Canadian COMPETITION LAW

November 6, 2018

In a recent decision handed down by the Alberta Court of Queen’s Bench, in Dow Chemical Canada ULC v. NOVA Chemicals Corporation, 2018 ABQB 482 (“Dow Chemical”), the Court established both new law and confirmed earlier case law under sections 45 and 90.1 of the federal Competition Act (the conspiracy and civil agreements provisions of the Act).

In the Dow Chemical case, Dow Chemical Canada ULC (“Dow”) sued NOVA Chemicals Corporation (“NOVA”) for various alleged breaches of a joint venture agreement that related to joint operation of an ethylene production facility in Alberta.  NOVA then counterclaimed against Dow for breach of contract, failure to pay and unjust enrichment.

With respect to the Competition Act issues, two contractual provisions between Dow and NOVA were considered by the Court, which restricted Dow from competing with NOVA in the acquisition of ethane.  The JV partners were found on the facts to be the largest two  purchasers of ethane in the relevant market in Alberta.  Dow argued that the restrictions imposed on it were illegal and unenforceable under the Competition Act.  NOVA, on the other hand, argued that they did not contravene the Competition Actand should be enforced.

In holding that the two contract provisions did indeed violate the Competition Act, the Court of Queen’s Bench made a number of interesting findings.

With respect to buyer side agreements under section 45 (e.g., agreements between competing purchasers), which was amended in 2010, the Court found that it did not apply to agreements that related only to the purchase of a product.  Buyer side agreements can, however, be prohibited under the civil agreements provision of the Competition Act(section 90.1) where they prevent or substantially lessen competition substantially or are likely to do so.  This is an interesting holding given that the application of section 45 to buyer side agreements has been a matter of debate since section 45 was amended.  It is also not clear that this holding is correct as a matter of law given that, based on the fact that “supply”, which is referred to in section 45 is wide enough to potentially capture both upstream and downstream agreements (or, in any event, that certain situations may be capable of being framed as either upstream or downstream terms, such as in the Canadian Hillsdown merger case).

Also interesting is that the Court held that a provincial superior court (i.e., and not only the federal Competition Tribunal) has jurisdiction to consider whether a contract violates the civil agreements provision of the Competition Act (section 90.1). In this respect, the Court held that any ouster of the jurisdiction of a provincial superior court must be clear.  It found that there was no such ouster language in section 90.1.  This holding departs from the reasoning of some earlier Canadian cases that found that other civil (i.e., reviewable matters) sections of the Competition Act were the sole jurisdiction of the Competition Tribunal.

Finally, the Court provided some new guidance on the application of the ancillary restraints defence (“ARD”) to contracts. The ARD can apply as a defence under the conspiracy section of the Act where an agreement is ancillary to a broader or separate agreement; directly related to and reasonably necessary to give effect to the broader agreement; and the broader agreement does not itself violate section 45.  To date, there has been very little judicial interpretation of the ARD.  In this case, the Court found that the ARD would not apply because the 80-year duration of the contractual restrictions on Dow were not reasonably necessary to protect any NOVA interest.  The Court also found that NOVA anticipated that it would achieve a positive net present value from its JV investment after merely eight years.

In summary, Dow Chemical provides interesting and important new law under sections 45 and 90.1 of the Act, while at the same time confirming some established case law under section 45.  The case is also a reminder that joint venture agreements between competitors should be carefully reviewed to assess whether they may raise any significant competition law issues.

For more information on joint ventures and strategic alliances under the Canadian Competition Act, see: Joint Ventures and the Competition Act.

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