Pro-Sys Consultants Ltd. v. Infineon Technologies A.G. (2009) Carswell BC 3035

In the recent decision Pro-Sys Consultants Ltd. v. Infineon Technologies AG (Pro-Sys), a unanimous decision of the British Columbia Court of Appeal in favour of certification, has given the nod to a class of both direct and indirect purchasers in a price-fixing class action.

In allowing the plaintiff's appeal from the order of the chambers judge, which had dismissed the motion for class certification, Justice Smith, writing for the B.C. Court of Appeal, held that the chambers judge, Justice Masuhara, had correctly found that there was an adequate cause of action and an identifiable class, but that he erred in his assessment of the viability of the common issues and a class action as the preferable procedure.

The central issue in this case was whether an action brought to recoup alleged unlawful overcharges resulting from price-fixing by manufacturers of a component of electronics products was suitable for certification as a class proceeding. Specifically, the plaintiff sought damages pursuant to s. 36(1) of the Competition Act, R.S. 1985, c. C-34 (Competition Act), as well as in tort for civil conspiracy to fix prices and for intentional interference with economic interests. The plaintiff further sought punitive damages as well as restitutionary awards in unjust enrichment, constructive trust and waiver of tort, including orders that the defendants account for and disgorge the profits of their alleged conspiracy.

The defendants (respondents on appeal) are manufacturers of a semiconductor chip known as DRAM (dynamic random access memory), which provides high-speed electronic storage and retrieval information in nearly all computer, telecommunication, and other electronic products in use today. During the class period (April 1, 1999 to June 30, 2002) the defendants collectively accounted for 76% to 82% of worldwide DRAM production, with global revenues from the sale of DRAM reaching approximately $80 billion USD.

All of the defendants, except one, have pleaded guilty in the United States to criminal charges arising out of an international conspiracy to fix prices of DRAM sold to six OEM computer manufacturers. The defendants have not been charged with any criminal activity in Canada.

The representative plaintiff (appellant on appeal) purchased a laptop computer from a retailer in British Columbia during the class period for approximately $3,000 and proceeded to bring a class action on behalf of all persons in British Columbia who, during the class period, purchased DRAM either directly from the defendants or indirectly from intermediate purchasers.

The plaintiff asserted that the monetary claim could be quantified on an aggregate basis as the difference between the prices actually obtained by the defendants for the component and the prices they would have obtained but for the defendants' conspiracy.

Common issues

On the certification motion, the chambers judge found that, although the existence of the alleged price-fixing conspiracy was a potential common issue for the Class, that issue paled in significance when compared to the question of whether the Class, largely comprised of indirect purchasers of products containing DRAM (such as computers), had suffered any harm from the alleged conspiracy, by paying an "overcharge" on the products they purchased as a result of the alleged wrongful conduct.

The chambers judge concluded that liability could not be established as a common issue and that an aggregate monetary claim could not be tried as a common issue. The chambers judge also concluded that the plaintiffs' claim for unjust enrichment, constructive trust, and waiver of tort which sought disgorgement of the defendants' allegedly wrongful gains from DRAM sales, did not eliminate the need for common proof that an overcharge on DRAM was passed through to the indirect purchasers in the Class.

On appeal, Justice Smith noted that the court below had set the bar for the plaintiff too high and that it was sufficient on a certification motion to show "only a credible or plausible methodology," which the plaintiff had done through its expert's proposed reliance on regression analysis. The Court found that for the purposes of certification, the expert economic evidence submitted by the plaintiff was sufficient to show that the existence and amount of the defendants' alleged wrongful benefit (receipt of the overcharge) was a common issue, and noted that "the dispute here is over whether total gain or loss can be determined as a practical matter on the particular facts of this case. Those facts have not yet been fully developed and it was therefore premature of the chambers judge to reject [the plaintiffs' expert's] opinion."

The Court of Appeal found that although the chambers judge "concluded damage in the form of loss or deprivation resulting from the respondents' wrongful conduct is an element of each class member's claim in this case," in fact, "damage may not be an element of the appellant's restitutionary claims in unjust enrichment, constructive trust and waiver of tort." The Appeal Decision notes that the point has not been settled as matter of law, but that there is authority that liability on these claims "might be established without proof of loss"-that is, upon showing only that the defendants (a) engaged in wrongful conduct and (b) benefitted from same.

The Court of Appeal also found that in refusing to certify an "aggregate monetary award" as a common issue, the chambers judge had "misapprehended" the British Columbia Court of Appeal's earlier decision in Knight v. Imperial Tobacco Company, 2006 BCCA 235 (Knight). Although the chambers judge found that the issue in Knight was "whether the aggregation provisions could be used to calculate and allocate damages after liability was already established," the Court of Appeal held that Knight "affirmed the certification of an aggregate monetary award under the CPA as a common issue in a claim for disgorgement of the benefits of the defendants' wrongful conduct without an antecedent liability finding - rather, the aggregate assessment would establish concurrently both that the defendant benefited from its wrongful conduct and the extent of the benefit."

Notably, the B.C. Court of Appeal specifically refused to address the "state of the law in Ontario in regard to whether aggregate monetary awards can be the subject of a common issues trial," and whether two decisions by the Court of Appeal for Ontario - Chadha v Bayer, (2003) 223 D.L.R. (4th) (Ont. C.A.) (Chadha) and Markson v. MBNA, [2007] 85 O.R. (3d) 321 (C.A.) (Markson)-are at odds. Instead, the Court noted that the Knight case "settles the point" in B.C.

Finally, the Court of Appeal found that the chambers judge erred in failing to find that the defendants' allegedly wrongful gain could be shown using proof common to the class.

In finding that the chambers judge erred in concluding that the assessment of the total gain to the defendants could not be tried as a common issue, the B.C. Court of Appeal noted that the "gain obtained by the respondents will be the mirror image of the total loss suffered by the class" and so "any legal objection to the use of the aggregation provisions of the CPA to assess aggregate damages in the conspiracy actions at common law and pursuant to the Competition Act could be of no practical importance."

Preferable procedure

As to preferable procedure, the Court of Appeal noted that the provisions of the CPA should be construed generously in order to achieve its three objectives of judicial economy, access to justice and behaviour modification. On the assessment of the question of a class action as the preferable procedure, the Court held that the chambers judge had taken too narrow a view of all these goals and underestimated their importance. The chambers judge had decided that a common issues trial would not be the preferable procedure because in his view, proof of damage on an individual basis would be necessary. However, the Appellate Court opined that "if liability in the restitutionary claims can be established at trial by proof of an unlawful gain without individual proof of loss by class members, that objection evaporates" and that this would serve the goal of judicial economy.

Conclusion

This decision comes on the heels of Justice Rady's decision from the Ontario Superior Court of Justice in Irving Paper Ltd. v. Atofina Chemicals Inc., [2009] O.J. 4051 (S.C.J.) (Irving Paper) where certification was granted to a price-fixing conspiracy class action involving both direct and indirect purchasers. In that case, Justice Rady relied on the decisions in Markson and Cassano v. Toronto-Dominion Bank, [2007] O.J. No. 4406 (C.A.) (Cassano) to conclude that only "potential liability" was relevant and that damages could be aggregated.

By sidestepping the Markson/Chadha debate, and holding that Knight had resolved the issue in British Columbia as to whether aggregate monetary awards can be the subject of a common issues trial, the B.C. Court of Appeal in Pro-Sys left that issue to be resolved in Ontario (or by the Supreme Court of Canada).

This decision, coupled with Irving Paper in Ontario, arguably creates what amounts to a civil fine for conduct, and certainly sends a clear signal that the courts will reconsider certification of indirect purchaser classes, despite the absence of proof of harm. Whether and in what form the constitutional matter of a provincial statute like the CPA overriding a federal statute like the Competition Act will be resolved, remains to be seen.