SCC Allows Indirect Purchaser Class Actions to Proceed

 

On October 31, 2013, the Supreme Court of Canada (SCC) released its decisions allowing the appeal from the British Columbia Court of Appeal (BCCA) in Pro-Sys Consultants Ltd. v. Microsoft Corporation (Pro-Sys) and dismissing the appeal from the BCCA in Sun-Rype Products Ltd. v. Archer Daniels Midland Company (Sun-Rype) and the appeal from the Quebec Court of Appeal (QCA) in Infineon Technologies AG v. Option consommateurs. The SCC has determined that indirect purchasers can bring a claim for damages pursuant to section 36 of the Competition Act, but they bear the ultimate burden of proving their loss. 

BACKGROUND 

Conflicting appellate court decisions on the availability of indirect purchaser claims propelled the three appeals to the SCC. In April 2011, the BCCA set aside certification orders in Pro-Sys and Sun-Rype. In two prior decisions (outside of the competition law context), British Columbia v. Canadian Forest Products Ltd. (Canfor) andKingstreet Investments Ltd. v. New Brunswick (Finance) (Kingstreet), the SCC had held that there is no defence that a plaintiff direct purchaser has “passed on” the claimed overcharge or loss to its own customers (the indirect purchasers). The plaintiff direct purchaser was entitled to recover the entirety of its direct loss from the defendant, despite having passed on all or part of that loss by charging higher prices to its own customers. In Pro-Sys andSun-Rype, a majority of the BCCA found that the effect of Kingstreet and Canfor is that any passing on of an overcharge is not recognized in law and cannot give rise to a cause of action by indirect purchasers. 

In contrast, in November 2011, the QCA reached the opposite conclusion in Option Consommateurs v. Infineon Technologies. The defendants were alleged to have engaged in a price-fixing conspiracy that resulted in higher prices for DRAM, a component in certain electronic devices. This overcharge was said to have been passed on in part from direct to indirect purchasers in Quebec. The class for which authorization was sought included both types of purchasers. Disagreeing with the majority of the BCCA, the QCA found the risk of double recovery to be offset by the inclusion of all Quebec purchasers in the class and the aggregate nature of the damages claimed. The complexity of proving how much had been “passed on” to whom was considered to be an evidentiary concern that could be addressed during the common issues trial on the merits.

SCC DECISION

The SCC held that indirect purchasers may have a cause of action against a defendant that is alleged to have effectuated an overcharge at the top of the distribution chain, which has injured the indirect purchasers as a result of the overcharge being passed on to them.

The SCC held that indirect purchasers should not be foreclosed from claiming losses passed on to them and that the risk of double or multiple recoveries in actions brought by both direct and indirect purchasers could be managed by the court. However, the SCC noted that in bringing their action, the indirect purchasers willingly assume the burden of establishing that they have suffered loss. Whether they have met their burden of proof is a factual question to be decided on a case-by-case basis.

The SCC also confirmed the evidentiary requirement established for certification hearings in Hollick v. Toronto (City).The SCC held that the certification process is not an assessment on the merits of the claim. Rather, certification is concerned with the form of the action and whether the action can properly proceed as a class action. There must be some “basis in fact” that establishes each of the individual certification requirements. While the standard of proof to meet the certification requirements is not “a balance of probabilities,” certification is to be a “meaningful screening device.” The SCC held: “There must be sufficient facts to satisfy the applications judge that the conditions for certification have been met to a degree that should allow the matter to proceed on a class basis without foundering at the merits stage” by reason of the certification requirements not having been met.

In the Infineon Technologies case originating from the province of Quebec, the SCC, in respect of the test required by Article 1003(b) of the Code of Civil Procedure (CCP), which requires that the allegations in the motion for authorization demonstrate a prima facie cause of action, held that the applicant, in the circumstances of this case, had an arguable case to demonstrate the three distinct elements of fault, loss and causation that are required under Quebec’s extra-contractual regime.

The Sun-Rype appeal turned on the SCC finding that the plaintiffs had not met their evidentiary burden to establish that there was a class of two or more indirect purchasers who had purchased an item impacted by the alleged price fixing.

For more information, please contact James Sullivan (604-631-3358), Catherine Beagan Flood (416-863-2269),Francis Rouleau (514-982-4016), Robert Kwinter (416-863-3283). Jim and Catherine were co-counsel for Microsoft in Pro-Sys Consultants Ltd. v. Microsoft Corporation, and Francis was counsel to Samsung in Infineon Technologies AG v. Option consommateurs.

 

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