launched our first Practical Law Canada litigation offering – Personal Injury Litigation, and now our third service on Competition Law.

As we all know, there is increasing pressure on law firms to manage costs wherever possible. In addition, clients are resistant to paying for what they perceive to be associate training. The heightened expectation of efficiency requires the right answers faster without compromising on quality. Practical Law Canada was developed precisely to respond to these expectations, by providing Canadian law firms and in-house counsel with expertly drafted, practical legal content, written with both specialists and non-specialists in mind.

Practical Law Canada’s new Competition service follows that same trusted model of our other modules supporting leading

lawyers in Canada and other major jurisdictions. It will be an indispensible resource for Competition law specialists, corporate lawyers and in-house counsel alike. For the specialist, the ambit of the service extends from merger review for hostile bids to competition compliance audits and to managing a cartel investigation. For non-specialists, the featured resources range from structuring joint ventures to competition compliance tailored to manage competition law risks. For example, the Competition Compliance Toolkit provides quick access to compliance overviews, a templated compliance program, hypotheticals for compliance training and checklists for key tasks — all researched, written and explained by lawyers with extensive and sophisticated practice experience.

As a complement to our online service, this magazine offers interesting insight into the lawyers who author Practical Law Canada as well as giving you a sampling of the valuable resources contained within the product. If you haven’t had the opportunity to experience Practical Law Canada yet, I hope you will soon! I look forward to hearing your feedback in the coming months.

Stay tuned for further expansion of the Practical Law Canada offering in the very near future.

On behalf of the Practical Law Canada team, Happy Reading and Thank You for your business.

Best Regards,

Neil SternthalManaging Director, Thomson Reuters Legal

A Message from Neil Sternthal

Welcome

3Practical Law Canada | Fall 2015

DIRECTOR/GROUP PUBLISHER: Jilean Bell

EDITOR IN CHIEF: Todd Pinsky

MANAGING EDITOR: Lisa Gordon

EDITORIAL CONSULTANT: Tim Wilbur

PRODUCTION CONSULTANT: Lisa Drummond

DIRECTOR, PRODUCT DEVELOPMENT OPERATIONS:

Mary Acimovic

MANAGER, PRODUCT DEVELOPMENT OPERATIONS:

Cameron Murchison

ART DIRECTOR: Dave Escuadro

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CONTRIBUTORS: Sean Farrell, Wayne Gray, Monique Rabideau, Steve Szentesi, Lynn van der Valk

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Features

16 Putting Compliance on the Agenda in the Aftermath of the Bureau’s New Guidelines

Michael McKiernan

40 The Resurgence of Technology IPOs in Canada

Martin Langlois and Jeffrey Singer

PROFILE22 Steve Szentesi

Practical Law Canada’s Senior Lawyer-Editor

42 Sean FarrellPractical Law Canada’s Senior Lawyer-Editor

Q&A6 One-on-one with Justice Paul Crampton

Chief Justice of the Federal Court and Competition Law Luminary

10 One-on-one with Jeanne PrattThe Competition Bureau’s Deputy Commissioner

57 The Inside ViewProfiling Rod Frank, Associate General Counsel of TELUS

Practical Law Canada Resources

TOOLKITS24 Competition Compliance46 Initial Public Offerings in Canada55 Limited Partnership

CHECKLISTS25 Competition Law Compliance Audit28 Calculation of Competition Act Fines29 Creating Strategic Documents (Notification Form, Section 6)37 Unilateral Refusals to Deal (Factors to Assess Risk)38 Resale Price Maintenance53 Acquisition Agreements: Key Deal Points Chart

PRACTICE NOTES26 Concerted Refusals to Deal (Boycotts)27 Information Exchanges Between Competitors32 Pre-Merger Notification: Hostile Bids33 National Security Reviews34 Review of Canadian Cultural Business Investments44 Use of Special Committees and Recommended Practices49 Proxies

PRACTICE NOTE OVERVIEWS48 Tax Factors in Asset vs. Share Deals

LEGAL UPDATES47 No Shops, Go-Shops and Matching Rights in Canadian M&A

STANDARD DOCUMENTS50 Contribution Agreement

PRACTICAL LAW CANADA | FALL 2015CONTENTS

Fall 2015 | practicallaw.ca6

Q&A

Justice Paul Crampton

Practical Law Goes One-on-one with Chief Justice of the Federal Court and Competition Law Luminary

Credit: Andrew Balfour


What got you interested in the law? Back in about 1981, I was just coming up to the end of my philosophy bachelor’s degree, and I started thinking about what I wanted to do after that. The law seemed like a good fit. Oddly enough, you will find a lot of philosophy majors going on to law school, who become lawyers and do very well. Philosophy is a fabulous base for the law.

When and why did you become inter-ested in competition law? About half way through my first year at law school, I decided to do a Master of Business Admin-istration (MBA). It happened when I was in business law class, just sitting there while people were asking all these sophisticated business questions. I had come from an arts background with almost six years of straight arts, so I thought it made a lot of sense to get that extra degree.

Subsequently, in my articles, I was wrestling between corporate law and litigation, and also between business and the law. It was only really towards the end of my articles that I stumbled across competition law. I was on a case that was the last criminal merger case, and it was like a eureka moment. I had found this area that allowed me to have a foot in corporate and a foot in litigation; a place where I could bring together my legal skills and my MBA skills.

At the time, it was a particularly fascinating area. They had just amended the Competition Act to decriminalize mergers and monopolization, so it was a bit like carte blanche. I decided to do

a master’s in that area, and then I went to the Competition Bureau where we were developing policies by the seats of our pants, in real cases, in real time, sometimes under a lot of pressure. It was a wonderful experience.

How do you think Canadian competition law has changed since you began? I think it has changed a lot. In those early days, once the Competition Act amendments came into force in mid-1986, including amending the name from the old Combines Investigation Act, it took a few years to settle policies and procedures and get the analytical framework down. Then the private sector had to get comfortable and up to speed with it. There have been some very helpful guidelines issued by the Competition Bureau over several different areas in the intervening 25 years. A lot of work has been done academically, and a lot of important helpful decisions have been issued by the Competition Tribunal, so things are starting to be clarified and fleshed out. There’s more business security now and more comfort within the bar and the Bureau about what’s needed to conduct a merger review or how to conduct a review of alleged abuse of dominance. There have also been important amendments to the Act that I think have reduced the chilling effect of the old Act and brought it into the modern area.

In addition to private practice, you did some very interesting competition policy work before joining the bench. Can you tell us a bit about what drew you to work with the OECD? That was another

wonderful experience. I was approached literally out of the blue about a week or two after 9/11. I did primarily mergers and acquisitions (M&A) work, and deal activity virtually came to a halt in the wake of 9/11. Then I was approached by the Head of the competition division at the OECD, who I had known from my work with the Asia-Pacific Economic Cooperation (APEC) forum. He called to offer me the position of Head of Outreach, who would be the person responsible for all the OECD’s work in the competition area with non-member countries. At the time, that basically meant everybody except the G-30. It was fascinating being responsible for the OECD’s work with Brazil, Russia, India and China, the BRIC countries, as well as smaller countries throughout Latin America, Africa, Asia and former Soviet countries in Eastern Europe and Central Asia.

It was like lawyers without borders. Helping these countries to transition towards market-based economies was really wonderful. One of the things I’m particularly pleased about from my time at the OECD was an idea we had of establishing a regional strategic partner in each of the four developing or transitioning areas of the world. For Asia, I chose the Koreans, and we got a regional training centre set up in Seoul. Then for Eastern Europe and Central Asia, I chose the Hungarians, and they also embraced the idea very enthusiastically. Both of those training centres are still going really well. I was only at the OECD for two years, so we didn’t end up getting the centres established for Central America or Africa, although we did have plans on that front. We also launched the Latin American Competition Forum, which was another very important initiative for Latin America, as well as the OECD-APEC initiative, which was a partnership that enabled the OECD to convey its content, information, and materials to the APEC countries.

How big of an adjustment was it when you joined the bench after so long in practice? It wasn’t that difficult at all. Obviously, it’s a big financial adjustment to take a 70% pay cut. It’s also a family

Justice Paul Crampton’s distinguished competition law career has taken him from some of Bay Street’s biggest beasts to the hallowed halls of the Federal Court in Ottawa, where he now sits as chief justice.

Having started out in the late 1980s at the Competition Bureau, Justice Crampton became a partner at Davies Ward Phillips and Vineberg LLP and later at Osler Hoskin and Harcourt LLP, working on some of the biggest deals of the last two decades.

This adventurous soul also found time for a two-year stint with the Organisation for Economic Co-operation and Development (OECD), helping developing countries transition to market-based economies.

Here, the Chief Justice discusses a career that has covered all bases in the competition law field and lets us in on a few of the secrets of his success.


adjustment, because our kids were older and all very much at home in Toronto, which meant they weren’t too enthusiastic about moving to Ottawa and establishing new relationships with friends here; however, the transition went really well. I had been doing public interest work at the OECD and the Competition Bureau, so it was easy for me to take off my private sector hat and put on a public interest hat again. I had also been very involved in the bar and other associations, which did a lot of public interest work, whether it was the Canadian Bar Association (CBA), the American Bar Association (ABA), the International Chamber of Commerce, or the Canadian Chamber of Commerce. That experience made it a lot easier for me.

What do you see as important competition law and policy areas for Canadians, and how do you see the Federal Court’s role in developing competition law? Right now, we are primarily involved in providing oversight of the Competition Bureau’s requests for production of documents and written returns. Those types of orders can be fairly intrusive, so we focus on ensuring that their ex parte requests are not inordinate, disproportionate or unduly burdensome. I think that is important work, and that we are coming close to striking the right balance. We have developed some templates with the Competition Bureau for our orders, but each case has to be assessed on its own merits.

The 2009 amendments to the Competition Act, which brought in what we call per se hardcore cartel provisions, are an important area. That area will continue to evolve as the courts address, for the first time, the new provisions in section 45 of the Competition Act in particular, but also the new civil provisions in section 90.1.

The Competition Tribunal, a hybrid tribunal that includes judges from the Federal Court and lay members, has a number of cases on the go right now. We have had some interesting cases in recent years, and we contribute, through our judges who sit on the Tribunal, to the evolution of jurisprudence in the

non-criminal area. On the criminal side, we have had some history in the area of guilty pleas, but I think the Crown and prosecutors appear to be more comfortable with the superior courts where they practise more often. As a result, we have had a lesser role to play in the criminal area.

How does it compare sitting as a member of the Competition Tribunal as opposed to the Federal Court? It is highly similar in many respects, in terms of how the proceeding unfolds, how evidence is introduced, and how we reach a decision. It is different in the sense that Federal Court judges sit as single judges, whereas

the Tribunal sits often as a panel of three. That means you are sitting almost like an appellate body, even though it’s a tribunal of first instance. It is certainly different, but it is a nice change to be able to work with other people.

What element of your work do you find most challenging? Trying to find time to sit. I’ve got a fairly heavy administrative burden as Chief Justice, but I think it is very important to also provide leadership through the Court’s jurisprudence. I think we’re the largest superior trial court in the country that doesn’t have an Associate Chief Justice. It’s a very high priority for us to hire one so that I can sit more and provide that leadership that other chief justices are able to provide.

What accomplishment are you proudest of? It is probably setting up those two training centres for the OECD in Seoul and Budapest. They are benefiting tens of millions of people each. I am motivated

by public interest work and by a desire to make a difference to society, so those training centres have probably made more of a difference than anything else I have done.

What one piece of advice would you offer junior competition law practitioners? It’s very important to be happy with what you are doing. Find something that motivates you and that you can be passionate about. Afterwards you’ll do really well. Also, try to maintain a good work-life balance because work really isn’t everything. If there is one thing I could do differently, I would have spent more time with my family in those crazy

M&A years in the 1990s, when I probably spent too much time down on Bay Street.

If you were not a judge, what would you wish to be? That’s a very difficult question, because I love being a judge, and I actually think this is what I should be doing. This is my highest and best-value use to society, so it’s hard for me to say what I would be doing if I weren’t a judge. Perhaps I would work for a non-governmental organization somewhere or other.

What do you do when you’re not being a judge? I love spending time with my immediate family; my wife, my kids. I come from a big Irish family, so I also have a large extended family, whom I also love spending time with. I love reading about non-legal things, and I still like to travel even though I’ve travelled to over 50 countries now. Adventure travel is something I love to do; going to Base Camp at Everest was a highlight. I’d like to do more of that type of thing.

Q&A

“We were developing policies by the seats of our pants, in real cases, in real time,

sometimes under a lot of pressure. It was a wonderful experience.”

— JUSTICE PAUL CRAMPTON

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Q&A

Practical Law Goes One-on-one with the Competition Bureau’s Deputy Commissioner

When Jeanne Pratt signed up with Canada’s Competition Bureau in 2009 on an interchange program from her partnership at Bay Street heavyweight McCarthy Tétrault LLP, the two-year term always looked a little short.

As a child of two civil servants, public service was in her blood. Six years later, Pratt has ascended the ranks to become senior deputy commissioner, taking charge of the bureau’s mergers and monopolistic practices branch.

Having cut her teeth in private practice on the granddaddy of all Canadian competition cases, Air Canada’s combination with the ailing Canadian Airlines, Pratt quickly established herself as one of the leading lights in the field, practising exclusively in the area of competition law and litigation for a decade before joining the bureau.

Pratt shares her views below on some of the most pressing issues currently facing the Competition Bureau, including how she dealt with a merger of her own: one that brought together the bureau’s old mergers and monopolistic practices departments.

What is your legal background and practice history? I had no idea that the Competition Act really existed when I was at law school, other than reading some constitutional law cases that implicated the old Combines Investigation Act. After my articles, I actually took some time to work on Parliament Hill, and I was working for a senator during the time that Canadian Airlines was in financial difficulty. As a result, Air Canada took over Canadian Airlines, and there were a lot of competition law issues surrounding that takeover because that would basically have given Air Canada a monopoly over domestic services in Canada. In my capacity working on Parliament Hill, I was involved in supporting a senator through some public hearings with respect to legislation surrounding that takeover and became quite interested and intrigued by the competition law issues that transaction implied.

When I was looking to continue the practise of law was really the point where I started to specialize, and I ended up being really concentrating on all competition law, all the time, for the next 15 years or so.

I did basically the full array of competition law: merger work, advising companies on proposed transactions, cartel work, including investigations by the Competition Bureau, and immunity and leniency applications. I also did advisory work for large national and multinational companies with respect to unilateral conduct provisions and abuse of dominance.

My first competition case actually emanated from the airline matter. I ended up as junior counsel on a team of counsel to the Commissioner of Competition against Air Canada, alleging an abuse of dominance position with respect to routes in eastern Canada, when WestJet and CanJet were entering those markers back in the late 1990s and early 2000s.

What made you interested in the Competition Bureau’s work? I had the experience working as counsel to the commissioner in my early career. As I progressed on all these matters, I would be dealing with the staff at the Competition Bureau on behalf of clients in merger matters, cartel matters and any other unilateral conduct

investigations in which clients I was working with were implicated.

I joined the bureau on an interchange, and I was here for what was supposed to be a two-year period as special legal advisor to the then-Commissioner of Competition, Melanie Aitken. It was in 2009 when we had a brand new commissioner, and the Competition Act had just had its most significant amendments after 25 years. For me it was a phenomenal opportunity to be offered a position at such a particularly great time.

My role when I was legal advisor was to work with the Competition Bureau team on more high-profile matters, matters that were potentially in litigation, and also to provide advice to the commissioner at her request. I had been in the private sector for the better part of a decade at that point, so it was very interesting to come and work for the Competition Bureau where the work that we do implicates a lot of different interests and parties.

How big an adjustment was it from private practice? When you’re in the private sector, your stewardship role is with respect to a client. When you’re in the public sector, your stewardship role is much broader, and there are a lot of competing interests that you have to balance and manage to come to what you would hope would be the best result for competition and for consumers.

I didn’t find it a huge adjustment. It is changing your mindset from being a client lawyer to being a public sector legal advisor, which is something that I certainly embraced and that brought a lot of satisfaction to the work that I did. You feel like you may be having an impact that is broader than one company or one client.


I’m also the child of two public servants, so that ethos was probably ingrained in me in my early life.

What do you see as priorities for the bureau’s new Mergers and Monopolistic Practices Branch, and are there any sectors that you are focussing on in particular? Our priorities really are the same as for the Competition Bureau at large. Our first priority is to increase compliance, both through preventing and deterring anti-competitive conduct, and mergers. That has always been our priority and will continue to be.

In terms of how that priority plays out, in the mergers context, we are largely responsive to developments in the marketplace because we are reviewing transactions as they occur. We don’t really pick and choose the sectors. It is about what is brought in the door and what transactions are occurring.

In terms of monopolistic practices, we generally follow issues in the marketplace that we are seeing. The digital economy is a space that is near and dear to consumers and also near and dear to our enforcement work. We are doing a lot in that digital space right now through some of our ongoing inquiries, such as the inquiry against Apple with respect to its iPhone.

We have cases before the Competition Tribunal with respect to retail gas, real estate and e-books. We have ongoing investigations that I can talk about and there are also a lot that goes on that I can’t tell you about.

We also had a significant supreme court decision in January, the Tervita case, which we are doing our homework on, looking at how we will implement the guidance that we received with respect to the analysis of efficiencies in merger reviews.

What kind of effect has the merging of the bureau’s mergers and monopolistic practices branches had? We want to make sure that we are best placed to be

able to address issues in the marketplace, and also to ensure that we have a merger review that is responsive to the realities of the economy as a whole. In addition, we also make it a priority to invest in the best resources to ensure that we can do our work in the most efficient way, using advanced economic theories and strategies. The merger of the mergers and monopolistic practices branches allows us to build on those efficiencies and the talent that we have in-house, to ensure that we are doing our work as efficiently as possible with the best resources possible.

How important are your relationships with competition watchdogs in other jurisdictions? International cooperation has and will continue to be a priority for us. In multinational mergers, it’s incredibly important for us to be able to coordinate effectively with other jurisdictions to ensure that we take a holistic approach to the competition issues that may arise.

We continue to build our relationships through multi-lateral organizations, such as the International Competition Network (ICN) and the Organization for Economic Cooperation and Development. The ICN is a practical organization, where competition authorities from around the world come together to share their best practices and lessons learned. This ultimately, for example in the mergers context, provides certainty and predictability for merging parties in numerous jurisdictions, so that they can know what we may be looking for in terms of our review and where remedies are required.

We also have bilateral and trilateral meetings with other anti-trust agencies, such as the U.S. Department of Justice, the U.S. Federal Trade Commission and the European Commission. I think the trend is towards more close cooperation. We certainly have had very close cooperation with the U.S. agencies because our economies are intertwined, and merging parties want the certainty of

Jeanne Pratt


Q&A

knowing that they are not going to be told different things by two different agencies in two different jurisdictions.

In consequence, we are increasingly working together with them. In May 2014, we put out some best practices that we use in our coordination with those two agencies to try to come to the best result as efficiently as possible, to give that certainty and predictability to merging parties, and to ensure that competition issues in both jurisdictions are indentified and addressed appropriately.

What are your thoughts on the Competition Bureau’s recently finalized new competition compliance materials for Canadian businesses as far as mergers are concerned? I think our commissioner and the Competition Bureau as a whole is a leader internationally, recognizing that preventing anti-competitive conduct is just as important as deterring it through our enforcement work. So we have recently put out a new information bulletin on compliance programs which is aimed at encouraging companies and market participants of all sizes to put in place compliance regimes that we think will encourage greater competition in the markets and deter anti-competitive behaviour as well.

In the merger space, one aspect of that is ensuring that companies pre-notify us of transactions that are required to be pre-notified under our Act. We put a recent information notice out about a particular company and their efforts to put in place a compliance program to address instances where they may not have notified where they should have. I think that demonstrates our willingness to ensure that the right mechanisms are in place and that companies are encouraged to comply with the law at the end of the day.

The bureau recently obtained a partial injunction in the Parkland/Pioneer merger in the gas-station market. Is this a sign of things to come in terms of the willingness to use all enforcement

tools at your disposal in the merger area? Some people have asked whether our application for an injunction in the Parkland case is indicative of a policy shift, and I don’t think so. We are always looking for, and continue to look for, the most appropriate method to resolve our competition issues, and we continue to have a preference for consensual resolutions.

I think we have always used our tools, and I don’t think this is any indication that we will use them any more than we have. We will continue to use them where we think it is appropriate.

Do you have any recommendations for merging parties in their dealings with the bureau? I think the vast majority of merger transactions do not raise issues under our Competition Act, so in the majority of mergers that we review in the course of the year, we meet our service standards almost all of the time.

For the small proportion of transactions where there are competition issues, we continue to encourage parties to come to us early to try to resolve our concerns.

Following the decision in Tervita, we also ask them to come to us with their submissions on the efficiencies that will result from the proposed transaction, so that we can consider them in the context of our ongoing review. Efficiencies act as a defence, so we would encourage parties to bring that information to us as early as possible. That way we can consider it in the context of our overall review of the proposed transaction, instead of waiting until we identify concerns and a potential challenge, because that will lead us to a place that may delay a proposed transaction or a resolution.

Merger activity in Canada appears to be picking up again. Is this the bureau’s sense as well? For our fiscal year 2014-2015, we had the highest number of filings in the post-recession period. It was about an 11 per cent increase over the prior fiscal year. That being said, by the end of the fiscal year, we were noticing a bit of a

drop, so we find that our filings are really following the flow of the economy. The first quarter saw the highest total filing volume in over a decade, but then when you look at the fourth quarter, we saw some of the lowest, so it is quite lumpy.

The bureau has expressed interest in bringing more unilateral conduct cases. Is there anything interesting on the horizon? We are continuing to advance a number of cases that we think have potentially high impact on the Canadian economy and consumers. Some of them are focussed on the digital economy and supporting innovation. We are moving forward with our inquiry concerning Apple’s use of restrictive clauses in its contracts with Canadian wireless carriers. We have been using our subpoena power to collect information in the context of that inquiry, and it is well under way. Our issue there is determining whether those clauses impact the manner in which carriers conduct their business, particularly with respect to how they price and market smartphones and corresponding wireless services. Our concern is really that they could foreclose the suppliers of competing smartphones from the market or reduce choice and innovation, and ultimately potentially increase the price of smartphones and wireless services for Canadian consumers. This obviously is an area that is near and dear to anyone that has a smartphone, which is pretty much the entire population.

Also in unilateral conduct, we have an ongoing case in litigation with respect to the Toronto Real Estate Board and its rules that impact the ability of virtual office websites to provide information to consumers who may want to collect information in a manner that does not use real estate agents. That case is headed for a rehearing in the fall, and we look forward to receiving additional guidance from the Competition Tribunal on it.

There remains relatively little activity under section 90.1 of the Competition Act dealing with competitor collaboration since the


2009 amendments. Are there any developments in this area you would like to share? Since 2009, we have had two applications that I can talk about implicating section 90.1. The first was an application that was challenging the joint venture between Air Canada, United Airlines and Continental Airlines. With that case, we raised concerns with respect to some of the coordinating agreements between those parties, and ultimately we came to a consensual resolution that resolved our concerns.

In addition, we have a pretty high-prolife case and very active investigation right now, which is with respect to e-books. We had come to a consensual resolution with four publishers, but that consent agreement was challenged by Kobo. Therefore, we are in ongoing litigation with respect to that consent agreement, but we have continued our investigation with respect to section 90.1 in that matter, so there are things to come on that front as well.

Are there any key advocacy or regulated areas you see as priorities for your new branch? I think our priorities are the bureau’s priorities. The bureau has recently put out a three-year strategic plan where we talked about increasing compliance. We also want to create an environment for competitive prices, greater product choice and informed decision-making for all Canadians.

We are promoting and advocating for a more competitive marketplace to empha-size smart regulation. A lot of the work being done by our advocacy group at the bureau is informed by the experiences in the Mergers and Monopolistic Practices Branch and the knowledge that we have gained from doing reviews and inquir-ies in those sectors. It really is a holistic approach, and we’re trying to get there as efficiently as we can, capitalizing on the great knowledge that we have gained through our enforcement work over the years.

You joined the Competition Bureau at a key moment in its history in 2009. Is it still an exciting time to be working there? I think now more than ever. We’ve got a lot of great work that is being done, and there are a lot of interesting issues happening because of the dynamic nature of our economy. Although the provisions in our Act are not changing, the situations we are seeing challenge us because there are new facts and new industries. We want to ensure that we are encouraging innovation, but also stressing anti-competitive conduct where it arises.

I think it’s generally a very interesting time to be involved in Canadian business and with what is going on globally in terms of the digital economy. There is a lot of change going on. Even if we reviewed an industry a year ago, there could be significant changes, which means that the nature of our work continues to be challenging and dynamic.

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Kevin Ackhurst Norton Rose Fulbright Canada LLP

George Addy Davies Ward Phillips & Vineberg LLP

Rodney Frank Telus Corporation

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Robert Kwinter Blake, Cassels and Graydon LLP

Michelle Lally Osler, Hoskin & Harcourt LLP

James Musgrove McMillan LLP

Michael Osbourne Affleck Greene McMurtry LLP

Christopher Putney Insurance Corporation of British Columbia

Omar Wakil Torys LLP

Sandy Walker Dentons Canada LLP

Charles Wright Siskinds LLP

Kevin Wright DLA Piper (Canada) LLP

CORPORATE AND SECURITIES

James Beeby McCullough O’Connor Irwin LLP

Aaron Emes Torys LLP

John Hall Borden Ladner Gervais LLP

Carol Hansell Hansell LLP

Chris Hewat Blake, Cassels & Graydon LLP

Markus Koehnen McMillan LLP

Alison Manzer Cassels Brock & Blackwell LLP

Paul Martel Blake, Cassels & Graydon LLP

Paul Mingay Borden Ladner Gervais LLP

Alfred Page Borden Ladner Gervais LLP

Stephen Pincus Goodmans LLP

Emmanuel Pressman Osler, Hoskin & Harcourt LLP

Simon Romano Stikeman Elliott LLP

Jeffrey Singer Stikeman Elliott LLP

David Wilson Davies Ward Phillips & Vineberg LLP

COMMERCIAL – COMING SOON

John Chimienti Canadian Tire Corporation, Limited

Darrel Jarvis Fasken Martineau DuMoulin LLP

Jolanta Malicki St Marys Cement Group

Andrea Safer Royal Bank of Canada

Julia Shin Doi Ryerson University

FINANCE – COMING SOON

Robert A. Balcom George Weston Limited

Chris Besant Gardiner Roberts LLP

Timothy Brown Wells Fargo Bank, N.A.

Robyn Collver Canadian Tire Corporation, Limited

Guy David Gowlings LLP

Jonathan Fleisher Cassels Brock & Blackwell LLP

Lucie V. Gauvin Royal Bank of Canada

Lisa Mantello Goodmans LLP

Stephen Redican Borden Ladner Gervais LLP

Robert M. Scavone McMillan LLP

Jacqueline Shinfield Blake, Cassels & Graydon LLP

Ken Thorlakson Scotiabank

Derek Vesey Davies Ward Phillips & Vineberg LLP

Advisory Boards


Putting Compliancein the Aftermath of the

When it comes to competition law violations, prevention is better than cure.

That’s the message the Competition Bureau wants businesses to take from its newly updated Corporate

Compliance Programs bulletin.

Released in June, the 60-page document marked the first refresh in five years to the Bureau’s guidance on establishing a credible and effective compliance program, which it says is the best way for organizations of all shapes and sizes to steer clear of anti-competitive behaviour.

“The updated Corporate Compliance Programs bulletin provides Canadian businesses with the guidance needed to play by the rules and avoid the pitfalls of anti-competitive behaviour,” said

Commissioner of Competition John Pecman in a statement unveiling the new bulletin.

The new bulletin has a special focus on small- and medium-sized enterprises (SMEs), acknowledging their “different needs and concerns” from larger companies.

“Each business should implement and follow a corporate compliance program that is commensurate with its size and business activities,” reads the bulletin, which promises benefits for smaller companies that take the time and effort to do develop a compliance program.

“First, it enables SMEs to identify areas of high risk of contravention of the Acts. Second, it allows SMEs to determine circumstances where they may be the victim of anti-competitive conduct by other

on the Agenda Bureau’s New Guidelines

By Michael McKiernan


parties,” the bulletin reads.

For those that do eventually run into trouble, the bulletin makes clear, for the first time, that a credible and effective compliance program in place at the time of a competition law offence will be considered a mitigating factor in the Bureau’s sentencing recommendations under its Leniency Program for criminal matters. A new Compliance Unit has been established within the Bureau to establish whether or not a particular program meets the required standard. In civil matters, the bulletin says the presence of a strong program could also reduce the size of a monetary penalty or any other punishment sought by the Bureau in deceptive marketing cases.

However, convincing the Compliance Unit that your program meets the Bureau’s exacting standards could prove tough, with the Bureau outlining seven basic requirements of a credible and effective corporate compliance program (up from five in the last version of the guidelines):• Active and continuous support from

management. • Risk-based corporate compliance

assessment to identify which business activities are most in danger of violating the law.

• Policies and procedures that reflect risk and address strategies for avoiding breaking the law in risky situations.

• Training and education for any employees involved in risk areas.

• Monitoring, verification and reporting mechanisms to check management and staff are actually abiding by the program.

• Disciplinary procedures for those who break the rules and incentives for employees who follow them.

• Compliance program evaluation to check whether it actually works.

To help them meet their compliance objectives, the bulletin suggests every company appoint a “Compliance Officer” to take responsibility for the compliance program. According to the Bureau, the title should go to someone in “a high level executive position” with high visibility in the company, as well as the independence and authority to enforce the program.

Practical Law Canada has assembled a round table of some of the most highly sought-after competition law practitioners in the country to give us their thoughts on the Competition Bureau’s new bulletin. Below we examine what they think it all means for lawyers and businesses across Canada.

What is your first reaction to the Bureau’s new compliance materials?Christopher: I think the materials are

helpful because they communicate the Bureau’s views, and I think it’s always good to know what the Bureau sees as important.

James: My reaction is frankly very positive. I think the tone is right; it encourages firms to pursue a compliance agenda. They also put their money where their mouth is in so far as they are prepared to give discounts for imperfect compliance efforts. It’s probably more symbolic than meaningful in a tangible sense, but I think it’s important.

Mark: I would put Canada among the global leaders in terms of providing helpful instructions and guidance on competition compliance, and I think this new bulletin takes it even further. My other general impression is that, in many ways, this really represents the gold standard of what companies in Canada should be doing in terms of competition compliance. I think to that extent it might be slightly unrealistic, so it will be interesting to see how the ideal works in the practical world.

“In a perfect world, it would mean that tomorrow morning, every company CEO and general counsel is going to wake up and say: ‘By God, I need one of these compliance programs, and I need a team of competition lawyers to do it.’”

– MARK KATZ, PARTNER IN THE COMPETITION AND FOREIGN INVESTMENT REVIEW PRACTICE GROUP AT DAVIES WARD PHILLIPS AND VINEBERG LLP

Meet our panellists:Omar Wakil: A partner in the Toronto office of Torys LLP in Toronto, Wakil advises domestic and international clients on the full spectrum of competition law issues.

Mark Katz: Toronto-based Katz is a partner in the competition and foreign investment review practice group at Davies Ward Phillips and Vineberg LLP.

Christopher Putney: In his role as senior legal counsel at Insurance Corporation of British Columbia in Vancouver, Putney advises on a variety of competition law issues.

James Musgrove: McMillan LLP partner Musgrove works out of the firm’s Toronto office and co-chairs its competition and anti-trust practice group.


Omar: It has a lot of positive features, but to be constructively critical, I do have concerns that some of the detailed requirements the Bureau mandates for what they call a “credible and effective” compliance program impose unrealistic burdens on businesses, particularly small- and medium-sized ones. Frankly, it is sometimes challenging to create a fully credible and effective compliance program for even large and sophisticated Canadian businesses, but in an environment where legal expenses are incurred on an as-needed basis, it’s going to be difficult for in-house groups to seek internal budgetary approval for expenses that are sometimes seen as not critical.

Mark: There’s recognition from the Bureau that simply having a bulletin like this that shows up on their website is not enough on its own. It’s really only by getting the competition message out there to industry and to the public that I think this practical compliance document is going to have any real impact. If there is a poor base level of knowledge out there, no one is going to know about or care about a compliance policy, and no one is going to have much of an incentive to adopt one.

Another thing I thought was good is there’s more of an emphasis on tailoring the compliance program to the specific company that you are involved with. It shows sensitivity to the fact that one size doesn’t fit all. The only way that they’re going to be able to get more companies to adopt competition compliance programs and to take the issue seriously, is if they’re sensitive to the fact that not everybody is going to adopt this gold standard.

What do you think prompted the Bureau to update its approach to compliance?Omar: I think compliance has been an important part of Commissioner Pecman’s mandate; it’s a recurring theme every time he has a public forum to talk about anything in the Competition Act, and appropriately so. I think he wants to perhaps differentiate himself from his predecessor, who was focussed on enforcement and bringing cases against companies. I think he would rather promote voluntary compliance with the Act and ensure businesses are doing what

they can to not get in trouble, as opposed to going after them when they do contravene the Act.

What do you see as the most important changes?Christopher: One thing was the introduction of this concept of a compliance officer. This person would ideally be responsible for administering the program, be appointed by the board of directors and accountable to it. I think for most businesses that might be a tall order, because it doesn’t quite fit within their business organization. In my own experience, it seems that senior management and the CEO want to manage the relationship between the company and the board, and I don’t know how anxious they would be to have a compliance officer that is solely accountable to the board. We are in the process now of reviewing the Bureau’s materials and deciding if we need a compliance officer, because it’s not something we have now.

Mark: None of the clients I deal with have anything that comes close to approximating the compliance officer envisioned by the Bureau. Usually the compliance function falls under the responsibility of the general counsel or someone in the legal department, and sometimes it’s hived off to someone in human resources. It’s a good thing to emphasize the importance of compliance, and it will be great if adopted, but we’ll have to see how many do.

How will the changes affect your work?James: I’ve already seen renewed interest from clients, typically in-house people who have compliance responsibilities. They want to check their compliance policies, update them, and see if they’re still appropriate, and this is a tool for them to use with management to encourage compliance efforts.

Omar: I think it’s going to be an important reference tool when preparing compliance programs, because it provides a checklist of things that ought to be in there when you do get a mandate from a client. It’ll be a useful guide, but I’m not sure if it, in and of itself, is going to provide an impetus for businesses to create compliance programs

where they haven’t existed previously.

Mark: In a perfect world, it would mean that tomorrow morning, every company CEO and general counsel is going to wake up and say: “By God, I need one of these compliance programs, and I need a team of competition lawyers to do it.” That’s not going to happen. When we do go out and tell clients that competition compliance is important, this will give us an additional resource, because it’s obvious that the Competition Bureau is paying attention.

Christopher: I don’t think it’s going to affect my work a great deal, simply because we already have a compliance policy, and in fact we updated it last year. We have also taken steps to raise awareness of competition law issues within our organization, so it’s something that we’re already doing quite a bit of work on.

Leniency Program discounts are now potentially available for effective compliance programs—what are the implications of this change?Omar: I welcome it in principle. I’ve had situations before this new bulletin where the Bureau was reluctant to assess the credibility and effectiveness of compliance programs. They said it’s not their job to take a detailed look at a compliance program and decide whether or not it was satisfactory. If the suggestion is that they will do that, then that’s a change in policy, and it will be interesting to see whether it’s going to work and what sort of burden it will place on the new Compliance Unit that will be responsible for assessments.

Mark: This is a big step that puts the Bureau ahead of some jurisdictions like the U.S., where the position is basically this, “If you had a really credible and effective compliance policy, you wouldn’t be in trouble to begin with, so we’re not going to give you credit for what you may or may not have done. We’ll only give you credit if now you take extraordinary steps to revamp your compliance culture.” It’s very much forward looking, rather than backward looking. I think what the Bureau is contemplating is something that is potentially more backward looking as well.

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However, if the bureau’s guideline is the standard for what a credible and effective compliance program will be, the bar may be set unrealistically high. If they adhere to these requirements very strictly, it may very well mean that in practice, nobody is ever going to get credit in circumstances where otherwise it might seem possible.

Omar: I’m skeptical that the change is going to have a practical impact on the setting of fines. First, the bulletin doesn’t give any concrete numbers around the extent of the discount, so it’s not clear whether any discount is going to be material. Second, in practice, mitigating factors in sentencing fines are not particularized or transparent. The bureau has considerable discretion in fixing fines or discounts, so there’s nothing firm that you can point to and say, “Why are we not getting our 5% discount,” and have them justify it.

The bulletin also notes that where managers participated in the conduct or were willfully blind, contravening the legislation despite this program may be an aggravating factor. So you get out of the woods just by having a credible and effective compliance program, but you can still be faced with the situation of aggravating factors where managers were involved. This goes back to a tension that has always existed with compliance programs: if you have one that people were ignoring, is that worse than not having one at all? It shows you knew what you were doing was wrong, and you still did it and tried to cover up your illegal conduct.

Do you see more potential risk now for organizations without effective compliance programs?James: As a practical matter, I think there probably is more risk for them. If you’re in the soup with a decent policy that just didn’t succeed, obviously you’ve got things to talk about with the Bureau by way of mitigation. You’ve got less to talk about if you don’t have one at all. The other point that the policy makes is that even in cases where companies don’t have effective policies when things go awry, if they adopt one voluntarily, having discovered things have gone awry, that in itself is an advantageous

mark. So it’s better to have had it in place originally, but if you adopt one quickly that is going to be helpful too.

Trade associations are prominently featured in the new compliance materials—what are the key take-aways for them?James: Trade associations face risks, but it’s their members that face probably the bigger risks. Historically, a number of the cases the Bureau has brought arose out of a trade association context. That’s where discussions got started, where people got to know each other and then led themselves astray in some way. The bulletin is a reminder that this is one of those places where bad discussions can happen and do in fact happen.

I think it is a clever move to say that one of the indicia that the Bureau will look for in determining whether a particular company has an effective compliance policy is if they insist on the trade associations to which they belong also having one. All it takes is for one member to say, “Look, I don’t think our association has a robust enough compliance policy,” for that to happen, which will have beneficial effects.

What are some key things organizations need to do after the changes?Omar: I’m skeptical as to how many will actually do it, but it would be prudent for organizations to take a look at their compliance programs, compare it to what the bulletin identifies as constituting the critical elements, and think about whether or not their current policy is up to scratch. They should take this as an opportunity for an upgrade.

James: This is a perfect opportunity and incentive to get out your compliance policy, look at it, and ask how well it works. It won’t be perfect, because nothing ever is, but think about how you can make it better. Knowing your business, think about where the real risks are and about how you can devise a policy that helps minimize those danger points.

After that comes the hardest part: ongoing monitoring of the policy to make sure it’s

working. Think about how you’re going to institutionalize some sort of monitoring to check that things are okay and what steps you can take to improve if they’re not. Most organizations have pretty good looking policies written down, but the question is how they’re made alive. That is where relatively few organizations are effective, and I think this is an incentive to be.

Mark: The other part of it though is that the Competition Bureau has a job to do, and for the law to be taken seriously, it has to be enforced in a serious manner. In several cases recently, the Bureau has lost and has really taken it on the chin. I think it highlights a problem they have, which is that their litigation abilities and capabilities seem to be substandard.

To make sure that the competition law is taken seriously, they have to really look at what they are doing in terms of picking cases and, moving forward, prosecuting those cases. They need to take a really serious look at the criteria and procedures they use, , and figure out a way that if they are actually going to go out and enforce a case, that they’re going to win.

What are some key things you think in-house counsel will need to do after the changes?Christopher: If an organization doesn’t have a competition law compliance program, now would be a good time to get one. I also think the Bureau has made it quite easy to create one, because it does have a basic template in the materials that you can follow. If organizations do have a policy, it would be good to review it in light of the latest materials. The bulletin represents perhaps the Bureau’s view of an optimal program. For several organizations, the optimal program may be a bit too intensive, but I think it’s good to do as much as you can.

I think senior management support is essential, and you should be engaging them on a regular basis to raise awareness of competition law issues. I think the release of these materials is a great opportunity for in-house counsel to raise the issue in their organization.

SEAN FARRELL joined the Capital Markets and Securities team from McMillan LLP, where he was a partner specializing in securities and public markets transactions with a particular emphasis on domestic and cross-border offerings of securities and mergers and acquisitions. He has been recognized in Chambers Global for Corporate M&A, The

Canadian Legal Lexpert® Directory for Corporate Finance & Securities and the Legal Media Group’s Guide to the World’s Leading Corporate Governance Lawyers. Sean is also a counsel to Fasken Martineau DuMoulin LLP.

WAYNE GRAY, Corporate and M&A practice lead, joined from McMillan LLP, where he was a partner in the business law group, specializing in corporate law, M&A transactions and corporate governance. Previously he was a partner in the corporate-commercial group at Miller Thomson LLP. He is recognized as a leading corporate

mid-market lawyer in The Canadian Legal Lexpert® Directory and The Lexpert®/American Lawyer Guide to the Leading 500 Lawyers in Canada and for corporate law, private equity and secured lending in Martindale-Hubbell.

MONIQUE RABIDEAU, Capital Markets and Securities practice lead, joined from Fogler, Rubinoff LLP where she was a partner in the business law group, specializing in corporate and securities law. She assisted a variety of businesses with their legal needs and acted as secretary to many boards of directors. Clients ranged from private corporations to publicly-

traded conglomerates mostly operating in Canada and the US but also Europe, Asia and the Caribbean.

ANGELA SCOTT joined the Capital Markets and Securities team and is a sole practitioner in association with Cognition LLP where she advises private and public clients on corporate, commercial and securities law. Previously she was an associate with Blake, Cassels & Graydon LLP in the securities department, specializing in corporate,

securities, finance and merger and acquisition transactions.

CANDACE SOLOMON joined the Corporate and M&A team from Royal Bank of Canada, where she was senior counsel with the award-winning M&A legal team. Previously she was partner with Cassels Brock & Blackwell LLP in the securities group, specializing in corporate finance and M&A transactions.

STEVE SZENTEZI practised at some of Canada’s leading business law firms including Davies Ward Phillips & Vineberg LLP (Toronto) and McMillan LLP (Vancouver) as well as Linklaters LLP in the UK. Steve also practised as in-house competition counsel for The Canadian Real Estate Association in Ottawa. He has advised on numerous competition law

matters in the abuse of dominance, conspiracy, compliance, pricing and distribution and advertising and marketing law areas, among others. Steve has also spoken and published widely in the Canadian competition law area.

LYNN VAN DER VALK joined the Corporate and M&A team from Cara Operations Limited, where she was legal counsel, focusing on franchising, corporate governance, acquisitions, and commercial matters. Previously, Lynn was an associate with McMillan LLP’s business law group, specializing in M&A transactions, corporate law and corporate governance.

Meet our Team of Practical Law Canada ExpertsThe key to our online services is the editorial team behind them. Our lawyer-editors come from Canada’s leading law firms and legal departments. Meet the lawyer-editors that specialize in Corporate and M&A, Capital Markets and Securities and Competition law.

To learn more about the team, visit www.practicallaw.ca

00231LE-A51077


PROFILE GET TO KNOW THE PEOPLE WORKING FOR YOU

Steve SzentesiPRACTICAL LAW CANADA’S LAWYER-EDITOR

There aren’t many perspectives Steve Szentesi hasn’t taken on in the world of competition law.

During a 15-year legal career, he has criss-crossed Canada, practising competition law with two of the

country’s largest firms in offices on either side of the country before founding his own law firm offering competition and regulatory law advice to clients of all sizes.

In between, Szentesi also managed a stint in house, advising Canadian Real Estate Association (CREA) members on competition and anti-trust matters, as well as some time in the global capital of the financial world, working for London-based Linklaters LLP (a member of the fabled Magic Circle, a group of the U.K.’s five most prestigious commercial law firms). The latest port of call on Szentesi’s legal adventure is Practical Law Canada’s Toronto headquarters, where he takes on the role of lawyer-editor for the service’s newly launched competition law offering.

Richard Lyall, the president of RESCON, a Greater Toronto association of low-rise and high-rise builders that hired Szentesi as its competition counsel five years ago, says subscribers could not have a more accomplished guide to help lead them through the notoriously complicated field of competition law.

“He lives and breathes competition law,” Lyall says, adding that Szentesi’s international experience also came in useful during their dealings.

“He’s right up on the minutiae of the law in Canada, but he’s also very current on developments in other jurisdictions that could have a bearing on Canada,” Lyall says. “I love benchmarking stuff, so when I look at competition law, I’m not interested in just looking at the Canadian context. You’ve got to look at the U.K., Hong Kong, the U.S., and other places with similar laws to ours to see what developments are happening there.”

Szentesi never actually intended to be a competition lawyer. When he set out to study law at Dalhousie University in Halifax, he had a different end-game in mind.

“I went to law school to be a securities lawyer. I wanted to practice securities law in a big firm on Bay Street, which is exactly what I did,” Szentesi says.

However, it didn’t take long before he felt the pull of anti-trust work. As early as his articling year at Davies Ward Phillips and Vineberg LLP, Szentesi found himself drawn to the competition law practice group where he was able to work under the wings of some of the country’s most renowned practitioners in the area, including the future Federal Court Chief Justice Paul Crampton, who was then a competition law partner at Davies in Toronto.

“Before I went to Davies, I wasn’t at all familiar with competition law. I started out there working on corporate commercial and securities work, but I was very quickly roped into the competition group, where I was lucky enough to work with some very talented people,” says Szentesi. “I was very involved in competition work during my three years there, and I became completely captivated by the area.”

Since then, he’s never looked back.

“I love competition law because of the way it mixes the law and economics, but also policy, where the aim is to make the markets operate more efficiently,” Szentesi says. “One of the things I tell lawyers that are starting out about competition law is that it’s loaded with ideas. It literally does shape public policy and the markets. Competition is very important to the market, and I think all participants and all Canadians need to take an interest in the way markets operate. All of that is very fascinating to me and has remained fascinating over the last 15 years or so.”

Szentesi’s next step after Davies took him to Ottawa where he was in-house competition counsel to the CREA, advising the organization’s board of directors, as well as its 100 individual real estate boards and associations across Canada. The job also added another couple of dimensions to his competition practice.

“There was a compliance aspect, so the association needed to think about compliance measures. You need to have a relationship with the regulator so that you are seen as credible and trustworthy,” he says. “The other thing was advocacy and policy work, because large important associations are typically engaged with regulators in terms of issues that arise. It was a very interesting opportunity to have a job that was broader than just counselling for clients.”

“My time at CREA also got me interested in competition law


and associations,” says Szentesi, noting that the area has attracted renewed recent attention from the Competition Bureau and, in turn, from the Practical Law Canada team as it constructs the competition law service.

Szentesi crossed the country again in 2005, leaving the CREA to return to private practice with Lang Michener LLP in Vancouver, before the firm changed its name following its merger with McMillan LLP. His next move was across the Atlantic Ocean, where he worked with global legal giant Linklaters on multi-jurisdictional merger deals.

“It gave me an opportunity to see competition on a global scale. At Davies and McMillan, you end up working on some impressive matters, but what I saw in London was different in terms of the scale and size of the deals. You see the cross-border aspect a lot more at global law firms,” he says. “Linklaters would often be leading the transaction, and we’d be working with local counsel in several jurisdictions. You really got a chance to see the global implications of your client’s business.”

The experience set Szentesi up perfectly to found his own law firm. “That training was a fantastic segue into my own practice,” he says. “It was very influential for me.”

With a focus on competition, regulatory and advertising law, Szentesi began servicing clients of all sizes from offices in both Vancouver and Toronto in 2008. Upon his return to Canada, he says he found clients more knowledgeable about competition law issues, thanks to the increasing public profile of competition law issues, and more willing than ever to experiment with their legal service providers.

“Clients are looking for lawyers who can work in an efficient and cost-effective manner, and there’s increasing flexibility in the provision of legal services,” he says.

According to Szentesi, Practical Law Canada’s competition law offering has arrived at the perfect time to take advantage of the upheaval going on in the legal sector at the moment.

“It goes with development of options in the provision of legal

services. This is a very innovative option for both general counsel and external counsel,” he says.

Szentesi says the checklists, standard documents, practice notes and legal updates produced by his team, covering core competition topics including abuse of dominance, cartels and compliance, will help lawyers translate competition law issues into terms clients can understand, whatever their own level of expertise.

“Clients increasingly want to better understand the advice they are getting. That can be a challenge even for lawyers who regularly practise competition law because it’s a very technical area of the law. It’s even more difficult for lawyers that don’t necessarily work in the area on a regular basis,” he says. “What I like is that the

format and style of the offering is to provide a very clear, very practical set of materials for both specialists and non-specialists. This is not your traditional lawyer boilerplate advice that may or may not be intelligible to clients.”

Lyall, for one, has faith in Szentesi’s ability to engage with subscribers on the new competition law service.

“Let’s face it, competition law, like so many other things, is complicated. I personally find it interesting, but for most business people, it’s something they have to pay attention to, not the really exciting part of their work. But Steve makes it interesting. He’s not a boring guy at all,” Lyall says. “He’s a great teacher. He’s very good at summarizing complex issues and, in response to what are very complex questions, he gives very clear answers.”

Steve Szentesi


Competition Compliance Toolkit

The federal Competition Act, R.S.C. 1985, c. C-34, contains criminal and civil sections prohibiting or regulating a range

of conduct that can arise in business activities (for example, in the course of supplier and customer relations, trade associations, dealings with competitors, mergers or commercial agreements).

The criminal parts of the Competition Act include offences relating to criminal conspiracies, bid-rigging, criminal misleading advertising, deceptive telemarketing and pyramid selling schemes. Civil reviewable matters under the Competition Act include abuse of dominance, civil misleading advertising, refusals to deal, price maintenance and certain types of vertical restraints that prevent or lessen competition substantially.

The potential penalties for violation of the Competition Act can be severe and include criminal fines of up to $25 million, imprisonment for up to 14 years, court orders to stop engaging in conduct and administrative monetary penalties of up to $10 million. Directors and officers are also potentially liable for Competition Act violations. In this respect, it is common for employees and directors and officers of companies to be involved in Competition Bureau (Bureau) investigations (and in some cases be convicted of competition law offences) and to be named as parties in competition law related civil actions.

Because a competition law investigation,

prosecution or civil action can have severe consequences, companies must ensure that they have an effective competition law compliance program in place. A competition law compliance program helps companies by:

• Educating employees about conduct that violates competition laws and the potential penalties.

• Providing employees and executives with efficient means to identify and report suspected violations.

• Encouraging early detection of any violations that do occur, allowing the company to take corrective measures or seek immunity or leniency from the Bureau.

The following is a selection of key content to help counsel create, implement and audit a company’s competition law compliance program, as well as compliance resources for specific types of activities.

PRACTICE NOTE: OVERVIEWSn Canadian Competition Law: Overview

PRACTICE NOTESn Competition Law Compliance Programsn Cooperating with Competitors –

Business Briefingn Document Creation and

Communicationsn Establishing and Avoiding a

Conspiracy Agreementn Information Exchanges

Between Competitors

STANDARD DOCUMENTSn Competition Law Compliance Programsn Competition Law Hypotheticals for

Compliance Training - Dealings with Competitors

n Employee Certification Lettern Memorandum – Document Creation in

Preperation for a Transactionn Memorandum – gun-jumping

CHECKLISTSn Avoiding Gun-jumping in Corporate

Transactions Checklistn Competition Law Audit Checklist For

Trade Associationsn Competition Law Compliance

Audit Checklistn Conduct of Meetings Checklistn Cooperating with Competitors

Checklistn Creating Strategic Documents Checklist

(Notification Form, Section 6)n Detecting Bid-rigging Checklistn Deterring Bid-rigging Checklistn Document Creation Checklistn Factors to Assess the Competition

Law Risk of Information Exchangesn How to Avoid Entering a Conspiracy

Agreement Checklistn Information Exchange Checklistn Joint Venture Competition

Compliance Checklistn Resale Price Maintenance Checklistn Search and Seizure Checklistn Trade Association Participation

Checklistn Unilateral Refusals to Deal Checklist

(Factors to Assess Risk)

TOOLKITS PRACTICAL LAW CANADA COMPETITION

Below is an excerpt from a Toolkit that provides resources to guide counsel in creating, implementing and auditing a company’s competition law compliance program. This Toolkit also includes materials that can be used for competition law compliance in specific circumstances (for example, in relation to document creation, information exchanges and surveys, preparation for a merger, meetings with competitors, trade association activities, and joint ventures). or the complete, continuously maintained version of this Toolkit, visit practicallaw.ca.

Practical Law Canada Competition



TYPES OF DOCUMENTS TO REVIEWSome of the types of documents that are commonly reviewed during a competition compliance audit include those relating to:n Trade associations and trade shows (for

example, lists of associations, purposes, by-laws, agendas, reports and records of attendance).

n Other contacts with competitors (for example, agreements or other documents relating to joint ventures, buying groups, joint marketing, lobbying or competitors who are also suppliers or customers).

n Sales and marketing (for example, gen-erated by policy-making executives, used in pricing decisions, distribution agree-ments, sales plans and sales reports).

n Pricing decisions and price changes.n Customers and suppliers (for example,

relating to pricing or that include territorial or customer restrictions).

n Business or strategic plans.n Bids or tenders (for example, relating to

the process for submitting bids and any coordination with competing bidders or sub-contractors).

n Potential transactions (for example, whether there is language in transaction documents that may raise Bureau concerns or may more generally suggest a competition law violation). For more information, see Practice Note, Document Creation and Communications and Creating Strategic Documents Checklist

(Notification Form, Section 6).n Competition generally (for example,

competition related topics, litigation, or complaints or threats from competitors, suppliers or customers).

n Competition law compliance (for exam-ple, competition compliance program, compliance policy, compliance guide-lines and employee certification letters).

STEPS TO TAKE AFTER COMPLETING AN AUDITThe following are some general steps to take on completing a compliance audit:n Report to senior management.n Consider whether risk mitigation

strategies are necessary (for example, whether to seek immunity or leniency from the Bureau or formulate defenses). For more information, see Practice Notes, Competition Bureau Immunity and Leniency Programs and Conspiracy Defences.

n Consider whether discipline is necessary for any personnel. It may be necessary to consult employment counsel.

n Determine whether the company’s compliance program and procedures need to be revised (for example, to address the area of a violation or improve training).

The following are some more specific steps to take depending on whether a competition law violation is detected:n No violations found. If no violations

are found, then no corrective steps are necessary. Periodic compliance training and audits should be continued. The company’s compliance program should be updated as necessary based on new developments.

n Suspected competition law violation. Consider expanding the review in the particular area or engaging a forensic consultant.

n Evidence of a non-serious violation. Stop the conduct. Revise the compliance program, training and internal controls as needed to prevent future violations.

n Evidence of a serious violation. Stop the conduct. Assess whether to seek immunity or leniency from the Bureau. Consider whether disciplinary steps should be taken against personnel and whether potential conflicts may necessitate employees retaining separate counsel. Revise the compliance program, training and internal controls as needed to prevent future violations. For more information about the Bureau’s Immunity and Leniency Programs, see Practice Note, Competition Bureau Immunity and Leniency Programs.

CHECKLISTS PRACTICAL LAW CANADA COMPETITION

Below are excerpts from a Checklist that will be available on our website to assist counsel conduct a competition law compliance audit. It includes guidelines for preparing for an audit, performing an audit (including the types of documents to review and employees to interview) and steps to take after completing an audit. It also includes a checklist for reviewing trade association activities that can potentially raise competition law issues. For the complete, continuously maintained version of this Checklist, visit practicallaw.ca.

Competition Law Compliance Audit Checklist


PRACTICE NOTES PRACTICAL LAW CANADA COMPETITION

Concerted Refusals to Deal (Boycotts)Below are excerpts from a Practice Note that discusses concerted refusals to deal (boycotts) under the Competition Act, R.S.C. 1985, c. C-34. This Note also discusses the Competition Bureau’s enforcement approach to concerted refusals to deal and provides examples of Canadian boycott cases and guidelines to minimize potential risk. Visit practicallaw.ca.


Activities that May Raise Boycott ConcernsBased on past cases, some of the types of activities that may raise boycott concerns include:

• Agreements between competing suppliers to refuse to supply to some customers.

• Agreements between competing customers and a supplier for the supplier (or suppliers) to refuse to supply to some customers.

• Other types of agreements between two or more competitors to refuse to supply or deal (for example, refusing to deal with particular customers, suppliers or other marketplace participants).

Historically, boycotts have been pursued in Canada under the criminal conspiracy section of the Competition Act. Some examples of past boycott cases include:

• A trade association that refused to admit new members who would compete with existing members (R. v. Alberta Ambulance Operators’ Association (unreported) (January 23, 1995), (Alta. Q.B.) (Alberta Ambulance Operators’ Association)).

• An agreement between pharmacy association members to collectively refuse to fill prescriptions under the terms of an insurance company’s payment plan (R. v. Metropolitan Toronto Pharmacists’ Assn., 1984 CarswellOnt 853 (Ont. H.C.) (Toronto Pharmacists)).

• An agreement among Japanese orange producers and importers to only supply oranges to certain importers and retailers (R. v. Burrows, 1966 CarswellBC 199 (B.C.S.C.) (Burrows)).

• An agreement between electrical suppliers and contractors under which: (i) suppliers would only sell to specified electrical contractors and (ii) electrical contractors would only buy from suppliers that adhered to this agreement (R. v. Electrical Contractors’ Assn., 1961 CarswellOnt 26 (Ont. C.A.) (Electrical Contractors’ Association)).

• An agreement among competing paper mills and wholesalers to refuse to sell paper to some wholesalers (R. v. Howard Smith Paper Mills Ltd., 1954 CarswellOnt 20 (S.C.)).

• An agreement between competing suppliers of copper wire to refuse to sell wire to some wholesalers (R. v. Northern Electric Co., 1955 CarswellOnt 16 (S.C.) (Northern Electric)).

Guidelines to Minimize Boycott RiskThe following are some guidelines to minimize the risk of raising boycott issues under the Competition Act:

• Supply or output decisions, in general, should be made unilaterally without discussion or agreement with competitors.

• Competitors should not enter into any type of agreement or arrangement to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product.

• Competing members should generally not discuss or agree to refuse to supply or deal with some competitors, customers, suppliers or other marketplace participants during trade or professional association meetings or activities. For a Bureau source that discusses boycotts in the context of associations, see Competition Bureau Pamphlet, Trade Associations and the Competition Act (2014).

• Competing suppliers should not agree to refuse to supply or deal with particular customers.

• Agreements involving suppliers should not be entered into by competing wholesalers or retailers for suppliers to refuse to supply to or deal with some wholesalers or retailers.

While some types of collective refusals to deal may be permissible (for example, in the context of a pro- competitive joint venture or uniform and non-discriminatory association membership criteria), legal advice should be sought.

Contents

Activities that May Raise Boycott ConcernsConcerted v. Unilateral ConductThe Competition Bureau’s Approach to BoycottsPenaltiesCase ExamplesGuidelines to Minimize Boycott Risk



Information Exchanges Between CompetitorsBelow are excerpts from a Practice Note that discusses potential competition law risks associated with information exchanges between competitors (for example, in connection with industry surveys, trade association activities, joint ventures or merger negotiations). It includes threshold questions to ask before engaging in information exchanges with competitors, factors to evaluate risk and links to Checklists to minimize risk. For the complete, continuously maintained version of this Practice Note, visit practicallaw.ca.


Factors to Evaluate RiskThe following are some key factors to assess whether an information exchange between competitors may raise competition law concerns:

• Type of information. In general, there is risk associated with the following categories of information:• prices;• costs;• markets or market shares;• customers or suppliers;• production or output;• marketing or strategic plans; and• the terms of competitive bids.

• Currency of the information. In general, there is more risk with current or future information than historical information.

• Frequency of exchange. Frequent and systematic exchanges are more likely to raise competition law concerns than are occasional exchanges for legitimate pro-competitive purposes.

• Level of detail and aggregation. Exchanging sufficiently aggregated information is generally safer than distributing company-specific information.

• Public or private information. Making information public is generally safer than limiting it to competitors (although, making information public will not necessarily ensure that competition law issues will not arise).

• Access to the information. Association member surveys, industry benchmarking or other similar exercises may be pro-competitive in many cases. Competitively sensitive information should, however, generally not be circulated to competitors in unaggregated form and a third party used to collect and distribute the information (see Steps to Minimize Risk).

• Market characteristics. The Bureau may seek to review information exchange agreements in some cases under section 90.1 of the Competition Act ( civil agreements). This would require an analysis of whether an information exchange agreement would likely prevent or lessen competition substantially, which may include relevant factors such as parties’ market shares, barriers to entry and other direct or indirect indicators of market power (see Collaboration Guidelines, at page 28).

Steps to Minimize RiskBased on the potential risk of information exchanges between competitors, including in the context of trade association meetings, benchmarking or joint ventures, it is prudent to assess the level of potential risk and, if necessary, adopt safeguards.

Potential precautions may include:• Conduct of meeting guidelines (for example, for trade or

professional association meetings and events). See Conduct of Meetings Checklist.

• Guidelines for joint ventures (for example, to ensure that discussions and information exchanges among joint venture partners are limited to the pro-competitive joint venture activities). See Joint Venture Competition Compliance Checklist.

• Guidelines for benchmarking or surveys (for example, to use a third party to collect and aggregate information and ensure that raw information is not circulated to participants). See Information Exchange Checklist.

• Gun-jumping memoranda for merger negotiations.

Contents

Commercial Situations where Information Exchange Risk Can AriseQuestions before Exchanging Information with CompetitorsKey Risks of Information ExchangesPotential Penalties Factors to Evaluate Risk Steps to Minimize RiskInformation Exchange Guidelines



Below are excerpts from a Checklist that will be available on our website to help counsel estimate potential Competition Act, R.S.C. 1985, c. C-34, criminal fines for behavior such as price-fixing, market allocation or bid-rigging. It includes summaries of how the Competition Bureau (Bureau) calculates recommended fines, potential immunity and leniency discounts and the Bureau’s fine recommendation policies for specific types of criminal competition law offences. For the complete, continuously maintained version of this Practice Note, visit practicallaw.ca.


Calculation of Competition Act Fines Checklist

For a company that discovers that its employees have participated in a criminal conspiracy or other competition law offence,

understanding what it may face in potential fines is an important factor for, among other things, assessing potential exposure and deciding whether to cooperate with a Competition Bureau (Bureau) investigation.

This Checklist explains how the Bureau arrives at recommended corporate fines in criminal competition law cases (for example, criminal conspiracy and bid-rigging matters). For more information on criminal competition law offences, see Practice Notes, Criminal Competition Law Enforcement in Canada, Canadian Conspiracy (Cartel) Law and Canadian Bid-rigging Law.

There are no formal sentencing guidelines in Canada under which penalties for violation of the Competition Act, R.S.C. 1985, c. C-34 (Competition Act) are assessed. Canadian courts rely on the general sentencing purposes and principles under the Criminal Code, R.S.C. 1985, c. C-46 (Criminal Code) (sections 718, 718.1, 718.2 and 718.21) and sentencing case law developed under the Competition Act. It is standard practice for the Public Prosecution Service of Canada (PPSC) to make sentencing submissions to a court, taking into

consideration a plea agreement, if any. For a key decision discussing sentencing for competition law offences, see R. v. Maxzone Auto Parts (Canada) Corp., 2012 CarswellNat 3686 (F.C.) (Maxzone).

The Competition Bureau (Bureau) has, however, developed guidelines for sentencing recommendations in criminal cases. See Competition Bureau, Leniency Program Bulletin (2010) (Leniency Bulletin) and Leniency Program: Frequently Asked Questions (Leniency FAQs).

While the Bureau may make penalty recommendations to the PPSC, the PPSC has independent discretion to accept or reject the Bureau’s recommendations (though will give Bureau recommendations due consideration). See Public Prosecution Service of Canada Deskbook (PPSC Deskbook), Part V, Guideline 5.2 Competition Act, Appendix A, sections 2.2, 3.7.

Ultimate sentencing decisions, however, are in the sole discretion of courts, which may determine penalties in particular cases.

For this reason, the calculation of any criminal competition law fine in Canada is not merely a mathematical process. It has been relatively rare, however, for courts to deviate from sentencing

recommendations. For a key decision discussing sentencing for competition law offences, see Maxzone.

IDENTIFY THE AFFECTED VOLUME OF COMMERCE IN CANADATo estimate a potential criminal competition law fine, counsel must first determine the affected volume of commerce (VOC) in Canada (for example, affected by a conspiracy or bid-rigging agreement).

For price-fixing agreements (prohibited by section 45(1)(a) of the Competition Act), the VOC will be the sale of all of the accused’s products whose prices were affected by the conspiracy and that were sold in Canada.

The VOC may, however, be calculated differently depending on the type of offence or method of sales in the following situations:

n Market allocation agreements (section 45(1)(b), Competition Act).

n Bid-rigging (section 47, Competition Act).

n Where an offence involves indirect sales into Canada.

Each of these cases is discussed in more detail below. See Market Allocation Agreements, Bid-rigging and Indirect Sales.


CHECKLISTS

Creating Strategic Documents Checklist

(Notification Form, Section 6)Below is an excerpt from a Checklist that summarizes recommendations for creating strategic transaction documents to avoid unnecessarily raising concerns during the pre-merger notification and review process under the Competition Act, R.S.C. 1985, c. C-34. For the complete, continuously maintained version of this Checklist, visit practicallaw.ca.


PRACTICAL LAW CANADA COMPETITION

The pre-merger notification requirements of the Competition Act, R.S.C. 1985, c. C-34 (Competition Act) require,

unless an exemption applies, that each of the transacting parties file a statutory pre-merger notification form with the Competition Bureau (Bureau). Section 6 of that form requires the parties to file certain documents that evaluate or analyze competition-related aspects of the proposed transaction. These documents can have a significant impact on the decision of the Bureau whether to issue a supplementary information request (SIR) and even whether to challenge the transaction before the Competition Tribunal.

An important exemption to this notifica-tion requirement applies if the parties are able to obtain an advance ruling certificate (ARC) or a no-action letter (NAL). The majority of pre-merger filings proceed by way of an application for an ARC or a NAL without necessarily also including the formal notification form. However, even where the formal notification process is not invoked, the Bureau can request or compel production of the same type of documents as are required under the no-tification form. Therefore, these guidelines apply even where a formal notification form is not submitted.

This Checklist provides recommendations on the creation of strategic transaction documents to avoid raising unnecessary competition law concerns.

CREATING STRATEGIC DOCUMENTS: GUIDELINESThe following recommendations apply to all transaction-related documents, whether created internally or prepared by external advisors or other third parties. The pre-merger notification form also requires the parties to produce unsolicited documents if they are relevant and were received by officers or directors of the parties.

n All transaction-related documents, in whatever form, could potentially be reviewed by the Bureau so draft them appropriately. These documents could include:

• drafts and annotated versions of transaction documents;

• internal strategic plans and memoranda;

• documents created by external advisors, such as offering memoranda;

• unsolicited materials received from investment bankers (such as bankers’ books or pitch books) or other third parties;

• emails; and• handwritten notes.

n Use oral communications as a substi-tute for written reports where possible. However, keep in mind that handwritten notes and written speaking points used for oral reports could be reviewed by the Bureau.

n Consider if it is necessary to copy or

forward every document to officers or directors.

n Draft each document as if the Bureau were copied in on it.

n Involve counsel, whenever possible, in the review of drafts before they are circulated to anyone else.

n Mark as “privileged and confidential” any document prepared by counsel or at the request of counsel.

n Contact legal counsel if you have any questions regarding these guidelines.

n Do not use exaggerated, speculative, unclear or erroneous statements. Such statements can invite further investigation and result in unnecessary delay in the review of the transaction.

n Avoid negative competition law expressions or potentially misleading phrases such as:

• dominate the market;• destroy a competitor;• create or increase barriers to entry;• stabilize the industry; or• avoid margin erosion or destructive

competition.n Avoid the expressions “barriers to

entry” or “dominant position.” Better expressions to use include “competitive advantages” and “leading position.”

n Do not make exaggerated or speculative references to:

• market definition;• market shares;• market position; or• market power.

DISCOVER TODAY’S TRENDS.

How does your proposed break fee compare to prior transactions?

How do material adverse effect defi nitions vary from deal to deal?

How common are go-shop provisions? Or earn-outs?

Discover What’s Market: Public Merger Agreements

What’s Market: Public Merger AgreementsInstantly answer your market practice questions and access relevant precedents with our easy search and comparison tool.

Search Public Merger Agreements by industry sector, consideration, buyer type, value and more.

Go directly to the underlying deal documents for more details.

View your custom report and export it to an external fi le.

Key features you can fi lter by and compare include industry sector, representing law fi rms, fi nancial advisors, deal value, consideration, go-shop provision, break fee and fee as a % of total deal value and more.

Practical Law Canada provides legal know-how that gives lawyers a better starting point. Our expert team of lawyer-editors creates and maintains hundreds of up-to-date, practical resources. We go beyond primary law and traditional legal research to give you the resources needed to practice more effi ciently, improve client service and add more value.

To learn more or to request a free trial, visit practicallaw.ca. If you are a current subscriber and would like to schedule training, email [email protected].

DISCOVER TODAY’S TRENDS.

How does your proposed break fee compare to prior transactions?

How do material adverse effect defi nitions vary from deal to deal?

How common are go-shop provisions? Or earn-outs?

Discover What’s Market: Public Merger Agreements

What’s Market: Public Merger AgreementsInstantly answer your market practice questions and access relevant precedents with our easy search and comparison tool.

Search Public Merger Agreements by industry sector, consideration, buyer type, value and more.

Go directly to the underlying deal documents for more details.

View your custom report and export it to an external fi le.

Key features you can fi lter by and compare include industry sector, representing law fi rms, fi nancial advisors, deal value, consideration, go-shop provision, break fee and fee as a % of total deal value and more.

Practical Law Canada provides legal know-how that gives lawyers a better starting point. Our expert team of lawyer-editors creates and maintains hundreds of up-to-date, practical resources. We go beyond primary law and traditional legal research to give you the resources needed to practice more effi ciently, improve client service and add more value.

To learn more or to request a free trial, visit practicallaw.ca. If you are a current subscriber and would like to schedule training, email [email protected].



Pre-Merger Notification: Hostile BidsBelow is an excerpt from a Practice Note that discusses the pre-merger notification requirements under the Competition Act, R.S.C. 1985, c. C-34, that are applicable to hostile bids and the Competition Bureau’s practice in dealing with hostile bids. Visit practicallaw.ca.


This Practice Note discusses pre-merger notification requirements and considerations under the Competition Act, R.S.C., 1985, c. C-34 (Competition Act) that are relevant to hostile bids. For the basic pre-merger notification rules applicable to transactions generally, see Practice Note, Pre-Merger Notification Exemptions under the Competition Act.

In a consensual transaction, parties typically coordinate their pre-merger notification filings and cooperate in dealing with the merger review by the Competition Bureau (Bureau). However, in a hostile bid, the parties have different interests and therefore particular rules and considerations may apply, notably regarding:• Pre-merger notification and waiting periods.• Information disclosure from the Bureau.• Determination of whether pre-merger notification is required.

Hostile Bids: Pre-Merger Notification and Waiting PeriodsWhere a proposed transaction, including a hostile bid, exceeds the pre-merger notification thresholds under the Competition Act (and no exemption from notification applies), the transaction cannot be completed before pre-merger filings have been submitted and the applicable waiting period has expired.

Pre-Merger NotificationAssuming pre-merger notification is required, the Competition Act establishes a specific procedure for hostile bids in which a bidder proposes to acquire the shares of a target corporation (section 114(3), Competition Act). (Under proposed amendments, this procedure will be extended to apply to any proposed acquisition of “equity interests” in an entity, which will include corporations, trusts, partnerships and certain other entities. See Bill C-49, An Act to amend the Competition Act.)

Pre-merger notification in a hostile bid involves three steps:• The bidder submits its pre-merger notification filing.• Once the Bureau receives the bidder’s pre-merger notification

filing, the Bureau must immediately notify the target that it has received the bidder’s filing.

• The target must supply its pre-merger notification filing within 10 days of being notified by the Bureau.

Waiting PeriodsIn a hostile bid, the target cannot delay the applicable waiting period. The period commences once the bidder has submitted its required information and runs without regard to when the target provides its information (section 123(3), Competition Act).

This differs from a consensual transaction, where the Bureau does not consider the waiting period to start until both parties have provided the required information.

Initial 30-day Waiting PeriodThe initial 30-day waiting period begins once the Bureau has received the pre-merger notification filing from the bidder. The Bureau must immediately notify the target and the target has 10 days to file its pre-merger notification filing. However, that does not impact the waiting period.

Contents

Hostile Bids: Pre-Merger Notification and Waiting PeriodsPre-Merger NotificationWaiting PeriodsExemption to Pre-Merger Notification: ARC or NAL

Hostile Bids: Information DisclosureConfidentiality RestrictionsBureau’s PolicyMultiple Bid Situations

Hostile Bids: Determining if Pre-Merger Notification is RequiredIs There a “Proposed Transaction?”Are the Financial Thresholds Exceeded? Options for the Bidder

In transactions that may raise competition issues, parties often engage the Bureau in discussions prior to submitting a pre-merger notification filing. This delays triggering the initial 30-day waiting period and may avoid “squeezing” the Bureau’s review and allow more time to convince the Bureau not to issue supplementary information requests (SIRs).

This consideration can be even more important in hostile bids, where the Bureau may only have 20 days before the expiration of the initial waiting period to review the target’s filing.

Therefore, a hostile bidder should consider (subject to disclosure and confidentiality constraints) providing information to help the Bureau advance its review prior to the bidder filing its pre-merger notification. A bidder may also submit to the Bureau a request for an advance ruling certificate (ARC) or a no-action letter (NAL) without filing a pre-merger notification and triggering the 30-day waiting period.

Practical Tip: Waiting Period


Practical Tip: SIR Compliance

The bidder will normally be in a position to comply with its SIR and trigger the subsequent 30-day waiting period before the target has provided its information. Even where the Bureau does not request a timing agreement, the bidder should consider delaying certifying compliance with its SIR to allow enough time to address any potential Bureau concerns prior to the end of the waiting period.

National Security Reviews

Below are excerpts from a Checklist which discusses the national security review of investments under the Investment Canada Act, R.S.C. 1985, c. 28 (Investment Canada Act). It looks at what constitutes a national security review and the criteria relevant to a determination that an investment is “injurious to national security.” It also looks at the process, timelines, and information required for a national security review. It concludes by looking at key transactions that raised national security concerns under the Investment Canada Act. Visit practicallaw.ca.


Contents

Definition of “Injurious to National Security” Criteria

CriteriaActivities of the Canadian BusinessNature of the InvestorDegree of Control of the Canadian Business

Process for National Security ReviewsNotice That an Investment May Be Subject to ReviewNo Notice of Review Determination RecoursePractice Tips

Information to Be ProvidedGeneral InformationInformation regarding Control and ManagementEstablishment of a New Canadian Business (if applicable)Acquisition of Control of an Existing Canadian Business (if applicable) Involvement of State-owned Enterprises (if applicable)

Key Transactions

SIRs and Subsequent 30-day Waiting PeriodIf, during the initial 30-day waiting period, the Bureau has potential concerns about the transaction, it may issue SIRs to the parties. If SIRs are issued, a subsequent 30-day waiting period will run from the date the Bureau has received a certified complete response from the bidder. As is the case with the initial pre-merger notification filing, the timing of the target’s response to a SIR does not impact the waiting period.

Since the target may have incentive to delay responding to a SIR, when the Bureau issues a SIR to the target, the Bureau will often also seek a section 11 order (similar to a subpoena) compelling the target to respond by a certain date (section 11, Competition Act).

The Bureau may also want the bidder to enter into a timing agreement designed to allow the Bureau sufficient time before closing to receive and review relevant information (see Competition Bureau, Merger Review Process Guidelines, section 4.2). For example, the Bureau may request that the bidder not certify completeness of its SIR responses prior to a specific date and that the bidder provide the Bureau with advance notice of closing.

Transactions Ceasing to be HostileAn important caveat to the rule that the target’s compliance with its SIR does not affect the subsequent 30-day waiting period applies if the transaction has ceased to be hostile prior to the bidder’s compliance with the SIR (that is, the parties have started cooperating on the deal). In that case, the Bureau treats the transaction from that point as it does other consensual transactions and considers that the subsequent 30-day waiting period does not run until both the bidder and target have complied with their SIRs.

For additional information on the Bureau’s policy regarding waiting periods in hostile bids, see Competition Bureau, Hostile Transactions Interpretation Guideline Number 2: Bureau Policy on Running of Subsection 123(1) Waiting Periods.



Review of Canadian Cultural Business InvestmentsBelow is an excerpt from a Practice Note that discusses the definition of cultural businesses within the Investment Canada Act, R.S.C.1985, c. 28. It then outlines the circumstances under which a review of an investment involving a Canadian cultural business can be required and discusses the review process, including possible dual filing requirements. It also discusses the net benefit test as applied to cultural businesses and the type of undertakings that may be required to meet this test. Finally, it looks at government foreign investment policies and practices with respect to the Canadian book, magazine and film industries. For the complete, continuously maintained version of this Practice Note visit practicallaw.ca.


Net Benefit Test and Net Benefit UndertakingsInvestments in a cultural business in Canada must likely be of net benefit to Canada and be consistent with Canada’s cultural policy objectives. In making this determination, the Minister of Heritage will consider the criteria set out in section 20 of the Investment Canada Act.

Very briefly, they are:• The effect of the investment on the level and nature of

economic activity in Canada.• The degree and significance of participation by Canadians in

the Canadian business and in any industry.• The effect of the investment on productivity, industrial

efficiency, technological development, product innovation and product variety in Canada.

• The effect of the investment on competition within any industry in Canada.

• The compatibility of the investment with national industrial, economic and cultural policies.

• The contribution of the investment to Canada’s ability to compete in world markets.

See section 20 of the Investment Canada Act.

Typically, when a cultural business is involved, the investor will negotiate a suitable set of undertakings with the Cultural Sector Investment Review Division that would be provided in connection with the Minister’s approval of the investment.

Canadian Heritage recommends that investors consider the following four areas as a starting point when formulating their plans and commitments to satisfy the net benefit test:

(i) Promoting Canadian Content: Commitments to the creation, production, distribution, marketing and preservation of Canadian cultural products in Canada, through traditional and new media.

(ii) Cultural Participation: Commitments to nurturing new Canadian talent, to employment of diverse Canadians, to autonomy for executives of Canadian companies, to learning opportunities for staff, to partnerships/alliances with Canadian companies and/or learning institutions, particularly in relation to enhancing Canadian infrastructure through technology, know-how, e-commerce, training, internships, etc.

(iii) Active Citizenship and Civic Participation: Commitments to provide philanthropic contributions or in-kind gifts to cultural training institutions, studies, and initiatives designed to enhance Canada’s civic life.

(iv) Strengthening Connections Among Canadians: Commitments to the distribution and marketing of Canadian cultural products and sponsorship of events and initiatives that showcase Canadian talent and stories.

Practice Tips• With respect to the criteria in section 20 of the Investment

Canada Act relating to the compatibility of the investment with cultural policies, specific cultural policies such as with respect to book publishing and distribution are important in assessing net benefit (in some cases even determining whether

Contents

What is a Cultural BusinessReviews for Cultural Businesses Lower Review Thresholds Discretionary ReviewsControl in Fact

Review ProcessDual Filing RequirementsNet Benefit Test and Net Benefit UndertakingsRestrictions in the Book Publishing and Distribution Industry


Investment Canada Act ExemptionsBelow is an excerpt from a Practice Note that discusses exemptions under section 10 of the Investment Canada Act, R.S.C. 1985, c. 28. Section 10(1) of the Investment Canada Act sets out transactions that are exempt from the Investment Canada Act provisions (other than for national security). Section 10(2) of the Investment Canada Act sets out transactions that are exempt from the national security review provisions of the Investment Canada Act. Visit practicallaw.ca.


Exemption

Securities dealer – ordinary course acquisition

Venture capitalist – ordinary course acquisition

Foreign lender realizing of security - not related to the Act

Acquisition for purpose of facilitating financing – divest within 2 years or as agreed by Minister

Corporate reorganization – ultimate control remains unchanged

Acquisition of control of Crown corporation

Acquisition of control of non-profit

Acquisition of control by a foreign bank

Involuntary acquisition – devolution of estate or by operation of law

Acquisition of control by a foreign insurance company

Acquisition of control of a farming business with real property

Provision(s)

10(1)(a)

10(1)(b)

10(1)(c), 10(2)(a)

10(1)(d)

10(1)(e), 10(2)(b)

10(1)(f), 10(2)(c)

10(1)(g)

10(1)(h), 10(2)(d)

10(1)(i)

10(1)(j), 10(2)(e)

10(1)(k)

Exempts Investment from Parts III & IV

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Exempts Investment from Part IV.1

No

No

Yes*

No

Yes*

Yes

No

Yes

No

Yes*

Yes

Relevant Ministerial Opinions

#19

#6, 24, 33, 39, 47, 50

#15

#8

#25

an investment is allowable) and formulating undertakings. See Restrictions in the Book Publishing and Distribution Industry

• Also, Canadian Heritage is increasingly requiring regular Investment Review Division-type undertakings in regard to capital investment and employment (in other words, not culturally oriented).

• Canadian Heritage emphasizes that undertakings should be as specific as possible and avoid caveats.

• Canadian Heritage often requires commitments for a minimum of five years and may require them in perpetuity.

• Canadian Heritage will review an investor’s performance with undertakings every 12 to 18 months. The result of failing to comply with undertakings may include substantial fines and possibly even an order to divest the Canadian business.

See the Department of Canadian Heritage, Net Benefit Undertakings and Canadian Cultural Policy.

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Below are excerpts from a Checklist that contains factors to assist counsel to identify potential unilateral refusal to deal risk under sections 75 (refusal to deal), 76 (price maintenance) and 79 (abuse of dominance) of the Competition Act, R.S.C. 1985, c. C-34. For the complete, continuously maintained version of this Practice Note visit practicallaw.ca.


Unilateral Refusals to Deal Checklist (Factors to Assess Risk)

FACTORS TO ASSESS REFUSAL TO DEAL RISK: SECTION 75 (REFUSAL TO DEAL)Some factors for suppliers to assess the potential risk of a refusal to deal under section 75 include whether:n The termination would substantially

affect the customer’s business. For example, whether:• the product accounts for a large

percentage of the customer’s overall business;

• the product is easily replaced by the customer; and

• the customer can shift capacity into selling another product (for more information about these factors, see Chrysler Canada Ltd. v. Canada (Competition Tribunal), 1989 CarswellNat 720 (Competition Trib.), at paragraph 53).

n There are any objectively justifiable business reasons for the termination (for some examples, see B-Filer Inc. v. Bank of Nova Scotia, 2006 CarswellNat 6422 (Competition Trib.), at paragraphs 147-148).

n The product is in ample supply (that is, a supplier would not have to choose between existing and new customers to supply the product).

n The remaining competitors of the customer would likely have market power as a result of the termination, including based on:

n their market shares; concentration of the overall market; and

n barriers to entry.

FACTORS TO ASSESS REFUSAL TO DEAL RISK: SECTION 79 (ABUSE OF DOMINANCE)Two threshold questions to evaluate refusal to deal risk under section 79 of the Competition Act (relating to the supplier’s market power, which is required under section 79) are:n Does the supplier have a significant

market share? While there is no bright line market share figure for market power under section 79, a market share of less than 35% will generally not prompt further examination by the Bureau (for more information on the Bureau’s approach to market shares, see Competition Bureau Enforcement Guidelines, The Abuse of Dominance Provisions (Sections 78 and 79 of the Competition Act) (2012), at page 8).

n Are there any significant barriers to entry into the relevant market?

If a firm may have market power, the purpose and effect of a refusal to deal

should be considered. Some factors to consider whether a refusal to deal may be an anti-competitive act under section 79(1)(b) of the Competition Act include:n The reasonably foreseeable effects

of the refusal to deal. For example, whether it will raise a competitor’s costs significantly or exclude some competitors from the market.

n Whether there is any valid business justification for the refusal to deal (that is, any credible efficiency or pro-competitive rationale).

n Whether there is any subjective evidence that the refusal to deal is for an anti-competitive purpose (for example, internal or public statements by the company that it is intended to adversely impact a competitor or will likely have that effect). For more information on these key factors, see Canada (Commissioner of Competition) v. Canada Pipe Co., 2006 CarswellNat 1763 (F.C.A.), at paragraph 67.



Resale Price Maintenance ChecklistBelow are excerpts from a Checklist of issues for manufacturers and suppliers to consider before implementing resale pricing policies in Canada (for example, minimum resale, manufacturer’s suggested retail price (MSRP) or minimum advertised price (MAP) policies). This Checklist discusses both unilateral issues (manufacturer or supplier) and concerted issues (groups of competing suppliers or retailers) that can arise in connection with resale pricing policies. It also includes guidelines to reduce price maintenance risk in key areas. Visit practicallaw.ca.


SUPPLY TERMINATIONSOne of the three types of price maintenance in Canada is where a producer or supplier (or certain other types of persons listed in the section) refuses to supply a product or discriminates against a person based on the person’s low pricing policy (section 76(1)(a)(ii), Competition Act).

As such, there can be potential risk if a supplier terminates supply to a customer or other person if the termination is based on the person’s low pricing policy.

FACTORS TO CONSIDER BEFORE TERMINATING SUPPLYThe following are some guidelines for suppliers to reduce potential price maintenance or other competition issues from arising when terminating supply to a customer:n Consider whether a supplier’s

market share may be a potential concern. The Bureau will typically not further examine whether a firm possesses market power for the price maintenance sections of the Competition Act where its market share is less than 35% in the relevant market (Price Maintenance Guidelines, at page 15).

n Consider whether there are any significant barriers to entry in the relevant market, including potential barriers erected as a result of the price maintenance policy.

n Make supply termination decisions independently of competitors (given

that concerted refusals to deal can raise criminal or civil conspiracy issues under section 45 or 90.1 of the Competition Act).

n Document the legitimate business reason (or reasons) for a supply termination. This might include, depending on the circumstances, one or more of the following:• to rationalize or reorganize

distribution;• to make distribution more efficient;• to determine if there is non-

compliance with a supply agreement; or

• to determine if there is non-compliance according to an express termination provision.

n Avoid internal or external statements that incorrectly state or suggest that a termination is based on a customer’s or reseller’s low pricing policy. While all of the elements of section 76(1)(a)(ii) of the Competition Act would still need to be proven by the Bureau or a private party, including an adverse effect on competi-tion, statements that a supply termina-tion is based on a person’s low pricing policy can potentially be prejudicial.

n If a customer’s or other person’s low pricing is in fact a basis for termination, evaluate whether there is any significant potential price maintenance risk. In this respect, a key threshold question to consider is whether a supplier possesses market power (see Market Power as a Preliminary Screen). See also Practice Note, Resale Price Maintenance Under the Competition Act.

DOCUMENT THE LEGITIMATE PURPOSES OF A RESALE PRICING POLICYIt is prudent for suppliers and manufacturers that adopt resale pricing policies to document the legitimate purposes of their policies in internal documents and external communications. For example:n Internally document the legitimate

business reasons for adopting a resale pricing policy, which may include:• to correct free riding;• to encourage dealers to increase the

level of product support or service; or• to compete more effectively with

other brands.n Internally document the fact that a

resale pricing policy has been adopted unilaterally.

n Reflect the legitimate and pro-competitive rationales for the resale pricing policy in external communications.

n Avoid incorrectly stating or suggesting that a resale pricing policy relates to any anti-competitive purpose (for example, reducing or eliminating competition, limiting new entry or protecting particular resellers).

n Avoid incorrectly stating or suggesting that a resale pricing policy is the result of coordination between competing suppliers or between competing retailers.

ChecklistsOur checklists reflect current law and practice and help make sure you’ve covered all the bases.

The green ‘Maintained’ status means you can be confident this resource is up to date. Our expert Lawyer-Editors update resources regularly to reflect developments in law and practice.

Show resource history to see when and how a resource was last updated.

Continue your research or transaction with related Practical Law Canada resources.

Get concise summaries of the content of a document.

To learn more about Practical Law Canada’s features, call 1-844-717-4488 or visit www.practicallaw.ca

ChecklistsOur checklists reflect current law and practice and help make sure you’ve covered all the bases.

The green ‘Maintained’ status means you can be confident this resource is up to date. Our expert Lawyer-Editors update resources regularly to reflect developments in law and practice.

Show resource history to see when and how a resource was last updated.

Continue your research or transaction with related Practical Law Canada resources.

Get concise summaries of the content of a document.

To learn more about Practical Law Canada’s features, call 1-844-717-4488 or visit www.practicallaw.ca


The Resurgence of Technology IPOs in Canada

By Martin Langlois and Jeffrey Singer

Over the past few years, the Canadian technology sector has quietly been flourishing, to the point that the aggregate value of tech companies on the Toronto

Stock Exchange (TSX) and TSX Venture Exchange (TSXV)—nearly $250 billion—now exceeds that of the entire mining sector. This reflects an exceptional upsurge in initial public offering (IPO) activity, with over 65 new entrants on the TSX/TSXV in 2014 and the first half of 2015—more than any other business sector. In total, over $15 billion in equity was raised from more than 460 transactions during that period. The old notion that Canada has a conservative investment climate that does not embrace technology companies is no longer true, if it ever was.

Among the major transactions to have taken place relatively recently were IPOs for Shopify Inc., Stingray Digital Group Inc., Mogo Finance Technology Inc., Kinaxis Inc. and Lumenpulse Inc. These were among 65 IPOs in the past 18 months, a figure that compares well with the most recent surge in technology IPO activity in Canada, 2005-2006. At that time, over the course of two full years, a total of 32 technology IPOs were completed. One must go back to the height of the dot-com boom in 2000, when there were 46 technology IPOs, to find transactional volumes and values comparable to what we are seeing today. In case a comparison to the dot-com boom should arouse any concerns, it should be pointed out that the market has evolved significantly in the intervening years; as discussed below, IPOs in this sector are now occurring in the context of a more mature industry and more sophisticated capital markets.

Outside a frothy capital market, how much has changed structurally?

The Re-emergence of Dual-class SharesBeing knowledge-based by definition, technology businesses are typically driven by the creative energies of their founders, who are often reluctant to risk the loss of control that usually accompanies

conversion to a public company. In addition, many technology businesses have unique cultures and a deeply ingrained long-term strategic view that can clash with the focus on short-term results that is characteristic of many public market investors, particularly activist investors. To increase the appeal of IPOs to such companies and their founders, dual-class share structures are increasingly seen in Canadian tech IPOs, with Shopify and Stingray Digital being recent examples. A dual-class structure typically creates two classes of shares, one of which, carrying multiple votes per share, is issued mainly to founders and other insiders, enabling them to retain voting control and permitting the business as a whole to retain its focus on longer-term goals.

Clearly, to the extent that dual-class structures may be out of favour with some institutional investors and corporate democracy advocates, the consequences of adopting them need to be carefully considered. To date, however, the market’s response to dual-class IPOs seems to be positive, with investors appearing to be willing to take a back seat to the entrepreneurs who created the company’s value in the first place. Whether the controlling share class is likely to remain indefinitely in the hands of the visionary entrepreneur is a question that investors need to ask themselves of course, but as a practical matter—given not only the recent Canadian experience but also that of U.S. tech giants such as Google, Groupon and Facebook—the market appears to consider the risks of dual-class


of Technology IPOs in Canadastructures to be relatively benign, so long as appropriate protection measures, such as coattails and sunset provisions, are in place.

Advantages of a Canadian ListingThe technology IPO trend has continued unabated into mid-2015, with offerings announced in late June by exactEarth Ltd., which deals in data used in the tracking of ships, and NanoLumens, Ltd., which makes sophisticated advertising display panels. NanoLumens is an interesting example because, while it is based in Atlanta, it chose the TSX as its exchange. On the other hand, Shopify listed on both the TSX and New York Stock Exchange (NYSE).

Many issuers and their sponsors find significant advantages in choosing a Canadian listing. First, the time and costs associated with going public in Canada are far less than those associated with acquiring a U.S. listing, as anyone who has lived through both processes can attest. Canadian regulators have also recently adopted measures that help issuers more successfully navigate the process, such as a “testing the waters” marketing exemption for IPO issuers.

Following their IPO, Canadian securities markets offer issuers a number of distinct advantages. Despite that securities regulation on both sides of the border has become more stringent over the past five years, it is generally accepted that an issuer’s ongoing public company reporting, compliance and offering costs will be significantly less in Canada than the United States. This may be particularly relevant to technology companies that are not yet profitable, even though they enjoy significant market capitalization valuations. Unlike the Canadian experience, shareholder litigation in the U.S. has grown significantly in recent years, where it has been estimated that litigation was involved in excess of 90% of announced public company transactions.

While the Canadian capital market is certainly smaller than the U.S., it is nonetheless reasonably large and mature compared to most other markets worldwide. Canadian issuers and their

sponsors have completed multi-billion dollar IPOs and secondary offerings over the past few years. As a big fish in a smaller pond, a TSX-listed technology company will often attract more analyst coverage and more investor attention than a U.S.-listed company of similar size. Moreover, whereas offerings in the U.S. must generally be marketed, the ability to access uniquely Canadian “bought deal” and employ subscription receipt financings have been of significant advantage to issuers and sponsors of late in opportunistically and efficiently raising capital, obtaining liquidity and financing strategic acquisitions. The recent examples of subscription receipt bought deals involving NYX Gaming Group ($105 million to partially fund the acquisition of the Chartwell and Cryptologic businesses from Amaya) and DH Corporation ($950 million to partially fund its Fundtech acquisition) quickly come to mind. According to the Investment Industry Association of Canada, bought deals represented 94% of non-IPO equity issuances in Canada last year.

Even for Canadian companies whose eventual goal is to list on National Association of Securities Dealers Automated Quotations (NASDAQ) or NYSE, a TSX listing can be an efficient stepping stone, thanks to the Multijurisdictional Disclosure System (MJDS) that is unique to the Canada-U.S. relationship. Under the MJDS, companies that meet certain criteria are able to list on a U.S. exchange and become U.S. registrants in a streamlined and cost-effective manner if they have been listed in Canada and have met Canadian filing requirements for one year or more.

The Value of Going Public: More than Just the MoneyThe increasing availability of private capital in recent years has affected the technology industry’s relationship with public markets. With a wider range of alternative sources of liquidity, technology companies now tend to judge the advantages of an IPO from a broader and more strategic perspective than they might have employed as recently as ten or 15 years ago. For many technology companies, the value of going public has

very little to do with raising capital, at least in the short term. Certainly accessing public markets can provide liquidity for early investors, entrepreneurs and employees. More than liquidity, however, publicly traded stock is a valuable currency both for employee hiring and retention, as well as in connection with potential acquisitions. Although many private technology companies use their stock in this way pre-IPO, public markets go a long way toward validating and generally increasing the value of this currency. Additionally, the very fact of being a public company can enhance an issuer’s corporate profile and credibility, whether as a potential employer or as a supplier, customer or partner in commercial ventures. In short, at a time when sources of private capital are relatively numerous, these are increasingly the more strategic types of advantages that companies (in the tech industry and elsewhere) are looking for when they seek a public listing.

Martin Langlois

Jeffrey Singer


PROFILE GET TO KNOW THE PEOPLE WORKING FOR YOU

Sean FarrellPRACTICAL LAW CANADA’S LAWYER-EDITOR

Sean Farrell is the kind of colleague any lawyer would love to have down the hall, according to Robert McDowell.

“He is just your best old-fashioned-partner kind of guy. He’ll do anything he can to help you out, he contributes ideas, he works hard, and he’s not looking for glamour. There’s no edge or ego with Sean. The guy is a thinker. He’s not Mr. Flashy, he’s Mr. Substance,” says McDowell, a partner at Fasken Martineau DuMoulin LLP and head of the firm’s financial institutions group.

With Farrell newly installed as a lawyer-editor with Practical Law Canada’s capital markets and securities team, the potential beneficiaries of his wisdom are about to stretch well beyond the confines of a 24th-floor corridor. Subscribers across Canada will reap the rewards, as Farrell brings with him securities and public markets transactions expertise that has been recognized by publications such as Chambers Global and the Canadian Legal Lexpert Directory, among others.

McDowell and Farrell practised together in the Toronto office of Bay Street heavyweight Faskens, Farrell’s last stop in private practice before he signed up with Practical Law Canada. He remains counsel to Faskens’ Toronto office and a member of its financial institutions group. The pair actually worked together long before, while Farrell was still a partner at McMillan LLP, the firm where he spent the bulk of his 22-year career in private practice.

McDowell was part of the Faskens team leading acquisitions for a large insurance company, while Farrell and McMillan led the insurer’s financings work. McDowell says he was apprehensive about the prospect of a battle for the client’s favour when a series of deals brought the two law firm teams into increasing contact.

“You can imagine what it’s like with two firms working for the same client. There are two possible attitudes you can take. One is for each firm to try to show up the other in an attempt to display how great they are to the client. The other is to work cooperatively and play nicely in the sandbox because the client doesn’t want a fuss; they just want the work done. The second option does happen, but far less often than it should,” McDowell says. “We had a conversation and agreed to work together as if we were with the same firm just down the hall from one another. Sean agreed positively and with alacrity and stayed absolutely

true to it. We would share information and developments and call each other to make sure we both knew what was happening with the client. I respected him greatly for that because I know too many lawyers who couldn’t do it.”

After graduating from Osgoode Hall Law School in Toronto, Farrell began working at McMillan in 1993, with a strong securities flavour to his early practice.

“I worked mainly with the senior lawyers and kind of learned the tricks of the trade from them. Then I made my way up to partner and built my own mergers and acquisitions (M&A) and corporate finance practice with firm clients,” he says.

Farrell’s first year of partnership proved a baptism of fire, when he began advising Swedish mining giant Boliden Limited on a move into the Canadian market. The company wanted to establish itself in the country thanks to Canada’s growing reputation as a mining hub and arrived with a splash, with one of the biggest initial public offerings in Canadian history when it floated on the Toronto and Montreal Stock Exchanges.

Within months, Farrell was again advising the company on billion-dollar equity offerings as it launched a hostile takeover bid for Canadian mining firm Westmin Resources. Soon after, a tailings dam failure at one of the company’s Spanish mines set off a chain of events that quickly took the company to the verge of bankruptcy.

“It was a very busy year,” Farrell says.

Intact Financial Corporation, a longstanding client of Farrell’s, has spent the last few years in an active M&A phase, and the company’s $2.6-billion takeover of AXA Canada in 2011 was one of the standout deals of his career, according to Farrell. The bulk of the purchase price, $1.9 billion, was funded through public markets financing, raised in a short period over the summer of 2011.

Farrell got the nod on the mandate, which consisted of $960 million in subscription receipts, $500 million in preferred shares, and $400 million in medium term notes, less than two weeks before the deal’s public announcement, which sparked a burst of frenetic activity in the McMillan office.


“In the course of about two months, we went to market on five deals in total, and I led the McMillan team on all of them,” Farrell says.

Farrell also got a taste of a different sort of public finance in his work for Toronto Hydro, the electric utility owned by the City of Toronto. He has advised the company on a series of public offerings of debentures over the years, worth more than $2 billion in total.

Farrell first came across Practical Law while researching legal issues as part of his practice. After investigating the existing product offering in the U.K. and the U.S., and later the fledgling Canadian service, he was impressed. When the opportunity arose to join the capital markets and securities team, he jumped at it.

“What I really liked about the practice of law was that it was a job basically where people paid me to come and think about things on a daily basis. There are other parts of practice that I found less and less attractive as time went on, but that was something that remained interesting to me, and it’s something that this job allows me to do,” Farrell says. “I think I bring a perspective that’s useful. When you have more senior people writing about things they have experienced in practice, you can add things that are ultimately going to be helpful to the product.”

Although the new role has taken some getting used to, Farrell says there are echoes of his old work in his new daily tasks.

“From the perspective of what I do and think about, things are not actually all that different. When I write up a practice note, that’s quite similar to the kind of briefing notes I would give to clients when they called up and asked me to do something,” he says. “I’m not getting any phone calls or emails though from clients at 7 o’clock with something that needs to be done right away.”

McDowell says Farrell’s approach to the law in private practice makes him the perfect guide to lead more junior lawyers through the intricacies of securities law.

“He will read about, talk about, and analyze all the topical issues and developments in the field,” McDowell says. “Whatever the current thinking is, or the latest new development is, he’s always on top of it. If there’s a deal

someone else does that he wasn’t on, he reads about it, he gets the documents, and he looks at the clauses, because he wants to stay on top of things.”

That thoroughness in his approach lends weight to Farrell’s opinion, in McDowell’s view.

“If he’s really worked on something and given it some thought, then when you get into a negotiation, he’s strong. It’s not his style to be tough guy in negotiation, but he knows where the middle of the road is and where the market is. He’s very compelling,” he says.

“Whatever the current thinking is, or the latest new development is, he’s always on top of it.”

— ROBERT MCDOWELL, FASKEN MARTINEAU DuMOULIN LLP

Sean Farrell


PRACTICE NOTES PRACTICAL LAW CANADA CORPORATE & SECURITIES

Use of Special Committees and Recommended PracticesThe following is an excerpt from a Practice Note available on our website which discusses the use of special committees and recommended practices with respect to special committees. For the complete, continuously maintained version of this Note, visit practicallaw.ca.

Practical Law Canada Corporate & Securities

The directors of a corporation are required to manage, or supervise the management of, the business and affairs of the corporation. Most decisions made by directors are business decisions. Generally, in considering

business decisions made by directors, Canadian courts will apply the business judgment rule which is, in effect, a rebuttable presumption that directors act on an informed basis, in good faith and in the best interests of the corporation.

The business judgement rule will not protect business decisions made by directors where there is a conflict of interest. In transactions involving the corporation on the one hand and controlling or significant shareholders on the other hand or other transactions where the personal interests of certain directors or officers may conflict with their corporate duties, an accepted method of dealing with these conflicts is to establish a special committee of the board of directors composed of directors who are independent and do not have a conflict of interest.

The establishment of a special committee provides a procedural safeguard in transactions involving real or perceived conflicts of interest and is one of the factors that courts will assess in determining whether the directors have exercised appropriate business judgement.

For a detailed discussion of the corporate law framework

RELATED RESOURCES

Practice Note, Duties of Directors: Fiduciary Duties

Practice Note, Duties of Directors: Duty of Care

Practice Note, Duties of Directors in Change of Control Transactions

Practice Note, Corporate Governance Standards: Overview

Practice Note, Director Independence: Public Companies

Practice Note, Roadmap to Multilateral Instrument 61-101

Practice Note, Going Private Transactions in Canada: Overview

Practice Note, Engagement Letters with Financial Advisors in M&A Transactions

Practice Note, Issuer Bids in Canada: Overview

Practice Note, Hostile Take-over Bid Defences

Standard Document, Indemnification Agreement (CBCA Long-form)


applicable to directors generally, see Practice Notes, Duties of Directors: Fiduciary Duties; Duties of Directors: Duty of Care; and Duties of Directors in Change of Control Transactions.

The corporate law framework is supplemented in Canada by Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions (MI 61-101) which is intended to establish disclosure, valuation, review and approval processes in connection with certain transactions (insider bids, issuer bids, business combinations and related party transactions) where there is a potential for conflicts of interest. MI 61-101 mandates the use of special committees in connection with certain transactions and recommends the use of special committees for other transactions.

For a detailed discussion of MI 61-101, see Practice Note, Roadmap to Multilateral Instrument 61-101.

This Note discusses the use of special committees in general (with a focus on a transactional rather than a litigation context) and outlines recommended practices with respect to the use of special committees.

MandateA special committee should be given a clear written mandate that has been approved by the board of directors, reflected in the written record and understood by the members of the special committee.

The mandate should provide for:• The membership of the special committee (the chair will

generally be appointed by the board and identified in the mandate; however, the board may determine to allow the committee to appoint its own chair).

• The tasks to be delegated to the special committee.• The authority to meet with such persons (including officers and

employees of the corporation and legal, accounting, financial and other consultants to the corporation and the board) as the committee may deem necessary.

• The authority to direct senior management to take such actions that are necessary or advisable to assist the committee in discharging its mandate.

• The authority for the committee to retain advisors on terms negotiated by the committee.

• The authority to establish its own procedures and rules (including with respect to the timing and calling of meetings and related matters).

• The compensation to be paid to the committee members.

In addition to being given the authority to act with respect to the relevant transaction, the special committee should be given the authority to negotiate (or supervise negotiations, as applicable).

In its decision relating to the collapse of the multiple voting structure of Magna International Inc. (Magna International Inc.,

Re, 2010 CarswellOnt 10322 (Ont. Securities Comm.), the OSC was critical of the special committee’s mandate which did not expressly authorize the committee to negotiate the terms of the proposed transaction. The OSC was also critical of the role played by executive management in negotiating the terms of a transaction with the controlling shareholder before referring the matter to the board of directors for consideration. In its decision, the OSC stated:

“We do not accept that it was necessary for executive management to negotiate a proposal with the Stronach Trust before the matter could be referred to the Magna Board. In our view, the process of negotiation was a key aspect of the process that should have been conducted or overseen by the Special Committee. Accordingly, in our view, the Special Committee process followed by the Magna Board in considering and reviewing the Proposed Transaction was defective from the start. That defect was not remedied by the fact that the Special Committee as part of its process met with its own advisors without the presence of executive management for a portion of each meeting.”

Although the OSC expressed a number of reservations about the approval process and ordered Magna International to augment its disclosure, it did not find grounds to restrain the transaction which was ultimately approved by shareholders.

The authority to negotiate should be distinguished from the manner in which the negotiations are carried out and the ultimate success of those negotiations.

In certain types of transactions, it may be appropriate for senior management to be involved in negotiating the terms of the relevant transaction provided that they act properly and under the direction of the special committee. For it to be in a position to pass on the fairness of a transaction in these circumstances, a special committee must be fully informed of, and prepared to suggest changes to, the transaction.

In other circumstances (for example, going private transactions or other material transactions involving a controlling shareholder), the special committee may be required to take a lead role in the negotiations. The ultimate success of any such negotiations may be limited in circumstances where the transaction involves a controlling shareholder who may not be willing to consider alternative transactions or alternative terms to the transaction it has proposed.

Depending on the nature of a particular M&A transaction, the mandate of a special committee may also include:

• Considering alternatives available to the corporation.• Considering a canvass of the market or solicitation of

other proposals.• Reviewing all proposals and negotiating (or supervising the

negotiation of) such proposals.


TOOLKITS PRACTICAL LAW CANADA CORPORATE & SECURITIES

Initial Public Offerings in Canada ToolkitBelow is an excerpt from a Toolkit that assists issuers, underwriters and their counsel in conducting initial public offerings (IPOs) of equity securities in compliance with the prospectus qualification and disclosure requirements of the applicable securities laws in Canada. For the complete, continuously maintained version of this Toolkit, visit practicallaw.ca.


Every offering of debt or equity securities made in compliance with section 53 of the Securities Act, R.S.O. 1990, c. S.5 (OSA) and under similar provisions of Applicable Securities Laws in other jurisdictions of

Canada (see Securities Act Concordance) is conducted according to customary procedures, practices and documents developed in accordance with the rules and regulations prescribed by the Securities Regulatory Authorities in Canada (CSA).

A typical Canadian prospectus offering is a formal process with extensive documentation. Only the issuer can qualify the issuance of securities by prospectus. It can do so on its own behalf (a primary offering) or on behalf of selling security holders (a secondary offering).

The prospectus process requires an issuer to file a preliminary prospectus covering the securities to be sold and receive a receipt

from the applicable CSA before any offers are made; the final prospectus must be filed and a receipt issued for it before the issuer can begin any sales.

An initial public offering (IPO) typically refers to a prospectus offering of securities of a private issuer where its equity securities are being offered to the public for the first time. The offering may be a primary offering, a secondary offering or a combination primary/secondary offering.

For summaries of prospectuses for certain IPOs filed on the SEDAR website, refer to our What’s Market, IPO database.

This Toolkit provides resources to help issuers, underwriters and their counsel conduct IPOs through all phases of preparation and execution.

PRACTICE NOTES• Securities Laws in Canada: Overview.• Deciding to Go Public: Initial Public Offering (IPO).• Selecting a Canadian Stock Exchange.• Prospectus Offerings in Canada: Overview.• Prospectus Offerings in Canada: Expenses.• Preparing an IPO Prospectus Using Form 41-101F1• Form 44-101F1: Short Form Prospectus.• Shelf Prospectus Offerings in Canada: Overview.• National Instrument 44-103 Post-Receipt Pricing (PREP).• Due Diligence: Prospectus and Exempt Offerings.• Summary of Pre-Marketing and Marketing Amendments

to Prospectus Rules.• Underwriting Agreement: Overview.• Underwriting Prospectus Offerings in Canada: Overview.• Regulating Potential Underwriting Conflicts in Canadian Securities

Offerings.• Forward-looking Statements: Disclosure and Securing the Safe Harbour

Defence.• Determining Materiality: Continuous Disclosure and Securities Offerings.• Annual Financial Statements.• Interim Financial Statements.• Management’s Discussion and Analysis (MD&A).• Management Information Circular: Preparation of Compensation Discussion

and Analysis.• Becoming A Reporting Issuer in Canada: Overview.• Earnings Press Releases, Calls and Guidance.

STANDARD CLAUSES• Directors’ Resolutions: Form of Resolutions for an Initial Public Offering

in Canada.• Pricing Committee Resolutions: Canadian Equity Offering.• Prospectus Disclosure Relating to Potential Underwriting Conflicts.• Prospectus Disclosure Regarding Trading Restrictions on Canadian

Underwriters During a Distribution.• Prospectus Disclosure Regarding Closing Date and Settlement Cycle.• Underwriting Agreement: Anti-Money Laundering and Anti-Terrorist

Representations.• Underwriting Agreement: CFPOA and FCPA Representations.• Underwriting Agreement: ICA Representations.• Underwriting Agreement: OFAC Representation.• Underwriting Agreement: eToys Provision.• CFO Certificate Clauses (Unaudited Capsule Financial Information).

CHECKLISTS• Timeline and Responsibility Chart: Initial Public Offering in Canada.• Is it Material? Checklist of Questions to Ask.• Management Information Circular: CD&A Checklist - What Every Lawyer

Needs to Ask.• Management Information Circular: Risk and Compensation Disclosure

Checklist.• Closing Checklist: Canadian Initial Public Offering Documents.• Selecting the Correct SEC Registration Form for Non-US Issuers: Chart.• OFAC Due Diligence Checklist: Questions for Non-US Issuers and Selling

Securityholders.

ARTICLES, LEGAL UPDATES AND WHAT’S MARKET• 2014’s Initial Public Offerings.• Canadian Initial Public Offerings of US Businesses.• Multijurisdictional Disclosure System: Offering Securities and Reporting in

the US Using MJDS.• What’s Market, IPO database.


LEGAL UPDATES

No-Shops, Go-Shops and Matching Rights in Canadian M&AThe following is an excerpt from a Legal Update available on our website summarizing current market practice regarding no-shop provisions, go-shop provisions and matching rights. For the complete version of this Update, visit practicallaw.ca.


No-shop provisions, go-shop provisions and matching rights are all aspects of the exclusivity arrangements often contemplated in public target transactions.

The no-shop provision is a covenant which restricts the target from soliciting competing bids from third-party buyers, and serves as a deal protection measure for the buyer.

Because the directors of a public target are subject to fiduciary duties, no-shop provisions in public target transactions typically provide an “out” which allows the board to respond to unsolicited bids which are superior to the original bid. This is where matching rights come into play.

Where the target does receive a superior bid from a third party, the original buyer will commonly be given the opportunity to match the bid. If it decides not to do so, and the target accepts the superior bid, the buyer will generally receive a break fee.

Go-shop provisions, on the other hand, allow the target to actively solicit offers from third party buyers for a fixed period.

Go shop clauses are rare, and are typically considered where the target has not had an opportunity to conduct an auction or otherwise assess the potential market for the target. Though go-shop provisions favour the target, buyers sometimes agree to such clauses to avoid the risk of a possible lawsuit.

Use of No-shop Provisions

The Key Elements of a No-shop ProvisionNo-shop provisions can be used in both public target and private target transactions, but are most common in the former.

The typical no-shop provision is comprised of restrictive covenants which prohibit the target from:

• Continuing existing discussions regarding competing bids.• Soliciting new competing bids.• Providing information to competing bidders.• Encouraging or negotiating a competing transaction.

Because public targets must disclose the existence of any deal to acquire the assets or shares of the corporation, the buyer is vulnerable to a competing bid between signing and closing. The no-shop provision serves to ensure the target does not facilitate third-party interest (except in limited circumstances) during this period.

Survey ResultsOf the 222 public deals reviewed, the vast majority (190, or 85.6%) included no-shop provisions. The 32 transactions that did not include no-shop provisions can be broadly categorized as follows:• Hostile take-over bids, which accounted for over half of such

deals. By its nature, a hostile bid forestalls any possibility of a no-shop provision. (As there would be no purchase agreement in this case.)

• Insider bids, where the buyer already held a substantial stake in the target, accounted for about one quarter of the deals not including a no-shop provision. Because an insider bid may arise when a target is not contemplating a sale, the target has often not had the opportunity to assess third-party interest. To avoid a potential dispute with shareholders, the target may refuse to agree to a no-shop provision in these circumstances.

• Foreign bids. Depending on local regulatory restrictions and market practice, the target may be unwilling or unable to agree to any restrictions on its ability to solicit competing bids.

RELATED RESOURCES

The following are some of the related resources that you will be able to find on practicallaw.ca:

What’s Market

Practice Note, Exclusivity Agreements

Standard Document, Exclusivity Agreement


PRACTICE NOTE OVERVIEWS PRACTICAL LAW CANADA CORPORATE & SECURITIES

Tax Factors in Asset vs. Share Deals: OverviewThe following is an excerpt from a Practice Note Overview available on our website summarizing the principal tax considerations that arise in the purchase and sale of a business. This Note was published on June 2, 2015 and written together with Ted Citrome, Of Counsel, Dickinson Wright LLP and Andrew Reback, Partner, Cassels Brock & Blackwell LLP. To review the complete Note, visit practicallaw.ca.

Practical Law Canada Corporate & Securities, prepared by Ted Citrome, Of Counsel, Dickinson Wright LLP and Andrew Reback, Partner, Cassels Brock & Blackwell LLP

Purchase and Sale of AssetsTax consequences create competing incentives for sellers and buyers in negotiating the allocation of the purchase price among asset classes.

InventoryGenerally, a sale that occurs in the context of the disposition of a business or the cessation of a businesswill be considered to be on capital account. However, a special deeming rule prevents a seller of a business from obtaining favourable capital gains treatment on the sale of inventory. Specifically, section 23(1) of the ITA applies to deem a sale of inventory that is sold in connection with the sale of a business, or in connection with the seller ceasing to carry on a business, to have been sold in the ordinary course of carrying on the business. The result is that gains realized on the sale of this inventory will be taxed as ordinary income.

The buyer has a cost in the inventory equal to the purchase price allocated to it, which it can deduct as the inventory is sold.

Non-depreciable Capital PropertyA seller realizes a capital gain or a capital loss on a sale of non-depreciable capital property such as shares or land. As discussed in more detail under Preferences in Structuring the Transaction, the seller is generally required to:• Include 50% of the capital gain in computing its income for the

taxation year in which the sale occurs.• Deduct 50% of the capital loss (an allowable capital loss)

realized in the year from taxable capital gains realized in the year. Any excess of allowable capital losses over taxable capital gains may be carried back or carried forward to other taxation years in accordance with the rules in the ITA.

The purchase price allocated to non-depreciable capital property becomes the adjusted cost base of that property to the buyer.

If the property sold is real property, the application of provincial or municipal land transfer tax must be also be considered.

Purchase and Sale of SharesTax planning techniques that can be used by the seller to optimize tax efficiencies include:

• Utilization of the lifetime capital gains exemption.• Safe income planning.• Payment of capital dividends.

Lifetime Capital Gains ExemptionIndividuals are entitled to shelter up to $813,600 of capital gains realized on the disposition of qualified small business corporation (QSBC) shares (QSBC Shares) under the lifetime capital gains exemption (LCGE). In general terms, to qualify for the LCGE:• At the time of disposition, the shares must be shares of a small

business corporation (SBC) that are owned by the individual, the individual’s spouse or common-law partner or a partnership related to the individual. The following conditions must be satisfied for a corporation to be a SBC:• the corporation is a Canadian-controlled private

corporation (CCPC), being a private corporation that is a Canadian corporation (that is, incorporated in Canada) that is not controlled, directly or indirectly in any manner whatever, by any combination of (i) one or more non-resident persons, (ii) one or more public corporations or (iii) one or more corporations that have shares listed on a designated stock exchange; and

• all or substantially all (that is, at least 90%) of the fair market value of the corporation’s assets is attributable to assets that are used principally in an active business carried on primarily (more than 50%) in Canada by the corporation or by a related corporation (90% Test).

• Throughout the 24 months immediately preceding the disposition of the shares, the shares must:• not have been owned by anyone other than the individual or

a person or partnership related to the individual; and• be shares of a CCPC more than 50% of the fair market

value of which is attributable to assets used principally in an active business carried on primarily in Canada by the corporation or by a related corporation (50% Test).

These asset tests are complicated when holding corporations are involved.

If the corporation falls below the threshold for meeting the 90% Test or the 50% Test, a seller can implement one or more purification techniques to bring the corporation onside. For example, the corporation could be purified by selling off bad assets or using any excess cash to make distributions to shareholders or to satisfy existing liabilities.


PRACTICE NOTES PRACTICAL LAW CANADA CORPORATE & SECURITIES

ProxiesThe following is an excerpt from a Practice Note available on our website describing the law and practice of soliciting proxies under the Canada Business Corporations Act (CBCA) and the Ontario Business Corporations Act (OBCA). For the complete, continuously maintained version of this Note, visit practicallaw.ca.

Shareholder’s Right to Appoint a ProxyholderThe key provisions that govern a shareholder’s right to appoint a proxyholder are:• Sections 148 and 149 of the Canada Business Corporations Act,

R.S.C. 1985, c. C-44 (CBCA).• Section 54 of the Canada Business Corporations Regulations,

2001, SOR/2001-512 (CBCR).• Section 9.4 of National Instrument 51-102 – Continuous

Disclosure Obligations (NI 51-102).• Sections 110 and 111 of the Ontario Business Corporations Act,

R.S.O. 1990, c. B.16 (OBCA).• Sections 27, 28 and 29 of the General Regulations under the

OBCA, R.R.O. 1990, Reg. 62 (OBCR).

In the case of a distributing corporation under the CBCA or a non-distributing corporation having at least 51 registered shareholders entitled to vote at the meeting, the requirements of the CBCA, the CBCR and NI 51-102 apply. In the case of a CBCA non-distributing corporation having fewer than 51 registered shareholders entitled to vote at the meeting, section 149(2) exempts management from the requirement to solicit proxies in prescribed form (section 149(2), CBCA). In the case of an offering corporation under the OBCA, the OBCA and OBCR provisions apply other than section 29 of the OBCR (which is the provision that applies to non-offering corporations).

Shareholders of all CBCA and OBCA corporations have the right to appoint one or more proxyholders to attend and act at meetings of shareholders (section 148(1), CBCA and section 110(1), OBCA). If appointed, the proxyholder may attend and act at the meeting in the manner and to the extent authorized by the executed proxy and with the authority conferred by the executed proxy (section 148(1), CBCA and section 110(1), OBCA). A proxy cannot be made irrevocable (Sanrose Construction (Dixie) Ltd. v. Don-Com Venture Capital Corp., 1983 CarswellOnt 1327 (Ont. Co. Ct.) (Sanrose)). A shareholder can revoke a proxy at any time before it is exercised (Montreal Trust Co. of Canada v. Call-Net Enterprises Inc., 2004 CarswellOnt 670 (Ont. C.A.) (Call-Net)). If, after returning a signed proxy, a shareholder chooses to attend a meeting in person, the right of the proxy holder to exercise the rights set out in the proxy is automatically superceded in favour of the direct exercise of rights by that shareholder (Call-Net).

Management of an offering corporation under the OBCA is required to solicit proxies (section 111, OBCA). Management of a non-offering corporation is exempt from the mandatory solicitation of proxy (section 111, OBCA). If a proxy is not solicited, a simpler form may be used by a shareholder to instruct his proxy holder (section 29, OBCR).

Management of a CBCA corporation is required to solicit proxies if it is a:• Distributing corporation (section 149(1) and (2)(a), CBCA).• Non-distributing corporation having at least 51 registered

shareholders entitled to vote at the meeting (section 149(1) and (2)(b), CBCA).

If management of a non-distributing corporation chooses to solicit proxies even though not required to do so, it is unclear whether the form of proxy must comply with section 9.4 of NI 51-102. Prudent practice is to ensure that the form of proxy complies with NI 51-102.

Cut-off Point for Delivering a ProxyIf fixed by resolution of the board, a corporation is permitted to set a cut-off point by which a shareholder must have delivered his signed proxy (section 148(5), CBCA and section 110(5), OBCA). However, the deadline for delivery of signed proxies cannot be more than 48 hours (excluding Saturdays and holidays) before the meeting or adjourned meeting of shareholders (section 148(5), CBCA and section 110(5), OBCA).

Delivery Electronically or by FaxA proxy may be executed and delivered electronically or by fax (see sections 252.4 and 252.7, CBCA; sections 110(4.2), 262(6) and 263, OBCR; United Canso Oil & Gas Ltd., Re, 1980 CarswellNS 29 (N.S. S.C.); and Beatty v. First Exploration Fund 1987 & Co., 1988 CarswellBC 158 (B.C. S.C.)).

Revoking a ProxyA proxy cannot be made irrevocable (Sanrose). A shareholder may revoke a proxy in several ways before it is exercised, including by:• Attending the meeting in person (Sanrose).• Signing a new form or proxy and delivering it to the corporation

or the transfer agent within the deadline set out in the notice of meeting.

• Depositing a written revocation signed by the shareholder or the shareholder’s personal representative authorized in writing:• at the corporation’s registered office any time up to and

including the last business day preceding the day of the meeting (or an adjournment) at which the proxy is to be used; or

• with the chairperson of the meeting on the day of the meeting or any adjournment of the meeting.

(Section 148(4), CBCA and section 110(4) and (4.1), OBCA).



STANDARD DOCUMENTS PRACTICAL LAW CANADA CORPORATE & SECURITIES

DRAFTING NOTE

Contribution of AssetsThis contribution agreement assumes that the parent is only con-tributing certain specified assets which are set out in a schedule to the agreement. If the parent is contributing all of the assets related to a particular line of business then, instead of a schedule,

the parties can indicate that the transferee is acquiring all assets except certain excluded assets (the excluded assets can be set out in a schedule or listed in the relevant provision). For an exam-ple of how to draft this type of provision, see Standard Document, Asset Purchase Agreement (Pro-purchaser Long Form).

2. Assumed Liabilities. The Contribution is subject to the assumption by Transferee of all liabilities and obligations of Transferor to the extent exclusively or primarily resulting from, relating to or arising out of the Assets of whatever kind or nature (whether absolute, accrued, contingent, determined, determinable, disclosed, known or unknown, or otherwise) (collectively, the “Assumed Liabilities”). Transferee hereby assumes and shall perform, pay and discharge when due the Assumed Liabilities. Nothing contained herein shall prevent Transferee or its affiliates from contesting in good faith any of the Assumed Liabilities with any third-party obligee.

Contribution AgreementBelow is an excerpt of an agreement to be used for a contribution of assets by a parent corporation to its wholly-owned subsidiary (where no tax-deferred rollover is sought). This Standard Document has integrated notes with important explanations and drafting tips. For the complete, continuously maintained version of this Standard Document, visit practicallaw.ca.

RELATED RESOURCES


Practice Note, Corporate Subsidiary Management

Standard Document, Asset Purchase Agreement (Pro-purchaser Long Form)

Corporate Organization and Maintenance Toolkit


1. Contribution of Assets. On the terms and subject to the conditions set forth in this Agreement, Transferor hereby contributes, transfers, assigns, conveys and delivers to Transferee, and Transferee does hereby acquire and accept from Transferor, all of Transferor’s right, title and interest in, to and under the assets described in [Schedule 1] (the “Assets”).


DRAFTING NOTE

Assumed LiabilitiesTo effectively have the subsidiary assume and discharge any liabilities associated with the assets, the transferee must agree to assume those liabilities and obligations. If the assets being contributed are not the type of assets that have liabilities associated with them (such as certain kinds of intellectual property), delete this provision. The assumption of liabilities may have tax consequences for the transferor.

Section 2 includes a general description of the assumed liabilities. If the transferee is assuming all of the liabilities related to a particular line of business, then instead of this provision, the parties can indicate that the transferee is acquiring all liabilities except certain excluded liabilities (the

excluded liabilities can be set out in a schedule or listed in the relevant provision).

If contracts are being contributed, counsel should ensure that those contracts do not contain anti- assignment provisions that prohibit assignments to affiliates. If any of the contracts do contain anti- assignment provisions, the transferor must either get a consent from the other party to the contract or exclude the contract from the contribution. Generally, even if the parties obtain consents, the transferor remains liable under the third-party agreements. If the transferor wants to be released from these obligations, the parties should consider asking for a novation. In a novation, the transferee is substituted as a party to the agreement in the place of the transferor.

3. Representations and Warranties of the Transferor.

(a) Organization of Transferor. Transferor is a [TYPE OF ENTITY] duly organized and validly existing under the laws of [JURISDICTION].

(b) Authority. Transferor has all requisite power and authority to execute and deliver this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. Transferor has obtained all necessary [corporate/partnership] approvals for the execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Transferor and (assuming due authorization, execution and delivery by Transferee) shall constitute Transferor’s legal, valid and binding obligation, enforceable against it in accordance with its terms.

(c) Ownership and Transfer of Assets. Transferor has valid, good and marketable title to, or in the case of leased or subleased Assets, valid and subsisting leasehold interests in, all of the Assets, and such Assets are free and clear of all liens, security interests and encumbrances. Transferor has the unrestricted right to contribute, sell, transfer, assign, convey and deliver to Transferee all right, title and interest in and to, or in the case of leased or subleased Assets, all right, title and interest in and to the leasehold interest relating to, the Assets without penalty or other adverse consequences.

DRAFTING NOTE

Representations and WarrantiesBecause this is a contribution by a parent corporation to its subsidiary, the agreement includes very simple representations and warranties that are limited to the incorporation, organization, and authority of the transferor and its title to the contributed assets. In some cases, a contribution agreement between a parent and subsidiary may not contain any representations or warranties because the parties are

unlikely to seek a remedy for any breach. Conversely, if a third party is involved in the contribution, there would likely be more extensive representations and warranties (including those related to compliance with law, the quality of the contributed assets and the amount of the assumed liabilities). In addition, the third party may ask that the parties indemnify each other for a breach of a representation or warranty or failure to perform under the agreement.



CHECKLISTS PRACTICAL LAW CANADA CORPORATE & SECURITIES

Acquisition Agreements: Key Deal Points ChartBelow is an excerpt from a Checklist that focuses on the most commonly negotiated provisions in acquisition agreements and compares and contrasts the opposing views of the vendor and purchaser point-by-point. For the complete, continuously maintained version of this Checklist, visit practicallaw.ca.


REPRESENTATIONS AND WARRANTIESRepresentations and warranties consist of both statements of fact and assurances by one party in favour of the other. The vendor’s representations and warranties tend to be the longest part of the purchase agreement. They are generally heavily negotiated because a misrepresentation or a breach of warranty entails serious consequences for the parties, including damages (a form of price abatement) or a termination of the purchase agreement entirely.

The purchaser generally wants the vendor’s representations to:n Cover matters concerning the target business and corporation

(including the target’s assets and liabilities).n Cover the vendor’s ability to transfer the purchased shares

or assets.n Be as broad and comprehensive as possible.

The purchaser’s goals are to ensure that:

n The corporation or business is at least as good as it believes it

is to warrant paying the purchase price.n The description that the vendor has provided will result in a

indemnification claim if it proves to be untrue or there were risks or liabilities with the target corporation or business that the purchaser did not anticipate (see Indemnification).

n The purchaser can walk away from the deal (see Closing Conditions).

RELATED RESOURCES


Practice Note, Share Purchase Agreement Commentary

Standard Document, Asset Purchase Agreement (Pro-purchaser Long Form)

Standard Document, Asset Purchase Agreement (Pro-vendor Long Form)

Standard Document, Share Purchase Agreement (Auction Form)

Standard Document, Share Purchase Agreement (Pro-purchaser Long Form)


No Undisclosed LiabilitiesThis representation ensures that the risk of unknown liabilities remains with the vendor and is not shifted onto the purchaser. This representation is particularly important in share acquisitions because the target corporation has the underlying liability regardless of changes in who owns its shares.

Full Disclosure The full disclosure representation (or 10b-5 representation, which is derived from the similar language in Rule 10b-5 of the Securities Exchange Act of 1934) assures the purchaser that the disclosures made in the purchase agreement (including the disclosure schedules) do not contain misstatements or omissions of material fact that would make the disclosure misleading. This representation acts like a basket representation, capturing anything that is material that may not be already captured by a more specific vendor representation.

Nature of Provision Pro-purchaser Pro-vendor

The purchaser wants price certainty and becoming liable for an undisclosed liability increases the price to the purchaser by an unknown amount. Therefore, purchasers require all liabilities of the target business for which they could be liable to be those set out in the balance sheet forming part of the annual financial statements or interim financial statements, if more recent. Any liabilities (including contingent liabilities) incurred since the date of the balance sheet date must be set out in detail in a disclosure sch disclosure schedule.

A purchaser prefers to include a full disclosure representation and may want to remove any knowledge qualifier or expand the reference so that the vendor represents that there is no event or circumstance that the vendor has not disclosed that could reasonably be expected to have a material adverse effect on the assets or financial condition of the target corporation or the target business.

The vendor wants to limit its liability to liabilities that must be disclosed on a balance sheet in accordance with GAAP. In general, GAAP excludes a contingent liability unless it is probable (that is 50% +1 or more likely than not).

A vendor’s first preference is to strike the full disclosure representation. Failing that, the vendor should seek to have it reflect Rule 10b-5 so that it is limited to the language of 10b-5 (“make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading”). The vendor should resist the expanded version of this representation. If the representation cannot be struck, the vendor can soften it by seeking to include a knowledge qualifier. A knowledge qualifier is particularly important if the purchaser insists on using an expanded version of the full disclosure representation (that is, any event or circumstance that could have a material adverse effect on the assets or financial condition of the target corporation or the target business). For more information on the use of knowledge and other qualifiers in representations and warranties, see Practice Note, Share Purchase Agreement Commentary: Limitations of Representations and Warranties and Definitions.

CHECKLISTS PRACTICAL LAW CANADA CORPORATE & SECURITIES

SandbaggingSandbagging refers to the right of a purchaser to bring an indemnity claim based on facts, events or circumstances that it knew about before closing. The purchaser may have discovered the fact, event or circumstance during its due diligence of the target corporation or business. The vendor could be in breach of warranties under the purchase agreement for which it must indemnify the purchaser.

Survival A survival clause provides a contractual time bar to giving notice of an indemnification claim under the purchase agreement. Survival periods are usually in the range of 18 to 30 months in Canadian practice. Claims not brought within the survival period expire.

Nature of Provision Pro-purchaser Pro-vendor

Ideally, the purchaser prefers a pro- sandbagging provision so that it has a remedy for breach and its knowledge at the time of closing is irrelevant. The next best alternative for the purchaser is for the purchase agreement to be silent on sandbagging.

The purchaser will try to expand the survival period. First, it can negotiate for a longer baseline survival period such as three years.Second, the purchaser can negotiate to have certain representations and warranties carved out and extended beyond the baseline survival period. For example, representations and warranties as to tax, employee benefits and environmental matters can have a longer survival period or be subject only to statutory limitation periods. Often, these survival periods are equal to the applicable statutory limitation period plus 60 days. Other representations (such as corporate existence, authorization and capitalization) may not be subject to any contractual survival period.

The vendor favours an explicit anti- sandbagging provision so that the purchaser cannot sue on the indemnity based on information known to it on closing. In Canadian practice, most, but by no means all, purchase agreements remain silent on sandbagging, the parties preferring to leave the issue to the courts (or arbitrators) if a dispute arises.

The vendor will seek to reduce the duration of the survival periods and have fewer carve-outs for an extended period. Sometimes, a vendor will succeed in having the representations and warranties not survive closing.

INDEMNIFICATIONThe indemnification provisions of the purchase agreement provide teeth to ensure that the vendor’s representations and warranties result in appropriate financial protections for the purchaser. The following table sets out the elements of the indemnification provisions that typically receive the most attention in negotiations.


TOOLKITS PRACTICAL LAW CANADA CORPORATE & SECURITIES

Limited PartnershipBelow is an excerpt from a Toolkit setting out resources to assist transactional lawyers to form a limited partnership, including drafting a limited partnership agreement. For the complete, continuously maintained version of this Toolkit, visit practicallaw.ca..


Limited partnerships (LPs) in Ontario are governed by the Limited Partnerships Act, R.S.O. 1990, c. L.16 (LP Act), the Partnerships Act (Ontario), R.S.O. 1990, c. P.5 (PA) and the rules of equity and the common law applicable to general partnerships, unless specifically overridden by the LP Act (section 46, PA).

An LP consists of at least two partners carrying on business in common with a view to profit. It must have at least one general partner and at least one limited partner (section 2(2), LP Act). A general partner is responsible for managing the LP’s business; it also has unlimited liability for the firm’s debts and obligations. A limited partner invests capital in the LP. Its liability is limited to the amount of capital it has contributed (or agrees to contribute) to the LP. A limited partner cannot take an active role in the LP’s operations without forfeiting its limited liability protection.

Unlike, corporations, LPs are not recognized as legal persons in Ontario. LPs can vary in size, from a simple LP with one general partner and one limited partner, to a complex structure with possibly more than one general partner and numerous limited partners. More complex structures tend to be used for venture capital, equity investment and real estate investments.

Other than filing a declaration of limited partnership with the registrar appointed under the Ontario Business Names Act, R.S.O. 1990, c. B.17, and ensuring that the information provided to the registrar remains current, there is not much formality to creating or maintaining a limited partnership. The LP Act does not require partners to enter into an LP agreement; they can choose to rely on the default provisions of the LP Act, the PA, and the law relating to general partnerships to govern their relationship. However, this is a risky approach since it would leave in doubt the amount of each limited partner’s capital contributions and the inability of the limited partners to control management of the business. Typically, most partners enter into an LP agreement setting out in detail the workings of the LP and the partners’ rights and obligations towards each other.

This Toolkit contains continuously maintained standard documents, transaction guides and checklists to help

transactional lawyers create an LP, draft an LP agreement and the authorizations required for a corporate limited partner to enter an LP and contribute capital.

PRACTICE NOTES

n Limited Partnerships: Overview.

STANDARD DOCUMENTS AND CLAUSES

n Limited Partnership Agreement (Long Form).n Limited Partnership Agreement (Short Form).n Partnership Agreement: Joinder Agreement.n Limited Partnership Agreement: Unit Certificates

and Transfers of Units.n No Partnership or Agency Created.n Limited Partnership Agreement: Non-Competition Carve Out.n Board Resolutions: Entry into a Limited Partnership.n Limited Partnerships: Record of Limited Partners.n Board Resolutions: Capital Contribution

(Corporate Limited Partner).n Consent to Substituted Limited Partner.n Unit Certificate: Limited Partnership.

CHECKLISTS

n Choosing a Business Entity Checklist.

TOOLKITS

n General Partnership and LLP Toolkit.


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prepared with a solid plan in place. The team at Osler has

the expertise to keep you up to date with key developments

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Q&A

Profiling Canada’s LeadingCorporate Counsel

The Inside

Rod Frank’s career has closely tracked development of competition law in this country.

The ink had barely dried on the Competition Act by the time he strode across the stage at his call to the bar ceremony in 1986.

Almost three decades later, as the associate general counsel at TELUS, he supports the company’s wholesale and business division, advising management and executives on anti-trust and competition law issues. This is a job he could barely have envisioned as he took his first small steps in the profession.

During his time at the telecommunications giant, Frank has led the design and implementation of the company’s competition law compliance program. Here, he tells us about his journey and shares some of the wisdom he has picked up on the way.

Can you describe the career path that led you to your current role? When I went to law school, competition law didn’t even exist as such in Canada. We literally had one class on it in commercial law. It was really a field that was unknown, and it remained unknown for me until about eight or nine years into my career. As corporate counsel for TELUS, a large telecom, I saw that the company would have to have some background in competition law, and luckily it was something I had developed an interest in.

On top of that interest, competition law became more and more relevant. The Competition Act was modernized, and as recently as 2009 there have been some very dramatic changes that have kept us busy.

What element of your work do you find most challenging?Competition law can be quite complex.

In the compliance field, the challenge is primarily addressing people’s needs in a way that is simple and relatable. To be honest, most business people or senior leaders are more worried about the price of the shares of the company, and workers are worried about their jobs. When you come along talking compliance, it’s just another thing they have to deal with.

With employees you really have to talk to them in their own language—keep it relevant, be aware of diversity, and be aware of different generations and their different ways of communicating.

Have any recent legal developments changed the way your department operates? In 2009, Canada’s competition law was significantly amended and, as a result, very serious criminal offences are much more relevant and important to organizations.

At one time, for example, collusion and conspiracy were much more difficult to prove, but the bar has been set much lower, which makes a compliance program very important.

Aside from those changes to the law, enforcers have stepped up their enforcement priorities and tactics. The fact that the law has changed, and enforcers are more active, requires that companies respond accordingly.

What unique challenges does your company’s field of business create for your legal department?In the telecom industry, you always attract a lot of attention from enforcers. One reason is that communications is so important to every business and every individual. Everyone is interested: politicians, the media and the public. That means there are a lot of risks to be addressed.

Rod Frank

View


What keeps you and your team busiest at the moment? We’re always focussed on transactional work, just to ensure that we’re on side. Almost any area of competition law keeps us busy, with the big three being competition with competitors, mergers and acquisitions (M&A), and even abuse of dominance. All these types of issues arise quite frequently. As a result, we do invest in our compliance program and education of our employees. We have to make them allies in our compliance efforts and that keeps us busy.

What do you see as the impact of the new Competition Compliance requirements?I think the task for in-house counsel is to make the program relevant, meaningful and easily digestible to employees. The bulletin is written in legal language, so we have to spend a lot of time and effort putting it in a form that keeps them engaged and makes it second nature to them.

One good tactic is to build it into the entire ethics program at your organization. The vast majority of people want to be ethical and want to comply with the law. Everyone has a basic understanding of what’s ethical and what’s not, so it can be useful to build off of that and make compliance part of your ethics program.

What do you see as the most important developments in competition law that in-house counsel should pay attention to?Anyone practising competition law in-house today has to have a credible compliance program; it just won’t do not to have a program, and having one that is just window dressing is not going to work either.

One of the tenets of the new bulletin is

risk-based assessment, so the risks must be determined for each organization. You always want to start with the criminal sanctions and make sure you have appropriate programs to deal with any potential offside behaviour. You may be in a growth company where M&A is relevant, or it may not be at all. Or you may be a supplier that really isn’t in a dominant position, so perhaps abuse of dominance isn’t as relevant. The key is knowing your organization, finding out what the risks are, and developing a program around that.

What types of matters will cause you to turn to outside counsel? We know our business better in-house and can make a lot of judgements on the fly. We can assess risks quickly, but external counsel can bring some advantages.

One advantage of external counsel is that quite often they have strong relationships within the field and with enforcers, which can be very useful. Another reason we might draw on external counsel is when we need in-depth opinions. They also have a lot of bench strength, which means they can throw a lot of resources at a particular problem.

What things does a law firm need to do to impress you?You don’t always need a sledgehammer to kill an ant. Sometimes it is appropriate to really get into a particular issue, but that’s not always the case, and we feel better when external counsel is in sync with us, in terms of responding appropriately. We also appreciate the creativity and practicality external counsel can bring to the table.

What is your greatest accomplishment at work?Our company had to start at ground zero in terms of developing a competition

compliance program. We were heavily regulated, so it wasn’t even on the radar back when I started. It’s been fulfilling to be able to help the company develop a program that is appropriate for it and that is credible within the industry and with enforcers. I’m really thankful that I was able to be around during this time when we grew our program.

If you were not a lawyer, what would you wish to be? I’ve been working in an office for over 30 years now, so I look outside and think I’d love to be working in a national park in British Columbia somewhere and be outside all day every day. I feel like I’ve missed out on a lot of that, so that’s my daydream.

What do you do when you are not being a lawyer?I spend a lot of time just being a dad. I’ve got two growing boys that keep me involved in their sporting and schooling activities. We go camping and holiday together, so they’re the centre of my life outside of work.

What one piece of advice would you give to prospective in-house competition counsel?I’d say build relationships and make this an interesting and fun area for you. It can be challenging, but there are lots of opportunities through professional organizations like the Canadian Bar Association (CBA) to meet other professionals and develop personal and professional relationships with them.

Just practising law day in and day out can be a bit dry, but developing those relationships is not only more fulfilling, but it can help you do your job and accomplish things much more efficiently. In some ways, that’s half the battle.

“Anyone practising competition law in-house today has to have a credible compliance program: it just won’t do not to have a program and having one that is just window dressing is not going to work either.”

— ROD FRANK

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