• Supreme Court Gives Green Light for Indirect Purchaser Price Fixing Class Actions
  • November 6, 2013 | Authors: Imran Ahmad; Chris Hersh; Derek Ronde; Glenn M. Zakaib
  • Law Firm: Cassels Brock & Blackwell LLP - Toronto Office
  • In a trilogy of decisions issued yesterday, the Supreme Court of Canada (the “SCC”) found that class actions can be brought on behalf of indirect purchasers in price fixing cases. These decisions provide much-needed clarity regarding the certification threshold in class actions claiming damages for alleged price fixing.

    Background

    The appellate decisions under appeal were (i) Option consommateurs v. Infineon Technologies AG in which the Québec Court of Appeal certified a claim by indirect purchasers and (ii) Sun-Rype Products Ltd. v. Archer Daniels Midland Company and (iii) Pro-Sys Consultants Ltd. v. Microsoft Corporation, in which the British Columbia Court of Appeal refused to certify indirect purchaser class actions.

    Key Takeaways

    Some key takeaways from the SCC’s decisions include:

    1. Indirect Purchaser Can Rely on “Passing-On” Doctrine. While the use of a passing-on defence is not recognized in Canadian law and was rejected by the SCC in Kingstreet Investments Ltd. v. New Brunswick (Department of Finance), the SCC held that there is no reason to prohibit indirect purchasers from claiming losses passed on to them by those above them in the distribution chain. In other words, the SCC held that, while passing-on cannot be used as a shield by defendants to avoid liability, it may be used as a sword by indirect purchasers to claim damages.

    2. Limited Risk of Double Recovery. The defendants argued that permitting indirect claims would result in “multiple or double recovery”. This concern was based on the possibility that there could be parallel direct and indirect purchaser proceedings, both of which could seek up to the full amount of the overcharge separately. These concerns were dismissed by the SCC, which held that these types of situations could be practically managed by the courts and might be entirely hypothetical where the class action included both direct and indirect purchasers.

    3. Discussion of Class Proceedings Principles.

    Evidentiary Threshold at Certification. These decisions confirm that the principles set out by the SCC in Hollick v. Toronto continue to apply in determining whether class certification criteria have been met. Under these criteria, once the court is satisfied that the pleadings disclose a cause or causes of action (on the “plain and obvious” standard), the balance of the certification criteria will be satisfied so long as there is “some basis in fact” for each requirement.

    Assessment of Loss on Class-Wide Basis. The SCC held that the assessment of this issue requires expert evidence and requires the plaintiff to set out a methodology that offers a realistic prospect of establishing loss on a class-wide basis. The methodology for establishing class-wide loss must be “grounded in facts of the particular case in question” and cannot be purely theoretical or hypothetical. Further, the plaintiff must provide some evidence of the availability of data to which the methodology is to be applied.

    Aggregate Damages Provisions Cannot Establish Liability. The SCC also held that the aggregate damages sections of class proceeding legislation cannot be used to establish liability, as they speak to remedy and are procedural. In other words, these provisions are only a tool to assist in the distribution of proven damages once liability has been established.

    4. Highlights Differences Between Canadian and US Certification Tests. The SCC rejected arguments by the defendants that courts should engage in a US-style approach of making factual determinations at the certification stage. On this issue, the SCC noted that Canadian courts have resisted making a US-style assessment of the merits at the certification stage, a key reason being the lack of pre-certification discovery as of right in Canada. As an aside, it is interesting to note that, in Pro-Sys, Microsoft had successfully resisted the plaintiff’s request for document production prior to certification and was chided by the court for then arguing for robust scrutiny of the evidence at the certification stage.

    Conclusion

    These decisions are significant in that they clearly allow indirect purchasers to rely on the passing-on doctrine as a cause of action for anti-competitive harm under the Competition Act. More generally, these decisions clarify the class action certification test in Canada, address how the issue of loss on a class-wide basis is to be dealt with upon certification motions, and provide guidance on how aggregate damages are to be addressed in class proceedings.

    A result of these decisions, given the per se price fixing provisions that came into force in 2010, may be an increase in competition law class actions, possibly including in cases where the Competition Bureau has not taken enforcement action.