There has been a surge in antitrust class proceedings in Canada over the past few years. In most instances, plaintiffs have launched these proposed class proceedings in the context of ongoing international cartel investigations, often in close coordination with plaintiffs who have launched similar class proceedings in the United States. But, to date, there have only been a handful of antitrust class actions in Canada that have proceeded to a contested certification motion. In virtually all of these cases thus far, the courts have denied certification. However, on September 29, 2009, the Ontario Superior Court of Justice granted certification of a consolidated class of direct and indirect purchasers in Irving Paper Limited v. Atofina Chemicals Inc. (Irving Paper), the hydrogen peroxide case. (This case has not yet been reported.) This decision represents the first time in Canada that a court has certified an antitrust class action on a contested motion in an international price-fixing conspiracy/cartel case. In this decision, the Court appears to have departed from the prevailing case law in Canada on the need to demonstrate a workable methodology for assessing "loss" on a class-wide basis, and the Court appears to have adopted a lower standard of certification relative to the Third Circuit's widely-reported certification decision in the parallel hydrogen peroxide class proceedings in the United States. While it will almost certainly be appealed, this decision will very likely lead to more antitrust class proceedings in Canada in international conspiracy cases.
Antitrust class actions are relatively new to Canada. While there has been a private right of action in Canada’s Competition Act (Act) since the 1970s, private actions only emerged as a significant influence on Canada’s competition laws in the 1990s, following the gradual adoption of class proceedings legislation across Canada. Since that time, private plaintiffs have initiated a number of competition class actions in respect of a wide-range of vertical and horizontal anti-competitive conduct, including both domestic and foreign conduct. In most of these cases, however, plaintiffs have launched class proceedings on the heels of an ongoing global price-fixing investigation, often in close coordination with U.S. plaintiffs who were pursuing parallel class proceedings before federal and state courts.
In some of these cases, plaintiffs in Canada have been successful in negotiating high-profile settlements, and the settling parties have consented to certification for the purpose of implementing the settlement. However, outside the settlement context, there have only been a small number of cases that have proceeded to certification on a contested motion. And, in contrast to the U.S. experience, the courts in Canada have underscored that the test for certification on a contested basis is more demanding than where certification is sought to implement a settlement on consent.
Test for Certification
While the test for class certification in Canada varies by province, the test in the common law provinces is generally similar to the test for certification under Federal Rule 23 in the United States, albeit with some important differences (such as the absence of a predominance or typicality requirement). In particular, in Canada, plaintiffs must demonstrate the existence of a viable cause of action, an identifiable class, some meaningful common issues and an adequate representative plaintiff. But in the place of the U.S. predominance requirement, plaintiffs in Canada must also demonstrate that a class proceeding is the “preferable procedure” for trying the common issues. In addition, the courts in Canada have underscored the importance of applying the test for certification under class proceedings legislation in a flexible and purposive manner which reflects the underlying goals of class proceedings legislation, including access to justice, judicial economy and behaviour modification.
In spite of this flexible and purposive approach to certification, plaintiffs in Canada have experienced significant difficulty in seeking to certify antitrust class actions in Canada. In short, in virtually all of those cases that have proceeded to a contested certification motion in Canada, the courts have rejected certification, largely on the basis that the plaintiffs had failed to adduce sufficient expert evidence that there was a “viable” and “workable” economic methodology for ascertaining the core issues of loss and liability on a class-wide basis, particularly given the prospect that the alleged price-fixing overcharge may have been absorbed or “passed-on” to other participants within the distribution chain.
For instance, in the leading appellate case of Chadha v. Bayer Inc. (Chadha) in 2003, the Ontario Court of Appeal denied certification of a proposed antitrust class action on behalf of indirect purchasers relating to an alleged price-fixing conspiracy for the distribution of iron oxide. In short, the Court of Appeal found that the plaintiff had simply assumed the existence of “passing-on” through the distribution chain, and had failed to adduce sufficient evidence that “loss” as a component of liability could be ascertained on a class-wide basis. In 2008, in Pro-Sys Consultants Ltd. v. Infineon Technologies AG et al. (DRAM), the landmark DRAM case, the British Columbia Supreme Court similarly denied certification of a proposed antitrust class on behalf of direct and indirect purchasers concerning an alleged price-fixing conspiracy relating to the sale of DRAM (i.e., computer memory). In applying similar reasoning as Chadha, the court found that the plaintiffs had failed to adduce a “workable” expert methodology for dealing with loss and liability on a class-wide basis, particularly given the complex distribution chain for DRAM. The DRAM case is currently under appeal.
Finally, in two prior cases in Ontario, namely 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corp. et al., and Axiom Plastics Inc. v. E.I. DuPont Canada Co., the courts certified two vertical antitrust class actions (in whole or in part). However, these cases were purely domestic cases, and they were largely premised on vertical allegations of resale price maintenance that, arguably, involved narrowly-defined direct purchaser classes. But prior to the Ontario Superior Court’s recent decision in Irving Paper, no court in Canada had certified an antitrust class action relating to an alleged global price-fixing conspiracy outside the settlement implementation context.
The Decision in Irving Paper
For a number of years, antitrust regulators in Europe and North America have conducted an ongoing international investigation into allegations of price-fixing by global manufacturers of hydrogen peroxide (HP). HP is a common chemical used as a bleaching or oxidizing agent in a variety of industries, and it is widely used in the pulp and paper industry in the United States and Canada. As a result of this investigation, the European Commission charged and eventually fined a number of manufacturers in 2005. In 2006, two manufacturers pled guilty to criminal charges in the United States and paid significant fines to the U.S. Department of Justice.
In light of these charges and pleas, and the existence of significant direct purchasers in Canada and the United States, plaintiffs launched parallel class proceedings on both sides of the border. In the United States, the plaintiffs argued for certification of a direct purchaser class before the U.S. District Court for the Eastern District of Pennsylvania, and in 2007, the Court granted certification. However, on appeal, the U.S. Court of Appeals for the Third Circuit vacated this decision in 2008 in a widely-reported case. In its reasoning, the Third Circuit found that the District Court had failed to properly scrutinize and assess the plaintiff’s expert evidence on antitrust impact at the certification stage, and remanded proceedings to the District Court. The Third Circuit’s decision reflects a broader trend in the U.S. jurisprudence, which has held that the courts must conduct a “rigorous analysis” of the plaintiff’s expert evidence on antitrust impact at the certification stage.
During this period of time, a number of defendants elected to settle the proceeding, and entered into partial settlements in the United States and Canada. However, two defendants (Arkema and FMC) declined to settle, and the plaintiffs in Canada continued to press for certification against these two entities. In January and February 2009, shortly after the release of the Third Circuit’s decision, the parties argued for certification against these defendants before Justice Rady of the Ontario Superior Court in London, Ontario. At the motion, the plaintiffs sought certification of a broad consolidated class including all of the direct and indirect purchasers of HP across Canada over an extended period of 11 years.
Given the wide range of industrial uses of HP and the inclusion of indirect purchasers, the proposed class included potentially most residents of Canada. In support of certification, the plaintiffs argued that there were common issues relating to the existence of the alleged price-fixing conspiracy. The plaintiffs also adduced an expert report prepared by Dr. John Beyer, a well-known U.S. expert, who opined that there was a class-wide methodology for assessing loss and liability on a class-wide basis. For their part, the defendants adduced an expert report prepared by Dr. Richard Schwindt, a Canadian economist, who argued that Dr. Beyer’s methodology was neither workable nor feasible. As such, the defendants argued that the individualized issues of loss and liability across an enormous class would overwhelm the proposed class proceeding, and that certification would ultimately frustrate, rather than achieve, the goals of the Ontario Class Proceedings Act, 1992 (CPA).
In her decision, dated September 28, 2009, Justice Rady granted certification of the proposed consolidated class of direct and indirect purchasers of HP in Canada. In her reasons, she found that the plaintiffs had pleaded a viable cause of action under the Act. She also found that the plaintiffs had demonstrated an identifiable class, and that there were common issues relating to the existence and scope of the alleged conspiracy. She then turned her attention to the core issue raised by the Chadha and DRAM cases, namely, whether the plaintiffs had demonstrated a workable methodology for assessing whether the critical issues of loss and liability could be ascertained on a class-wide basis. After reviewing the certification case law both within and outside the competition area, Justice Rady suggested that the more recent certification law in Ontario appeared to moving away from Chadha. In particular, she noted that in two recent certification decisions of the Ontario Court of Appeal in credit card cases, the Court suggested that a plaintiff may be able to establish “potential liability” on a class-wide basis for certification purposes by reference to the aggregation provisions of the CPA. Justice Rady found that under this “different approach,” the plaintiffs could establish “potential liability” by showing that “the defendants acted unlawfully” and “it is not necessary to show damages on a class-wide basis.”
Justice Rady also found that at the certification stage, it was not her role to weigh the relative merits of the disputed expert evidence. In her view, it was not necessary to determine whether there was a workable methodology for assessing loss and liability on a class-wide basis. Rather, Justice Rady found that she only needed to assess whether methodology might exist. As she stated,
I understand the defendants’ various criticisms of Dr. Beyer’s report, but it seems to me that I need only be satisfied that a methodology may exist for the calculation of damages.
In applying this standard, she found that “I simply am unable to say that Dr. Beyer’s opinion will not be accepted” at trial. Justice Rady also held that it was open to the plaintiffs to argue that the defendants were precluded from raising a passing-on defence in light of two recent decisions from the Supreme Court of Canada of Canada that appeared to comment favourably on the historical U.S. rule established in Hanover Shoe Inc. v. United Shoe Machinery Corp. Finally, she found that a class proceeding was the preferable procedure in view of the goals of the CPA, and that the plaintiffs could indeed represent a consolidated class of direct and indirect purchasers in spite of the apparent conflicts.
For these reasons, Justice Rady granted certification of the proposed class advanced by the plaintiffs without any modification.
On its face, the Court’s decision in Irving Paper represents a significant departure from the prevailing antitrust certification case law in Canada. As reflected in Chadha and the DRAM case, the courts in Ontario and B.C. have previously held that a plaintiff is generally required to adduce persuasive expert evidence of a “viable” and "workable" methodology for assessing loss on a class-wide basis to obtain certification under the CPA, particularly in cases that involve indirect purchasers and a complex distribution chain. However, in Irving Paper, Justice Rady has suggested that a court should refrain from engaging in a close assessment of the expert evidence at the certification stage, and should take a more deferential view of the plaintiff’s proposed methodologies. Justice Rady has also suggested that plaintiffs can rely on the aggregation provisions of the CPA to establish “potential liability” on a class-wide basis in a competition class action, even though a number of prior courts (including the Ontario Court of Appeal in Chadha) have specifically rejected this argument – namely, these prior courts have held that the aggregation provisions were intended to facilitate the assessment of damages once liability has been actually determined at trial, and they cannot be used to bootstrap a common issue at the certification stage before there has been any finding of liability or “potential” liability on class-wide basis.
Justice Rady’s decision is also very interesting from the perspective of cross-border antitrust enforcement, given the Third Circuit’s prior decision to set aside certification of the parallel direct purchaser class action in the HP proceedings in the United States – particularly given that the plaintiffs relied on the same expert in both proceedings (Dr. John Beyer). In short, if Justice Rady’s decision is upheld and applied in other cases, her decision suggests that the standard for certification in an antitrust class action in Canada may be more liberal (and less “rigorous”) than the prevailing standard for certification in the U.S. under Federal Rule 23, especially with respect to the court’s role in weighing the disputed expert evidence on certification relating to loss or antitrust impact on a class-wide basis.
The Court’s decision in Irving Paper will almost certainly be appealed (the defendants must first seek leave to appeal from the Divisional Court under the CPA). Moreover, the B.C. Court of Appeal is presently considering similar issues in the pending appeal in the DRAM case. But at first blush, Irving Paper is a significant decision that will likely lead to more antitrust class proceedings in Canada in international conspiracy cases, particularly where there are parallel class proceedings in the United States.