Anonymised, illustrative composite. A building-materials manufacturer had a right to end the supply agreement on thirty days' notice for any reason, and used it the week the target's new owner — a rival distributor — became public. A terminable contract is not always the end of the analysis.
At a glance
A regional building-materials distributor was acquired by a company that already owned a competing distributor operating in the same territory — a horizontal move within an existing customer base rather than an entirely new entrant. The deal was small enough that no merger filing was required and closed without incident.
The week the new ownership became public, the target's largest manufacturer supplier — the source of a specialty product line the distributor had carried for over a decade — gave notice that it was ending the supply agreement. The agreement was, on its plain terms, terminable by either party on thirty days' notice for any reason.
Buyer's counsel initially treated the termination as a closed contractual question: the clause said thirty days for any reason, the manufacturer gave thirty days, and there was accordingly no breach and no remedy under the supply agreement itself. On that reading, the loss was a valuation issue to be absorbed, not a legal question to be pursued.
What that reading missed is that a lawful contractual termination does not end the analysis under the Competition Act. A refusal to deal that is perfectly permitted by the four corners of a contract can still be compellable by the Tribunal if the statutory conditions in s.75 are met — a different question from whether the manufacturer breached anything.
The terminated product line represented 40% of the target's annual revenue. Only one other regional supplier of a comparable product existed, priced roughly 22% higher and quoting longer lead times than the terminated manufacturer's standard terms — the distributor's lender had underwritten the acquisition financing on the assumption the original supply relationship would continue.
s.75(1) lets the Tribunal, on application by the Commissioner or a person granted leave under s.103.1, order a supplier “to accept a person as a customer…within a specified period and on the terms that the Tribunal considers appropriate if the Tribunal finds that” five conditions are all met. Read the unit — all five, conjunctively, not just the ones a buyer feels most acutely: (a) the person is “substantially affected in the whole or part of their business or is precluded from carrying on business due to their inability to obtain adequate supplies of the product anywhere in the market on usual trade terms”; (b) that inability exists “because of insufficient competition among suppliers of the product in the market”; (c) the person is “willing and able to meet the usual trade terms of the supplier or suppliers of the product”; (d) “the product is in ample supply”; and (e) “the refusal to deal is having or is likely to have an adverse effect on competition in a market.”
Factor by factor against these facts: (a) 40% of revenue lost and no alternative on usual trade terms is substantial effect; (b) a single alternative supplier at a 22% premium with longer lead times is evidence of insufficient competition among suppliers, not merely an inconvenient market; (c) the distributor was willing and able to pay the manufacturer's standard terms — nothing in the termination cited non-payment or any other performance failure; (d) the manufacturer had ample production capacity and had not reduced output; (e) the manufacturer's own stated reason for terminating — that the buyer now also owned a competing distributor — is itself evidence bearing on adverse competitive effect, since a manufacturer punishing a channel member's new ownership to protect its relationship with a rival channel is close to the textbook vertical-foreclosure concern s.75 exists to reach.
The gateway matters as much as the merits: this is an application to the Tribunal, not a private damages claim, and a private party needs leave under s.103.1(7) — granted where the Tribunal has reason to believe the applicant is “directly and substantially affected” in its business by the conduct, or where leave is otherwise in the public interest.
Buyer applied for and was granted leave under s.103.1(7), then filed the s.75 application, laying out the five factors against the facts above. Before the hearing concluded, the manufacturer — once its own counsel confirmed the application was a live legal risk rather than a contractual non-issue — agreed to resume supply on its standard terms, and the application was withdrawn on consent.
The episode did not turn on proving the manufacturer had acted unlawfully in a formal sense; a terminable-at-will clause is exactly that. It turned on establishing that lawful termination and a compellable refusal to deal are two separate questions, and that the second one was genuinely live on these facts.
Treated purely as a valuation issue, the loss of 40% of revenue at a materially higher replacement cost would have impaired the acquisition's underwriting and put the buyer in breach of its own lender covenants — a downstream consequence of accepting a supply loss the statute did not actually require the buyer to accept.
The tell was the manufacturer's own stated reason. A termination attributed to “a change in our channel strategy” the week a competing distributor's owner takes control is not a coincidence a diligence team should let pass without asking whether s.75's five factors might be in play — a terminable clause answers the contract question, not the competition-law one.
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