Decision No. 149-R-1991

March 28, 1991

File No. D2745-90/2

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I BACKGROUND

(i) Chronology of Events

On November 9, 1990, the National Transportation Agency (hereinafter the Agency) received notice, pursuant to section 252 of the National Transportation Act, 1987 (hereinafter the NTA, 1987), of the proposed acquisition by Oceanex Holdings Limited Partnership of 100 percent interest in Oceanex Limited Partnership, currently known as Atlantic Searoute Limited Partnership (hereinafter ASLP). Coincidentally with this transaction, ASLP proposes to acquire the assets and operations of ACE-Atlantic Container Express Incorporated (hereinafter ACE). Both ASLP and ACE are transportation undertakings subject to the legislative authority of Parliament.

The Agency published notice of these proposed acquisitions in the Canada Gazette on December 1, 1990. Interested parties had until December 31, 1990 to file objections to the proposed acquisitions. On December 31, 1990, the Agency received an objection filed on behalf of the Seafarers' International Union of Canada (hereinafter the SIU).

Pursuant to section 67 of the National Transportation Agency General Rules, SOR/88-23 (hereinafter the General Rules), Counsel for the acquirers filed an answer to the objection of the SIU on January 18, 1991.

(ii) Existing Structure of ACE and ASLP

ACE is presently owned by three corporations; CSL Equity Investments Limited, Harvey Container Ship Limited, both with 25 percent interest, and HACESL Group Limited Partnership with 50 percent interest.

The partners in ASLP are: CSL Equity Investments Limited (22 percent), Harvey Container Ship Limited (22 percent), Fednav Limited (44 percent) and ASL Atlantic Searoute Limited (12 percent). ASL Atlantic Searoute Limited is held by CSL Equity Investments Limited, Harvey Container Ship Limited and Fednav Limited. Fednav Investments Inc., which is associated with Fednav Limited, also owns 50 percent of CSL Equity Investments Limited.

(iii) Proposed Transactions

Oceanex Holdings Limited Partnership, a newly-formed limited partnership, proposes to acquire ASLP, to be renamed Oceanex Limited Partnership, which proposes to acquire the assets and operations of ACE. The shareholders of ACE and ASL Atlantic Searoute Limited will transfer their respective interests therein and also their interests in ASLP to the new limited partnership, Oceanex Holdings Limited Partnership which will consist of four limited partners each owning a 25 percent interest. These partners will be Fednav Limited of Montréal, Quebec; CSL Equity Investments Limited of Montréal, Quebec; Harvey Container Ship Limited of St. John's, Newfoundland; and HACESL Group Limited Partnership (Newfoundland Capital Corporation Limited's nominee) of Dartmouth, Nova Scotia.

ACE and ASL Atlantic Searoute Limited will be amalgamated to form a new company. This new company will be the managing partner of ASLP and will be held directly by Oceanex Holdings Limited Partnership. ASLP will continue the combined operations of ACE and ASLP as two separate operating divisions, the ACE and ASLP divisions.

II OBJECTION OF THE SIU

The SIU objected to these proposed acquisitions as being against the public interest for two reasons: firstly, they would have the effect of lessening or, to a great extent, eliminating competition in the affected market, and, secondly, they would have a negative effect on collective bargaining rights and industrial peace.

In the response to the objection of the SIU, Counsel for the proposed acquirers, in part, questioned the validity of the objection on the grounds that the SIU "fails to state sub[s]tantiated grounds and only makes general and vague allegations".

On March 4, 1991, the SIU informed the Agency that it was withdrawing its objection to the proposed acquisitions. The Agency then had to consider the question of whether, in light of the withdrawal of the objection of the SIU, the review should be terminated.

On March 12, 1991, the Agency advised the SIU that although the objection which compelled the Agency to initiate the review has been withdrawn, the withdrawal of the objection does not terminate the review and, therefore, the review will continue and a decision will issue.

III AGENCY CONSIDERATIONS

(i) Part VII of the NTA, 1987

Part VII of the NTA, 1987 provides a statutory mechanism to ensure that structural changes in the transportation industry, brought about by acquisitions of an interest or an increased interest in Canadian transportation undertakings do not adversely affect the public interest. The Agency is empowered to review a proposed acquisition when an objection is received from a person who is of the opinion that the proposed acquisition is against the public interest.

In the circumstances set out under Part VII of the NTA, 1987, an acquiring party must notify the Agency of a proposed acquisition of a transportation undertaking. When the Agency is required to review a proposed acquisition, the statutory deadline for issuing a decision on a proposed acquisition is 120 days from the date it issues a receipt of a complete notice. Any person wishing to object to a proposed acquisition must do so within thirty (30) days of the date of publication of a notice of the proposed acquisition in the Canada Gazette.

In its decision following the review of a proposed acquisition, the Agency must decide whether or not, in its opinion, the proposed acquisition is or is not against the public interest and, if it is against the public interest, the Agency must disallow it.

Within thirty (30) days from the date of any decision the Agency may render, the Governor in Council, on its own motion or on application by any person, may rescind that decision.

(ii) The Public Interest

Subsection 257(1) of the NTA, 1987 directs the Agency to decide whether, in its opinion, a proposed acquisition is against or not against the public interest. The term "public interest" is defined in section 4 of the NTA, 1987 as:

"public interest" means the public interest that is consistent with the national transportation policy set out in subsection 3(1), policy directions, if any, issued under section 23, and in respect of Part II, directions, if any, issued by the Minister under section 86;

In the context of these proposed acquisitions, there are no relevant directions under either section 23 or section 86 of the NTA, 1987. Therefore, in deciding whether these proposed acquisitions are against or not against the public interest, the Agency is guided by the national transportation policy set out in subsection 3(1) of the NTA, 1987. The preamble to subsection 3(1) provides:

3. (1) It is hereby declared that a safe, economic, efficient and adequate network of viable and effective transportation services making the best use of all available modes of transportation at the lowest total cost is essential to serve the transportation needs of shippers and travellers and to maintain the economic well-being and growth of Canada and its regions and that those objectives are most likely to be achieved when all carriers are able to compete, both within and among the various modes of transportation, under conditions ensuring that, having due regard to national policy and to legal and constitutional requirements, ...

In applying this public interest test to a review of proposed acquisitions, the Agency is further guided by the goals enunciated in paragraphs 3(1)(a) through (g) of the NTA, 1987.

(iii) Issues

In its objection, the SIU stated that the proposed acquisitions are against the public interest because:

a) competition would be lessened or, to a great extent, eliminated in the affected market;

b) there would be a negative effect on bargaining rights and industrial peace.

a) Competition

One of the goals of the national transportation policy relates to competition aspects of the public interest. Specifically, paragraph 3(1)(b) of the NTA, 1987 provides:

3.(1) (b) competition and market forces are, whenever possible, the prime agents in providing viable and effective transportation services,

In looking at competition in the context of these proposed acquisitions, the Agency must determine whether these proposals, if implemented, would have the effect that competition and market forces could no longer be relied upon to achieve the goals of the national transportation policy set out in subsection 3(1) of the NTA, 1987.

In this case, the review included an examination of the likely impact of these proposed acquisitions on relevant market structures as well as the likely impact on the level of competition within affected product and geographical markets.

In 1989, Newfoundland imported, via ship, truck and rail, approximately 1,021,600 tonnes of freight. Shippers have the option of transporting their goods to Newfoundland from mainland Canada on regular scheduled service via marine (consisting of ACE, ASLP and Marine Atlantic Inc. (hereinafter MAI)), motor carrier, rail and air. This leads to intra-marine competition between ACE, ASLP and MAI as well as intermodal competition between rail, motor carrier, marine and air.

Using cargo vessels, ASLP operates scheduled marine freight services, principally carrying containers, tractor trailers and new automobiles between the Ports of Halifax, Nova Scotia and St. John's and Corner Brook, Newfoundland. Using two vessels, the business of ASLP is divided between Roll-on/Roll-off (Ro-Ro) and Lift-on/Lift-off (Lo-Lo) operations. Its mix of commodities includes food, feed, beverages, construction materials, packaging and automobiles.

Using cargo vessels, ACE operates scheduled marine freight services, principally carrying containers and trailers from Quebec and Ontario to Newfoundland via the ports of Montréal, Quebec and St. John's and Corner Brook, Newfoundland. Using two vessels, the preponderance of the business of ACE is container traffic. ACE carries a mix of commodities including food, feed, beverages, construction materials, industrial supplies and materials.

MAI provides ferry service between North Sydney/Port-aux-Basques and, during the summer only, North Sydney/Argentia. This includes the carriage of commodities by tractor trailers and containers.

Within Newfoundland, transportation is by road (the Trans Canada Highway and provincial highway systems). Feeder transportation to the Atlantic Maritime ports of Halifax and North Sydney can be achieved by using the Canadian National Railway Company rail services, the Trans Canada Highway and provincial highway systems. With the exception of air services, all transportation to and from Newfoundland is by water. However, air services generally do not compete for the carriage of the types of commodities which ACE, ASLP and MAI carry.

Most traffic is eastbound to Newfoundland with a small amount westbound. Shippers with cargo destined for Newfoundland have a choice of utilizing any of the above services. ACE, ASLP and MAI are the three main suppliers of scheduled transportation services for the carriage of freight to Newfoundland.

Sixty five percent of the business of ACE originates within a 50 kilometre radius of Montréal and thirty percent originates from Ontario. The remaining five percent originates elsewhere in Canada and the United States. The business of ASLP consists of goods shipped from the Maritimes; some of these shipments are under long term contracts. This includes contracts with the Canadian National Railway Company whose business is not restricted to the Maritimes. The service by MAI to Newfoundland can be considered as part of the necessary infrastructure for the motor carrier industry serving Newfoundland and competes for the carriage of traffic.

After examining the affected transportation services in the relevant markets, there is no evidence to indicate that there would be any deterioration in the quality or level of service to affected shippers should these proposed acquisitions proceed. Shippers in these markets should have the same transportation services available to them as they do now. Based on the evidence on file the Agency cannot conclude that the proposed transactions should have any impact in the affected markets that would lead to the conclusion that it would no longer be possible to rely on competition and market forces to achieve the goals of the national transportation policy.

ACE is presently owned by CSL Equity Investments Limited, Harvey Container Ship Limited and HACESL Group Limited Partnership. ASLP is owned by CSL Equity Investments Limited, Harvey Container Ship Limited, Fednav Limited and ASL Atlantic Searoute Limited. The direct interests held by CSL Equity Investments Limited and Harvey Container Ship Limited are essentially the same both before and after the proposed transactions. That is, both corporations hold approximately a 25 percent interest in ACE and ASLP prior to the proposed acquisitions and this will continue once the transactions are implemented.

However, Fednav Limited, which presently holds a 44 percent interest in ASLP and no direct interest in ACE, will control 25 percent of the new organization, Oceanex Holdings Limited Partnership. HACESL Group Limited Partnership, which presently holds a 50 percent ownership in ACE and no direct interest in ASLP, will have a 25 percent interest in this new organization.

CSL Equity Investments Limited is presently owned 50 percent by Le Groupe CSL Inc. and 50 percent by Fednav Investments Inc., a majority shareholder (indirectly) of Fednav Limited. Through its 50 percent ownership of CSL Equity Investments Limited, its association with Fednav Investments Inc. and its direct interest in ASL Atlantic Searoute Limited, Fednav Limited has additional control of ASLP. Harvey Container Ship Limited is also a 25 percent shareholder of ASL Atlantic Searoute Limited thereby increasing its potential control in ASLP. Given these circumstances, should the transaction proceed, there would be much in common between the present and proposed corporate structures.

b) Labour

The national transportation policy does not contain any elements expressly addressing the labour issues raised by the SIU. Although these labour related issues arguably may be considered in the determination of the Agency of whether or not the proposed acquisitions are against the public interest, the SIU has recourse to another independent federal quasi-judicial body, the Canada Labour Relations Board (hereinafter CLRB). It is noted that on November 19, 1990, the SIU applied to CLRB pursuant to the Canada Labour Code (hereinafter the Code) for a determination by CLRB for a declaration that the SIU is the trade union which should be the bargaining agent for certain employees of ASLP and ACE.

The Code provides unions with the appropriate avenue for obtaining or continuing bargaining rights, in particular with respect to a sale or merger of business. The Code is governed by a number of principles, among them the encouragement of free collective bargaining as well as the development of good relations and constructive collective bargaining practices. An overriding principle is that the development of good industrial relations is in the best interests of Canada.

CLRB is responsible for examining appropriate applications before it. As this labour concern has been presented to CLRB, it will not be addressed in this Decision.

IV CONCLUSION

After reviewing the proposed acquisitions of the assets and operations of ACE-Atlantic Container Express Incorporated by Oceanex Limited Partnership and an interest in Oceanex Limited Partnership by Oceanex Holdings Limited Partnership, the Agency has decided that, in its opinion, the proposed acquisitions are not against the public interest.