Written by Mike Eizenga, Eric Hoaken, Mark Smyth
One year ago, plaintiffs' prospects of certifying complex, competition-related class actions in Canada seemed bleak. Indeed, some commentators asked whether competition class actions were dead in Canada. However, in the last 12 months a series of judicial decisions has clearly signalled that a plaintiff-friendly approach has been adopted at the certification stage, thereby making this type of case once again a growth area in Canadian class action litigation.
The case which seemed to present an obstacle to many competition class actions was Chadha v. Bayer,1 decided in 2001. Chadha involved a conspiracy to fix the prices of iron oxide, a pigment used as a colourant for concrete bricks. Accordingly, the proposed class was principally comprised of people who had purchased homes built with bricks containing the iron oxide in question. These home owners were, in effect, indirect purchasers of the iron oxide. Establishing that there was any passing on of the increased costs of the iron oxide to the ultimate home purchaser would have been a complex and difficult matter. Ultimately, the Court of Appeal upheld the Divisional Court's reversal of original decision to certify the case. The Court of Appeal held that damages, which were a necessary component of the cause of action, could not be established on a class-wide basis. The decision in Chadha was regularly cited for the proposition that the aggregate damages provisions of section 24 of the Class Proceedings Act (CPA) are only applicable after liability has been established. However, the court did not close the door to price fixing class actions holding that, in Chadha, the proponents of certification were “unsuccessful…because they did not present the evidentiary basis for a certifying court to be satisfied that loss as a component of liability could be proved on a class-wide basis.” The court went on to note that it was not clear whether such evidence “could have been obtained”.
The New Approach Starts to Emerge
In 2007, the Ontario Court of Appeal again had the opportunity to consider the question of determining damages on a class-wide basis. Although Markson v. MBNA2 and Cassano v. The Toronto-Dominion Bank3 were not competition class actions, the Court of Appeal held that section 24 of the CPA could be used to calculate damages as long as the plaintiffs had shown that the defendants had potential liability to the entire class, even if individual assessments would be required to determine entitlement to monetary relief for individual class members.
The decision in Chadha had been regularly cited for the proposition that the aggregation provisions of section 24 of the CPA are applicable only after liability, particularly in indirect purchaser class actions, has been established. In Irving Paper v. Atofina Chemicals, released on September 28, 2009,4 Justice Rady of the Ontario Superior Court suggested that the Markson/Cassano principles signalled a more relaxed approach to damages for the purposes of certification. In Markson, the Court of Appeal had referred to the need to establish “potential liability” before the aggregation provisions in section 24 of the CPA could be invoked. On this basis, Justice Rady found that Markson/Cassano had overtaken Chadha and that it was not necessary to demonstrate damages on a class-wide basis. With respect to the damages calculation itself, she also held that, for certification, the court “need only be satisfied that a methodology may exist for the calculation of damages”.
On April 27, 2009, the Divisional Court had come to a similar conclusion in 2038724 Ontario Limited v. Quiznos Canada Restaurant Corporation5 in overturning the motion judge's refusal to certify the action. The court held that a judge hearing a certification motion was not to engage in a weighing of the conflicting evidence, which is properly left to a common issues trial. The necessary threshold of providing some basis in fact for the issue of determination of loss will be satisfied if the plaintiffs “present a proposed methodology by a qualified person whose assumptions stand up to the lay reader”. Further, at the certification stage, the plaintiffs are not required to lead evidence to support the factual foundation of the proposed methodology. The Divisional Court also found, as in Markson and Cassano, that the aggregation provisions of section 24 of the CPA were available to calculate damages on a class-wide basis.
However, Quiznos differed from Irving Paper in that it involved a fairly limited class of franchisees who alleged that they were being overcharged for supplies that they were required to purchase from certain sources designated by the franchisor. In other words, the class members were all direct purchasers and were all in a contractual relationship with one of the defendants.
Accordingly, the significance of the Irving Paper case, and its clear departure from earlier cases, lies in its breadth. The Irving Paper court granted certification of a class consisting of both direct and indirect purchasers in various places in the chain of distribution. The claim was brought on behalf of all persons in Canada who had purchased hydrogen peroxide or products containing or using hydrogen peroxide in Canada between January 1, 1994, and January 5, 2005. Due to the multiplicity of industrial and commercial applications of hydrogen peroxide (e.g. cosmetics, electronics, laundry detergent, etc.), the defendants argued that the proposed class would consist of virtually every Canadian consumer. Despite the complex multilayered distribution chain and the potential difficulty in sorting through the issues related to whether the overcharges were passed on, the court held that it only needed to be satisfied that a methodology may exist for the calculation of damages. In essence, detailed scrutiny of these issues was left to the trial judge.
The B.C. Court of Appeal Speaks
A few months after Irving Paper was decided, the B.C. Court of Appeal rendered a unanimous decision reversing a previous decision by a motions judge denying certification. In Pro Sys Consultants LTD v. Infineon Technologies AG,6 the proposed class action related to alleged price fixing in the U.S. market of Dynamic Random Access Memory (DRAM) chips, essential input components to many electronic products, including computer servers and networks, laptops, cellular phones, digital cameras and video gaming consoles. The decision of the motions court judge to deny certification was largely rooted in his approach to the expert evidence filed on the motion. He stated that given the inherent complexity in such a case, scrutiny cannot be superficial and that the evidence must establish that the proposed methodology to establish loss on a class-wide basis “has been developed with some rigor and will be sufficiently robust to accomplish the stated task”. However, the Court of Appeal adopted a similar approach to that taken by Justice Rady in Irving Paper and held that the motions court set the bar too high in its analysis of the plaintiffs' expert evidence. The Court of Appeal noted that the opinion of the plaintiffs' expert was necessarily preliminary, since the expert did not yet have access to discovery evidence and accordingly such expert evidence “should not be subjected to the exacting scrutiny required at a trial”.
In finding that a class proceeding was the preferable procedure, the court also commented that despite the complexities associated with the case, the CPA is flexible and provides the judges with appropriate tools to manage complex cases. Further, the court relied on the admission inherent in the defendants' guilty pleas and plea agreements in the United States to conclude that the defendants' class-wide liability could reasonably be found.
The Trend Continues
Early in 2010, the B.C. Supreme Court applied the Court of Appeal decision in Infineon in its decision certifying Pro Sys Consultants v. Microsoft Corporation et al,7 an indirect purchaser class action in which the plaintiff alleges that Microsoft engaged in various forms of anti-competitive conduct which increased the price charged to class members for its application software and operating systems. Although class members occupied various places in the chain of distribution, applying Infineon, the court held that the plaintiffs simply needed to display a “credible or plausible methodology” for showing that the price increase was passed through the various levels of distribution to class members. The court also noted a general trend towards certification in Ontario and British Columbia.
The Trend Confirmed
On June 3, 2010, the Supreme Court of Canada denied the defendants' application for leave to appeal the decision of the British Columbia Court of Appeal in Infineon. Five days later, on June 8, 2010, Justice Leitch denied the defendants' motion for leave to appeal to the Divisional Court from the decision in Irving Paper granting certification. And on June 24, 2010, the Ontario Court of Appeal upheld the decision of the Divisional Court in Quiznos allowing certification.
Dismissing the defendants' motion for leave to appeal the certification order in the Irving Paper case, Justice Leitch followed the various earlier courts' reasoning that the certification hearing is not an appropriate venue in which to carefully scrutinize and resolve conflicts between the evidence of experts. Accordingly, she held that the plaintiffs had shown a credible and plausible methodology to establish damages on a class-wide basis.
However, Justice Leitch also went on to state that, in the decision the defendants sought leave to appeal, Justice Rady had effectively misconstrued the case law in suggesting that Markson and Cassano overtook Chadha. Justice Leitch noted that in Markson and Cassano, the plaintiffs did not face the same challenges as did the plaintiff in Chadha because the class members in both Markson and Cassano had a contractual relationship with the defendants. Due to the contract, once the defendants' wrongdoing was proven, they would be liable for breach of contract without proof of consequential loss. Proof of breach of contract would create liability without the need to prove individual loss. In Chadha, on the other hand, the pleaded cause of action would not be complete without proof of loss. Such proof of loss would therefore be required in order for there to be potential liability to the class. On that basis, there is no conflict between Markson/Cassano and Chadha. Justice Leitch noted that this was also demonstrated by the fact that the Court of Appeal in Markson specifically confirmed Chadha and followed the principle from Chadha that section 24 of the CPA “is applicable only once liability has been established and provides a method to assess a quantum of damages on a global basis but not the fact of damage”. Similarly, in Cassano proof of the breach of contract created liability to all of the class members.
In Quiznos, the Ontario Court of Appeal adopted similar reasoning in upholding the Divisional Court's conclusion that the case should be certified. The Court of Appeal agreed with the majority of the Divisional Court that a breach of section 61 of the Competition Act does not require proof of loss or damage8 for purposes of certification. In this respect, the Court of Appeal's decision goes somewhat further than the decision of Justice Leitch in that while a breach of section 61 does not establish civil liability in and of itself (it must operate in combination with section 36 of the Competition Act which requires proof of loss or damage), a breach of section 61 in itself can be an appropriate common issue as it would advance the litigation. It should also be noted that the Court of Appeal specifically noted that it was unnecessary on a certification motion to engage in a debate about the relative strengths and weaknesses of the expert evidence.
Accordingly, the current state of the law respecting class actions in Canada, and particularly competition or antitrust-related claims as developed in the last year, appears to include the following:
- The evidentiary burden on plaintiffs at the certification stage is very low requiring only that they establish “some basis in fact” to satisfy the tests for certification.
- The “some basis in fact” test also means that there will be limited scrutiny of expert evidence in the context of the certification inquiry. All that is required is that the plaintiffs' expert display a credible method for establishing damages on a class-wide basis.
- As a result of what appears to be a more relaxed approach by courts to the requirement that plaintiffs demonstrate an ability to prove class-wide loss, classes comprising of both direct and indirect purchasers may be certified in a single class proceeding, even when the class will be very large and multilayered.
- Normally, cases in which the cause of action is complete without proof of loss (such as breach of contract cases) will be amenable to certification without proof of loss on a class-wide basis. Further, based on the Court of Appeal's recent decision in Quiznos, and specifically its willingness to certify a common issue based on a breach of criminal provisions of the Competition Act, it seems that there may be a number of cases in which the requirement for class-wide loss may be less important to courts at the certification stage. The ultimate determination of whether the aggregate damages provisions of sections 23 and 24 of the CPA will be available is to be left to the common issues trial judge.
- It is clear that complex, multi-layered, competition-related class actions have now been “back-end loaded”. The development of a full and robust economic record will take place post certification. In particular, rigorous scrutiny of competing expert opinions and resolution of conflicts between them will take place at the common issues trial.
- Chadha v. Bayer Inc. (2001), 54 O.R. (3d) 520 (Div.Ct.); aff'd (2003), 63 O.R. (3d) 22 [Chadha]
- Markson v. MBNA Canada Bank (2007), 85 O.R. (3d) 321 (C.A.) [Markson]
- Cassano v. The Toronto-Dominion Bank (2007), 87 O.R. (3d) 401 (C.A.) [Cassano]
- Irving Paper v. Atofina Chemicals Inc. (2008), 89 O.R. (3d) 578 [Irving Paper]
- 2038724 Ontario Limited v. Quiznos Canada Restaurant Corporation (2009), 96 O.R. (3d) 252 (Div Ct); aff'd 2010 ONCA 466 [Quiznos]
- Pro Sys Consultants LTD v. The Infineon Technologies AG (2009), BCCA 503; leave to appeal denied  S.C.C.A. No. 32 [Infineon]
- Pro Sys Consultants v. Microsoft Corporation, 2010 BCSC 285 8. The anti-competitive behaviour complained of in Quiznos included price maintenance contrary to section 61 of the Competition Act; note that section 61 of the Competition Act was repealed on July 13, 2009.