Submitted by the OAS Trade Unit to the FTAA Working Group on Competition Policies

Canada: Report on Developments and Enforcement of Competition Policy and Laws
April 1, 1995 to March 31, 1996

Introduction

This Annual Report of the Director of Investigation and Research records some significant achievements of the Competition Bureau during the 1995-96 fiscal year. Yet, in common with many other organizations, public and private, at home and abroad, the Bureau has found itself coping with the reality of diminishing resources in an environment of constantly increasing demands.

We have been approaching the challenge in a number of different ways: we have consolidated and streamlined many of our operations, particularly in the Marketing Practices area, and have increasingly chosen to pursue cases having a significant economic impact; we have increased our efforts in the compliance and education areas; we have continued to develop and refine our case selection criteria - an initiative whose importance increases as continued deregulation in the telecommunications, electrical and financial sectors gives us an ever growing workload; and we have actively encouraged greater international cooperation, with the consequent sharing of information and resources.

The past year has seen the preparation of a new quarterly publication called CompAct, which was introduced in April 1996, and which increases the transparency of our activities through more detailed and timely reporting.

The process leading to the eventual amending of our legislation, the Competition Act, proceeded during the year and encompassed a wide consultation process. Public requests for input gave way to the establishment of a consultative panel which examined alternative proposals and produced a report in March of 1996. A more detailed description of the process follows.

The past year saw the highest fine yet imposed for a single charge under the Competition Act , $2.5 million, as well as the start of the first jury trial under the Act.

Merger activity increased significantly, with the number of merger examinations we started rising by 18 percent over the previous year.

Technological change not only affected the business we do, but also affected the way we do business. We now have a web site on the Internet (http://strategis.ic.gc.ca/competition).

The following pages provide a more detailed look at Bureau activities from April 1, 1995 to March 31, 1996.

I. Recent Developments and Changes in Law or Policies

Amending Canada's Competition Act.

At the request of Industry Minister John Manley, the Competition Bureau started a consultative process on legislative amendments to the Competition Act in the spring of 1995. The Minister asked the Bureau to engage in broad and open public consultations aimed at updating the Act, so that it remains an effective instrument in shaping a more innovative economy in Canada.

Our consultative plan featured wide circulation of a discussion paper requesting written comments leading to a more detailed discussion of issues and options with a small panel of stakeholders. We hoped that this process would lead to a consensus on many elements and avoid the controversy which resulted during past attempts at changing the law. The goal of the current exercise is to update the law in certain areas and to build a framework for periodic review of the Competition Act.

The first step we undertook was to release a discussion paper in June 1995, which identified eight areas for legislative amendment, as follows:

• notifiable transactions;
• the protection of confidential information and mutual assistance with foreign competition law agencies;
• misleading advertising and deceptive marketing practices;
• "regular price" claims and section 52(1)(d);
• price discrimination and promotional allowances;
• access to the Competition Tribunal;
• prohibition orders; and
• deceptive telemarketing solicitations.

To continue the dialogue with stakeholders in more detail, a Consultative Panel was established in September 1995. The Panel's ultimate goal was to make recommendations to the Director with regard to each of the areas of the Act to be amended, and to the greatest extent possible, to reach a consensus concerning the suitability and feasibility of the proposals or alternatives put forward. The Panel's report was issued in March 1996.

Panel meetings were chaired by Ed Ratushny, Q.C., of the Faculty of Law at the University of Ottawa.

Its twelve other members, appointed by the Director, were:

- Donald S. Affleck, Q.C., Senior Partner at Kelly Affleck Greene;
- Robert D. Anderson, Q.C., General Counsel at Procter & Gamble Inc.;
- Yves Bériault, Partner with the law firm McCarthy Tétrault;
- Sara Blake, Senior Investigation Counsel in the Enforcement Branch at the Ontario Securities Commission;
- Harry Chandler, Head of the Amendments Unit at the Competition Bureau;
- Rosalie Daly Todd, Executive Director and Legal Counsel at the Consumers Association of Canada;
- Calvin S. Goldman, Q.C., Partner with the law firm Davies, Ward & Beck;
- Lawson A.W. Hunter, Q.C., Partner with the law firm Stikeman Elliott,
- George Post, former senior public servant, now a Policy Consultant;
- William T. Stanbury, Professor at the Faculty of Commerce and Business Administration at the University of British Columbia;
- Norman J. Stewart, Vice President and General Counsel at Ford Motor Company of Canada, Limited; and
- Peter Woolford, Senior Vice President, Policy at the Retail Council of Canada.

Between October 1995, and February 1996, the Panel met several times to review policy proposals for amendment prepared by the Bureau. In its deliberations, the Panel took into account the comments received from the general public during the consultation process, as well as information gathered and analysis undertaken by the Bureau. The Panel was able to arrive at a consensus on a broad package of reforms, some of which differed from proposals in the discussion paper, but were seen as equally effective and more responsive to the concerns of stakeholders.

While Panel deliberations were carried out in private, many Panel members maintained an ongoing dialogue with other interested parties. This dialogue involved discussions of concepts and proposals which arose at Panel meetings, thus allowing the Panel to obtain information on the acceptability or feasibility of such concepts or proposals. The Bureau has also maintained an ongoing dialogue with other stakeholders interested in separate aspects of the amendments and has held focus group discussions on topics such as prenotification, confidentiality and telemarketing.

Government officials will study the Panel report in order to develop proposed amendments to Canada's competition legislation.

II. Enforcement of Competition Laws and Policies

A. Resources

In 1995/96 the operating budget for the Bureau was $21.4 million including carry forward. A major portion of this budget, $13,216,998, was allocated to salaries for 245 authorized full time staff. As of March 31, 1996, the Bureau was authorized to staff 242 positions consisting of 17 executives, 12 economists, 151 commerce officers and program managers, and 62 employees carrying out informatics, administrative services and support functions. The Bureau also funds the costs for three lawyers employed by the Department of Justice who are assigned to the Department Legal Services Unit.

The Bureau has administrative responsibility for collecting fines imposed by the courts. During 1995/96, $5,587,850 in fines was imposed of which $5,437,850 was imposed and paid during the year in 28 cases, and $150,000 was outstanding in five cases. An additional $138,379.90 in three cases outstanding from previous years was paid, giving a total of $5,576,229.90 paid during the year and credited to the government's Consolidated Revenue Fund. At year end, a total of $992,607.10 remained outstanding in 42 cases.

B. Significant Cases

1. Criminal Matters

a. Canada Pipe Company

On September 27, 1995, the Federal Court in Toronto convicted and fined Canada Pipe Company Limited $2.5 million for one conspiracy charge under section 45(1)(c) of the Competition Act, the largest fine ever imposed for a single charge under the Act. The Hamilton, Ontario company pleaded guilty to arranging with one of its competitors to prevent or lessen competition unduly in the sale of mid-size range ductile iron pipe in Canada. The offence covered the period from January 1990 to September 1990, and the competing firm was U.S. Pipe and Foundry Company of Birmingham, Alabama. A Prohibition Order was also imposed against Canada Pipe by Mr. Justice McKeown of the Federal Court.

Ductile iron pipe is used in municipal water systems to carry drinking water to residents. Although plastic and concrete pipes are also used in these systems, many municipalities specify only ductile iron pipe due to its strength, flexibility and compatibility with existing pipes. Canada Pipe is the sole manufacturer of ductile iron pipe in Canada and at the time of the conspiracy, had an 85 percent market share in Canada in the sale of ductile iron pipe in the mid-size range (12-24 inches).

In his sentencing decision, Mr. Justice McKeown noted several mitigating factors in Canada Pipe's favour. It was significant that Canada Pipe had entered a guilty plea and that it had co-operated with the Crown. Mr. Justice McKeown, however, noted that the high level of fine was for a crime that was not carried into effect thus signaling that conspiracies that are implemented may face even higher fines, that the level of fine was related by the court to the amount of commerce affected by the conspiracy and that the court reasoned that the level of fine should be high enough to deter persons outside Canada from engaging in actions which violate the Competition Act.

This case benefited from investigative co-operation between Canada's Competition Bureau and the Antitrust Division of the US Department of Justice demonstrating the effectiveness of co-operative efforts that are made in accordance with the competition agreement signed in August 1995 between Canada and the U.S.

Firms or individuals found guilty of such offences can expect to be subject to fines that take into account the cost of the investigation and prosecution. The court agreed in this case that the fine should reflect the cost of the investigation and allocated 20% of the fine or $500,000 for this cost.

b. Freight Forwarders

On January 9, 1995, the Crown proceeded to trial in Toronto before the Ontario Court, General Division, against five pool car freight forwarding companies: Clarke Transport Canada Inc., Consolidated Fastfrate Transport Inc., Cottrell Transport Inc., TNT Canada Inc., and Trans Western Express a division of Northern Pool Express Ltd. One charge had been laid against these companies under the conspiracy provision (s.45) of the Competition Act. It was alleged that the pool car freight forwarders had conspired illegally to fix prices for the provision of pool car freight forwarding services in the Toronto to western Canada market over the period 1976 to 1987.

On November 9, 1995, Mr. Justice Moldaver acquitted the five companies. He was satisfied beyond a reasonable doubt that the accused conspired in respect of prices for the delivery of freight by rail from Toronto to various destinations in western Canada and engaged in other forms of anti-competitive behaviour designed to further the success of the companies. Furthermore, he also found that the conspirators knew that the effect of their agreement, if implemented, would be "to lessen competition among themselves and their competitors." However, notwithstanding that he found the resolution of this issue difficult, he was of the view that pool car services on their own did not form a relevant market. He concluded that the relevant market included trucking and intermodal rail services. In the context of this broader market, he could not conclude that the accused had sufficient market power for their agreement to cause an undue lessening of competition.

c. La Boutique L'Ensemblier Inc./Boutique Le Pentagone Inc./Boutique Vagabond Inc.

On October 16, 1995, La Boutique L'Ensemblier Inc., Boutique Le Pentagone Inc. and, Boutique Vagabond Inc. pleaded guilty to several charges under sub-section 61(6), the price maintenance provision of the Act. These firms are involved in the retail clothing industry in Rimouski in the province of Quebec. A fine of $20,000 was imposed on each company for a total fine of $60,000. In addition, the court issued against each company a prohibition order under sub-section 34(1).

d. Towing Services - Winnipeg

On December 14, 1995, Dr. Hook Towing Services Ltd., Nick Roscoe, Suburban Centre & Auto Service Ltd. doing business as both Midway Auto & Truck Parts and Hi-Way & Metro Towing Services, Walter Stratychuk, Majestic Towing Services Ltd. doing business as Donway Towing and Lynne Anne Leah were each acquitted of one count of bid-rigging under section 47(2) of the Act in the Manitoba Court of Queen?s Bench. The Court concluded that there was insufficient evidence of an agreement between the accused to rig the bids tendered by them in response to a tender call by the City of Winnipeg for the towing and storage of motor vehicles for the period 1989 to 1991. The Crown has filed Notice of Appeal in this matter.

e. Mr. Gas Limited

On August 11, 1995, Mr. Justice David Dempsey of the Ontario Court (Provincial Division) found Mr. Gas Limited guilty of having influenced upward, by threat, the prices charged by one of its competitors, Caltex Petroleum Inc., in September 1992, in the Ottawa area. Mr. Gas Limited was acquitted of nine other charges.

On January 26, 1996, Mr. Gas Limited was fined $50,000. Mr. Gas Limited filed a notice of appeal against its conviction and the fine on February 23, 1996.

f. Rittenhouse Ribbons & Rolls Ltd.

On December 18, 1995, Rittenhouse Ribbons & Rolls Ltd. was convicted and fined $98,000 in the Federal Court, Trial Division, in Toronto for attempting to induce a supplier of thermal facsimile paper to cut off supplies to a Vancouver distributor, because of the latter's low pricing policy.

The company pleaded guilty to one charge under section 61(6) of the Act. The illegal conduct involved pressure placed on a supplier by Rittenhouse Inc., a large American converter of fax paper which is also the parent company of Rittenhouse Ribbons & Rolls Ltd. The offense involved firms in Canada, the United States, Japan and Hong Kong.

This is the third conviction and fine obtained in the thermal fax paper inquiry, which is part of an ongoing joint investigative effort undertaken by the Competition Bureau and the U.S. Department of Justice (Antitrust Division).

g. Association québecoise des pharmaciens propriétaires

On May 12, 1995, L'Association québécoise des pharmaciens propriétaires, Le Groupe Jean Coutu (PJC) Inc., McMahon Essaim Inc., Les Magasins Koffler de l'Est Inc.(Pharmaprix), Famili-Prix Inc., Pharmacentres Cumberland (Merivale) Ltée and Uniprix Inc. pleaded guilty to a charge of conspiracy under subsection 45(1)(c) of the Competition Act. The case involved cash sales of birth control pills and prescription narcotics, including the dispensing fees, in the province of Quebec in 1988.

At the same time, the Court imposed an Order under subsection 34(2) of the Act against Messrs. Jean-Guy Prud'Homme, Guy Lanoue, François-Jean Coutu, Pierre M. Bossé, Guy- Marie Papillon, Michel Lesieur and Claude Gagnon who held senior management positions in the AQPP or one of the convicted corporations at the time of the offence. The Order specifically prohibits them from doing anything directed toward the repetition of the acts mentioned in the information filed by the prosecution.

On May 19, 1995, Madame Justice Ginette Piché of the Superior Court of Quebec imposed a fine of $2 million.

h. Compressed Gas

Mr. T. John Tindale, the former President of Canadian Oxygen, was committed to stand trial in December, 1994, on one count under s. 45(1)(c) of the Act, for his involvement in a conspiracy relating to the supply of bulk compressed gas in Canada. A trial date has been set for October 7, 1996.

In addition to the criminal aspects of this case, on May 21 a Notice of Motion returnable in the Supreme Court of British Columbia was served on the Director by certain parties pursuing private actions under s.36 of the Act against various companies and individuals. The Motion asks for access to the seized documents in the Director's possession which relate to the issues in the actions. The matter will be heard on October 7, 1996.

i. Wainwright Bus Transportation

On July 23, 1995 Bison Bus (1985) Ltd. was convicted on two counts of bid-rigging under paragraph 47(2) of the Act on two tenders called by Supply and Services Canada for the provision of charter bus services to transport military personnel in Wainwright, Alberta. Bison Bus was fined $2,500 for each count.

j. Eyeglasses

On April 10, 1995, Vilico Optical Inc., doing business as Safilo Canada, was charged with two counts under section 61(1)(a) and one count under section 61(1)(b) of the price maintenance provisions of the Act.

On September 6 and 7, 1995, a preliminary trial was held for Luxottica Canada Inc. The company had been charged with one count under section 61(1)(a) and one count under section 61(1)(b) of the price maintenance provisions of the Act. The trial was not completed and was remanded to a future date. The Attorney General applied for a stay of proceedings and was granted the request.

k. Land Surveyors - Edmonton

On January 24, 1996, 10 companies and 13 individuals in the Edmonton area were each charged with one count under section 45. (1)(c) of the Competition Act, of unlawfully conspiring to prevent or lessen competition in the production, sale or supply of residential resale Real Property Reports. It is alleged that these persons, in the fall of 1994, did agree to fix the price of such Real Property Reports. A preliminary hearing in the matter is scheduled for October 21 to 25, 1996.

l. Tenneco Canada Inc.

On September 22, 1995 an order of prohibition was issued pursuant to sub-section 34(2) of the Competition Act against Tenneco Canada Inc. for acts or things directed toward the commission of an offence under paragraph 61(1)(a). Tenneco Canada Inc. manufactures auto parts, including shock absorbers and mufflers.

2. Civil Matters

a. Interac

On December 14, 1995, the Director filed a Draft Consent Order with the Competition Tribunal to restore competition in the Canadian shared electronic network services market. The Director's inquiry had determined that the actions taken by the Interac Association and its Charter members constituted an abuse of a dominant provision contrary to section 79 of the Act. Under the terms of the proposed Order, the by-laws of the Interac Association will be changed to allow non-financial institutions to become members in the Association. The Director believes that this will increase the number of direct and indirect participants on the system and provide for greater competition in the provision of these network services. The hearing began on March 4, and continued into April. Four parties have been granted leave to intervene before the Tribunal with their views on the effectiveness of the proposed resolution to restore competition.

b. Teledirect

An application was made to the Competition Tribunal on December 22, 1994, alleging tied selling and abuse of dominance in the publication of classified telephone directories and involves Tele-Direct (Publications) Inc. and Tele-Direct (Services) Inc., subsidiaries of Bell Canada Enterprises. The Director alleges that the tying of advertising services to advertising space by the Tele-Direct companies has prevented advertising agencies from competing for the advertising services business of advertisers in a substantial part of the market. Other alleged anti-competitive acts have had an exclusionary effect on advertising agencies, advertising consultants and competing telephone directory publishers. The hearing commenced on September 5, 1995, and concluded in March 1996.

c. Local Phone Submission (CRTC 95-36)

The Director filed a written submission with the Canadian Radiotelevision and Telecommunications Commission (CRTC) on January 26, 1996. This is part of a series of proceedings with respect to opening local telecommunications markets to competition. The Director advocated maximum reliance on market forces for the provision of local telecommunications services, minimized regulation and the adoption of competition policy principles in respect of competitive safeguards.

d. Radio Station Intervention (CRTC 1995-204)

The CRTC has initiated a proceeding to examine its treatment of cooperative radio station management agreements. The Commission has approved a number of such agreements pursuant to the Broadcasting Act. The DIR filed written comments with the CRTC in its proceeding, drawing attention to the competition issues arising out of these arrangements.

e. Teleglobe Mandate Review Submission

In December 1995, the Director filed a submission with the CRTC in respect of the Government's review of Teleglobe's monopoly mandate. The Director advocated the removal of TeleGlobe's monopoly status and relaxation of restrictions on traffic by-pass and foreign ownership limitations.

f. Canada Post Mandate Review

The Government has appointed Mr. George Radwanski to consider Canada Post's mandate. The review includes Canada Post's business activities in competitive markets. The Director filed a written submission with the panel on February 15, 1996. The submission suggests removing Canada Post's monopoly over mail delivery and recommends reduced regulation in services provided by Canada Post if its statutory monopoly over first class mail is maintained. The Director also recommends that Canada Post be authorized to take the necessary measures to deter the use of postal services for deceptive marketing solicitations.

g. Law Society Of Upper Canada In November 1994, the Director received a six resident application alleging that the Law Society's compulsory negligence claims insurance scheme for its members precludes them from purchasing insurance in the open market and therefore constitutes an abuse of a dominant position contrary to section 79. In May 1995, the LSUC made a motion to the Ontario Court for an order preventing the Director from making further inquiries into this matter on the grounds that it was outside the scope of the Competition Act. The motion was heard during November 1995.

3. Marketing Practices a. Hudson's Bay Company

On June 16, 1994, charges under section 52(1)(a) and 52(1)(d) (misleading representations and ordinary price claims) were laid against the Hudson?s Bay Company and its President, N.R. (Bob) Peter and its Vice-president Merchandising, Robert Norris. The charges relate to advertising practices that occurred between April 1, 1989, and February 28, 1991. The preliminary inquiry is now scheduled to be held from May 27 to June 28, 1996.

In keeping with its initiative of reorienting its activities towards cases of higher economic impact, the Bureau obtained fines of $200,000 in the K-Mart case, $100,000 in the Dalfens case, and $300,000 from Suzy Shier.

b. Mary Kay Cosmetics Ltd.

On February 5, 1996, a total of six charges were laid against Mary Kay Cosmetics Ltd. under section 55 of the Act (multi-level marketing schemes). The charges involve representations relating to compensation made by the company with no accompanying disclosure of income earned by a typical participant in the plan, as required by section 55. On February 26, 1996, the company appeared in Ottawa provincial court and pled not guilty. The matter was put over to August 8, 1996, for a preliminary inquiry.

C. Mergers and Economic Concentrations

1. Summary

Merger activity on both a Canadian and North American scale, both in terms of the number and economic value of transactions, is greater now than in the so called ?merger boom? of the late 1980s and early 1990s. The total number of merger examinations commenced during the fiscal year increased by 18 percent over the 1994-95 fiscal year, from 193 to 228. The first application under section 92 of the Act in almost six years was filed with the Competition Tribunal in respect of the Seaspan International Ltd. and Norsk Pacific Steamship Company, Limited matter. Three merger proposals were abandoned by parties as a result of concerns identified by the Bureau.

As stated in the previous year?s Annual Report, the Federal Court of Appeal heard appeals of the Competition Tribunal?s decisions in the Southam Inc. / Lower Mainland Publishing Inc. in February 1995. On August 8, 1995, the Federal Court of Appeal issued two decisions in respect of this matter. The first judgment upheld the Director's appeal in respect of the Tribunal?s rulings on market definition and remitted the matter back to the Tribunal for a determination whether these acquisitions substantially lessened competition within the relevant markets.

The second Federal Court of Appeal dismissed Southam's appeal of the Competition Tribunal's decision to require Southam to divest certain weekly real estate advertising publications in order to address a substantial lessening of competition in the print real estate advertising market in the North Shore of Vancouver. Southam sought, and was granted, leave by the Supreme Court of Canada to appeal both of these decisions.

On February 22, 1996 the Director announced that there were insufficient grounds to proceed with an application to the Competition Tribunal under either the merger or abuse provisions of the Competition Act with respect to Stentor, the alliance of major Canadian telephone companies.

The examination resulted from concerns about the Stentor arrangements and their effect on competition in telecommunications markets. While the Stentor Alliance facilitates a fully interconnected national telecommunications network among its nine member companies and enables them to offer customer services on a national and regional basis, these arrangements also constrain the telephone companies from entering into competition with one another. Ultimately, these concerns were tempered by evidence of competitive entry into long distance markets and significantly declining rates for long distance services since the Canadian Radio-television and Telecommunications Commission (CRTC) opened the door for facilities based competition in 1992.

The Competition Bureau will continue to closely follow the future activities of Stentor in respect to long distance services and the emerging market for competitive local telecommunications and broadband services to safeguard the competitive process as telecommunications industries move from a regulated to market competition environment.

2. Significant Cases

a. Southam Inc. /Lower Mainland Publishing Inc.

On August 8, 1995, the Federal Court of Appeal released two judgments relating to Competition Tribunal decisions in the Southam / Lower Mainland Publishing matter. In the first, the Federal Court of Appeal granted the Director's appeal, concluded that community newspapers and daily newspapers were in the same product market, and remitted the matter back to the Tribunal to determine whether these acquisitions substantially lessened competition within the relevant markets.

The second Federal Court of Appeal judgment dealt with Southam's appeal from the Competition Tribunal's December 10, 1992 remedies decision. In the remedies decision, the Tribunal had ordered Southam to divest itself of either the North Shore News or the Real Estate Weekly in order to address a substantial lessening of competition in the print real estate advertising market in the North Shore of Vancouver. The Federal Court of Appeal dismissed Southam's appeal and concluded that the Competition Tribunal's judgment as to the effectiveness of the alternative remedies proposed by the parties was "unassailable".

Southam sought leave to appeal these decisions to the Supreme Court of Canada, and on February 8, 1996 Southam was granted such leave. The matter is scheduled to be heard by the Supreme Court of Canada on November 25, 1996.

b. Dennis Washington and K&K Enterprises / Seaspan International Ltd. and Dennis Washington / Norsk Pacific Steamship Company, Limited

On March 1, 1996, the Director filed an application with the Competition Tribunal with respect to two mergers. The application opposes both the October 1994 merger whereby Mr. Dennis Washington, the owner of C.H. Cates & Sons Ltd., indirectly acquired a significant interest in Seaspan International Ltd. and the June 1995 merger whereby Mr. Washington purchased Norsk Pacific Steamship Company, Limited.

The application alleges that the mergers prevent or lessen, or are likely to prevent or lessen, competition substantially in the provision of tug boat services used to berth ships in the Port of Vancouver, and in the provision of barging services in and around British Columbia?s coastal waters.

c. Ultramar Canada Inc.

In February 1990, the Competition Tribunal issued a Consent Order requiring Imperial Oil Limited to divest the Atlantic assets of Texaco Canada Inc. acquired in 1989. In September 1990, Ultramar Canada Inc. acquired the Atlantic assets of Texaco Canada Inc., subject to an undertaking to the Director of Investigation and Research that it would continue operation of the Dartmouth refinery for a minimum of seven years, barring a material adverse change. In the event of a material adverse change, Ultramar was obliged to provide the Director with 90 days? notice before taking any action affecting the continued operation of the refinery.

On October 25, 1993, Ultramar provided a second undertaking to the Director requiring that, in the event that it provided the required notice of material adverse change, it would "provide to the Director evidence establishing whether there is any reasonable, legitimate continuing interest on the part of a viable party in maintaining the refinery as an operating business in Canada."

Pursuant to the undertaking of September 24, 1990, Ultramar provided notice of material adverse change to the Director on May 10, 1994. The Director commenced an examination of the circumstances surrounding this decision and on July 19, 1994 issued a memorandum and supporting material setting out his initial views on the issue of material adverse change and seeking the views of interested parties on the issue. On September 2, 1994, the Attorney General of Nova Scotia initiated an action in the Federal Court of Canada seeking an order of prohibition against the Director on grounds of reasonable apprehension of bias. A subsequent action by the Attorney General of Nova Scotia, commenced in October 1994 sought mandamus against the Director for allegedly failing to enforce the undertakings provided by Ultramar. These two actions were heard jointly by the Court and a decision was issued on August 31, 1995. The decision found there were no grounds to make either an order of prohibition or mandamus against the Director. In the view of the Court, the process used by the Director and the actions taken were reasonable and within the discretion available to the Director under the Act.

After an extensive examination of the matter and after resolution of litigation pursued by the Attorney-General of Nova Scotia, the Director determined that there had been a material adverse change and that continued operation of the refinery pursuant to the undertaking was not required. The Director also concluded in December 1995 that Ultramar had satisfied its undertakings of October 1993 to establish that there was no continuing interest in purchasing the Dartmouth, N.S. refinery as an ongoing operation.

The Atlantic Oil Workers Union sought leave from the Federal Court of Canada to file a motion for judicial review of the Director's decision, notwithstanding the expiry of the time period allowed by the Federal Court Rules within which such motions must be filed. The hearing for the application for extension was heard in the Federal Court (Trial Division) in February 1996, and further written submissions were made by both Ultramar and the union in early March 1996. At the end of the fiscal year, the Court's decision was pending.

Continue on to Section III: Regulatory and Trade Policy Matters