Canada's Supreme Court Opens the Door to Indirect Purchaser Class Actions

Written By John F. Rook Q.C., Michael A. Eizenga and Emrys Davis

On October 31, 2013, the Supreme Court of Canada released three decisions which many commentators had predicted would be the most critical antitrust class action decisions in recent memory. The Supreme Court did not disappoint. In summary, the decisions permit indirect purchasers to claim for antitrust damage. But the Court held that indirect purchasers must be able to "self-identify" as members of the proposed class. If they cannot, because for example, none know whether they in fact purchased products containing the allegedly overpriced component, then the court cannot certify the indirect purchaser class.

Background

The Supreme Court's decisions in Pro-Sys Consultants Ltd. et al. v Microsoft Corporation et al., 2013 SCC 57, Sun-Rype Products Ltd. et al. v Archer Daniels Midland Company et al., 2013 SCC 58, and Infineon Technologies AG et autres c. Option Consommateurs et autres, 2013 SCC 59, arose from three appeals; Pro-Sys and Sun-Rype from decisions of the British Columbia Court of Appeal and Infineon from a decision of the Quebec Court of Appeal.

Plaintiffs in all three cases alleged that the defendants had engaged in anticompetitive behaviour which resulted in overcharges paid by consumers. In Sun-Rype and Infineon, the respective classes included both direct and indirect purchasers. In Pro-Sys, the class was comprised entirely of indirect purchasers. In the first instance, the lower courts certified both BC actions, but refused to certify the Quebec class action.

The outcome reversed on appeal. In both Pro-Sys and Sun-Rype, the BC Court of Appeal refused to certify the indirect purchaser claims. It relied on a recent Supreme Court decision, Kingstreet Investments Ltd. v New Brunswick (Finance), 2007 SCC 1. Kingstreet held that a defendant cannot reduce its liability to a plaintiff with evidence that the plaintiff had passed-on all or some of the cost of the harm to a third party. This is known as the passing-on defence. Relying on Kingstreet, the BC Court of Appeal reasoned that if defendants cannot use the passing-on defence as a shield, indirect purchaser plaintiffs cannot use it as a sword. To permit otherwise would subject defendants to double liability. They would have to pay 100 percent of the overcharge to direct purchasers and an additional amount to indirect purchasers. The Court of Appeal rejected the notion that combined classes of direct and indirect purchasers fixed the double liability problem. It reasoned that the Class Proceedings Act is a procedural statute that cannot affect the substantive legal rights of direct and indirect purchasers. Thus, courts cannot reduce the legal entitlements of direct purchasers by allocating the overcharge between direct and indirect purchasers in the same class.

In contrast, in Infineon, the Quebec Court of Appeal reached the opposite conclusion. It held that the fusion of direct and indirect purchasers into one class eliminated the possibility of double liability. Justice Kasirer reasoned that although direct purchasers may recover 100 percent of the overcharge when litigating on their own, indirect purchasers could demonstrate that direct purchasers had been unjustly enriched because they had passed on some of the total overcharge to the indirect purchasers. This argument was in line with Justice Donald's dissent in the BC Court of Appeal. Justice Kasirer also held that Quebec's courts, like those in the common law provinces, had jurisdiction over foreign defendants in conspiracy cases when damage is alleged to have occurred in Quebec.

The decisions of the BC and Quebec Courts of Appeal presented the Supreme Court with three issues:

1. Do indirect purchasers have a cause of action? 
2. If indirect purchasers do have a cause of action, what evidence must they lead at certification to establish some basis in fact that some of the alleged overcharge was passed-on to them, and how much scrutiny should courts give this evidence? 
3. Do Quebec's courts have jurisdiction over foreign defendants in antitrust class actions?

The Supreme Court's Decisions

The Supreme Court answered these questions as follows.

First, it is not plain and obvious that indirect purchasers do not have a cause of action. The Court held that in rejecting the passing-on defence in Kingstreet it did not shut the door on plaintiffs who can prove that harm was passed-on to them. In Pro-Sys, Rothstein J. comprehensively rejected policy arguments for denying indirect purchaser actions citing Brennan J.'s dissenting opinion in Illinois Brick. Most notably, Rothstein J. held that the risk of double liability was illusory because courts could mitigate any harm through damage awards after a trial. Likewise, while proving harm to indirect purchasers may be difficult, indirect purchasers have willingly assumed that burden. If they cannot prove loss, they will fail at trial. But there is no reason to bar their claim at the certification stage. LeBel and Wagner JJ. summarized the court's position on passing-on by writing that, "passing on can serve as a sword… even though it cannot serve as a shield".

Despite permitting indirect purchaser actions generally, the Court held that not all indirect purchaser actions are amenable to certification. In Sun-Rype, Rothstein J. refused to certify the indirect purchaser class because there was no evidence that indirect purchasers could self-identify themselves as members of the class. In that case, class members were purchasers of products containing high fructose corn syrup, a ubiquitous food sweetener. There was no evidence that purchasers could identify the products they purchased which contained HFCS because, for example, such products may have instead contained liquid sugar. On that basis, Rothstein J. held that there was no identifiable class of two or more persons and refused to certify it.

Second, with respect to the common law provinces, the Court confirmed that "some basis in fact" is something less than the regular civil balance of probabilities standard. With reference to the "some basis in fact" test, the Court held that plaintiffs must have a methodology that can establish that "the overcharge was passed on to the indirect purchasers, making the issue common to the class as whole". At the certification stage, plaintiffs need not prove the actual loss to the class only "that there is a methodology capable of doing so." That expert methodology must be "sufficiently credible or plausible to establish some basis in fact for the commonality requirement... [it] must offer a realistic prospect of establishing loss on a class-wide basis." Finally, the court noted that there must be "some evidence of the availability of the data to which the methodology is to be applied."

In contrast, with respect to Quebec, the Court held that plaintiffs need not lead expert evidence at the certification stage because Quebec's statute establishes a lower threshold for plaintiffs at the authorization stage than do Canada's common law provinces.

Third, as many expected, the Court confirmed that Quebec's courts have jurisdiction over foreign defendants. This brings Quebec in line with Canada's common law provinces on this issue.

Conclusion

Overall, the decisions are plaintiff-friendly in that they confirm the viability of indirect purchaser class actions at the certification stage. But there are positives for defendants as well. The Court confirmed that the "some basis in fact" test remains an important screening device. How lower courts will apply its comments on the sufficiency of expert evidence in the context of the "some basis in fact" test remains to be seen. It may be that, as we predicted in 2010, defendants in Canadian antitrust class actions will increasingly look to litigation opportunities post-certification.