Earlier today, the Supreme Court of Canada released a trilogy of long-awaited class certification rulings that realigned the ground rules for the certification of consumer class actions in Canada, particularly in cases involving anti-competitive harm. In certifying two of the cases and rejecting certification of a third case, the Supreme Court accepted the standing of indirect purchasers to assert competition claims, but curtailed the ability of defendants to assert a “passing on” defence. More broadly, the Supreme Court clarified the evidentiary standard for certification under class proceedings legislation in common law provinces as well as in Québec. The Supreme Court also addressed the standard for certification in Canada relative to the United States in cross-border cases, examined the jurisdiction of the Québec courts over foreign-based conduct, and permitted the certification of certain claims in restitution, including waiver of tort. The rulings will have an immediate effect on ongoing antitrust cases as well as other pending consumer class actions in Canada, and will have a significant impact on businesses both within and outside Canada.
In recent years, there has been a significant rise in class proceedings filed on behalf of consumers in Canada, particularly in competition cases. Prior to 2011, the courts in Ontario, Québec and British Columbia certified a number of contested competition class actions in Canada. In these decisions, the courts certified claims in respect of both alleged vertical and horizontal anti-competitive conduct and classes consisting of both direct and indirect purchasers, often within the same consolidated class. In many instances, these class actions were brought on the heels of a large international antitrust investigation – namely, in circumstances in which specialized plaintiff firms in Canada initiated class proceedings in Canada in conjunction with parallel class proceedings in the United States. For example, the Ontario Superior Court certified a consolidated class of direct and indirect purchasers in the hydrogen peroxide case in 2009, and the British Columbia Court of Appeal certified a consolidated class of direct and indirect purchasers in the DRAM case in 2009.
However, in 2011, a split developed among those jurisdictions regarding the validity of the claims of indirect purchasers (e.g., consumers who had purchased the product through market intermediaries such as retailers and resellers). In 2-1 split decisions, the B.C. Court of Appeal reversed the certification orders in two cases: (i) Sun-Rype Products Ltd. v. Archer Daniels Midland Company (Sun-Rype), a proposed horizontal price-fixing class action against manufacturers of high fructose corn syrup on behalf of a combined class of direct and indirect purchasers; and (ii) Pro-Sys Consultants Ltd. v. Microsoft Corporation (Microsoft), a proposed class action asserting vertical price-fixing and other anti-competitive claims on behalf of indirect purchasers of Microsoft software products. These decisions created an immediate conflict in the law across Canada.
Adding to the appellate conflict, seven months after the decisions in Sun-Rype and Microsoft, the Québec Court of Appeal reversed the dismissal of a motion to authorize a class action on behalf of direct and indirect purchasers in Québec who allegedly suffered losses as a result of a price-fixing conspiracy among foreign manufacturers of dynamic random access memory (DRAM) chips. In Option Consommateurs c. Infineon (Option Consommateurs), a parallel Québec class action to the previously certified DRAM class action in British Columbia, the Québec Court of Appeal expressly adopted the reasoning of the dissenting judge in Sun-Rype and Microsoft and concluded that indirect purchasers had a valid cause of action for losses suffered as a result of an alleged price-fixing scheme.
As part of these cases, the Québec Court of Appeal also tackled larger issues of jurisdictions and held that Québec courts could assume jurisdiction over claims against foreign defendants involving foreign-based conduct based on losses suffered in Québec. The Court of Appeal reasoned that even though there are territorial limits on the application of the conspiracy offence under section 45 of the Competition Act, the Court could still exercise jurisdiction in respect of the plaintiff’s allegations of “extracontractual liability” (i.e., the plaintiff’s claims in tort) given the plaintiff’s allegation that class members had suffered harm or loss in Québec.
But more generally, the appellate courts in Sun-Rype, Microsoft and Option Consommateurs also considered the evidentiary threshold for class certification in the common law provinces and the standard for authorization in Québec. Since the Supreme Court’s 2001 decision in Hollick v. Metropolitan Toronto, which established that there must be “some basis in fact” that the certification requirements are met to certify a class action, Canadian courts have generally imposed a low evidentiary burden on plaintiffs seeking to certify class actions. Some have questioned whether this low burden is consistent with the guidance in Hollick and have noted the contrast with the “rigorous analysis” standard that has evolved in the United States. In Québec, the courts have generally articulated a low standard in view of Québec’s unique legislation.
In proposed competition class actions, where proof of loss is an essential element of class member’s claims, a key battleground relates to whether the plaintiff has adduced some form of methodology for proving the requisite loss on a class-wide basis. In the past, Canadian courts have consistently applied a relaxed standard with respect to the quality of the methodology that would be adduced by an expert. In Ontario, for example, a leading case holds that “plaintiffs on a certification motion will meet the test of providing some basis in fact for the issue of determination of loss to the extent that they present a proposed methodology by a qualified person whose assumptions stand up to the lay reader...Where the assumptions are debated by experts, these questions are best resolved at a common issues trial.” Similarly, in Sun-Rype and Microsoft, the motions judges stated that the standard required only a “credible and plausible methodology” for calculating loss or damage on a class-wide basis, a holding not criticized on appeal.
In light of the conflicting appellate decisions and the important issues raised by these cases, the Supreme Court granted leave to appeal in all three cases and heard the appeals together in October 2012. While the core issue before the Court was whether indirect purchasers had a valid cause of action, the Court heard argument on all certified issues raised in the appeals, including the evidentiary standard, the scope of jurisdiction, and the certification of restitutionary claims such as waiver of tort.
The Supreme Court had these decisions under reserve for over a year, which is an unusually long period for the court. The Court rendered its rulings on the morning of October 31, 2013. In mixed rulings, the Supreme Court unanimously (9-0) certified the indirect purchaser class in Microsoft and the combined direct and indirect purchaser class in Option Consommateurs. However, a majority of the Court (7-2) rejected certification of the direct and indirect purchaser class in Sun-Rype. The key findings are as follows:
- Indirect Purchasers Have a Right of Action in All Canada Jurisdictions. In Microsoft, the Court held that defendants in antitrust and other class actions are prevented from raising the passing-on defence under restitutionary law. However, the Court also ruled that although the passing-on defence is unavailable as a matter of restitutionary law, indirect purchasers are not foreclosed from asserting claims for losses passed on to them through the retail distribution chain. In reaching this conclusion, the Supreme Court took note of the ongoing criticism of the unpopular rule of Illinois Brick in the United States that bars indirect purchaser claims as a matter of federal antitrust law. The Court confirmed in Option Consommateurs that Québec civil law also permits indirect purchasers to recover losses caused by anti-competitive conduct and passed on to them by direct purchasers.
- A Defendant’s Liability for Price-Fixing Is Limited to the Aggregate of the Anti-Competitive Overcharge. In Sun-Rype, the Court stated that if indirect and direct purchasers are included in the same class and the evidence of the experts at the common issues trial will determine the aggregate amount of the overcharge, there will be no double or multiple recovery. Recovery is limited to that aggregate amount, no matter how it is ultimately shared by the direct and indirect purchasers.
- A Conflict Between Indirect and Direct Purchasers Is Not a Bar to Certification of a Combined Class. In Sun-Rype, the Court held that if there is conflict between indirect and direct purchasers within a consolidated class as to how aggregate damages are to be distributed upon the awarding of a settlement or upon a successful action, this should not properly be a concern of the defendants and is not a basis for denying indirect purchasers the right to be included in a class action.
- Defendants Can Mitigate the Risk of Double Recovery at the Trial Stage. In Microsoft, the Court emphasized that to avoid the risk of double recovery when claims by direct and indirect purchasers are brought in the same action or when there are parallel suits pending in other jurisdictions, a defendant may bring evidence of this risk before the trial judge and the judge may deny the claim or modify the damage award in accordance with an award sought or granted in the other jurisdiction to prevent overlapping recovery.
- Plaintiffs Must Only Show “Some Basis in Fact” at Certification, But Certification Remains a “Meaningful Screening Device.” The Court reaffirmed the “some basis in fact” standard from Hollick, which applies in Canadian common law jurisdictions. The Court clarified that the Hollick standard asks not whether there is some basis in fact for the claim itself, but rather whether there are sufficient facts to satisfy the motions judge that the certification requirements have been met to a degree that should allow the matter to proceed on a class basis “without foundering” at the merits stage. The Court rejected the American approach in Wal-Mart v. Dukes and In Re Hydrogen Peroxide Antitrust Litigation of subjecting proposed class actions to rigorous analysis and making factual determinations at the certification stage on a preponderance of the evidence. However, the Court reaffirmed “the importance of certification as a meaningful screening device” that does not “involve such a superficial level of analysis into the sufficiency of the evidence that it would amount to nothing more than symbolic scrutiny.”
- Plaintiffs Must Put Forward a “Credible or Plausible” Methodology for Addressing Class-Wide Issues of Loss and Liability. The Court ruled that the robust and rigorous standard applied in the United States to experts’ proposed methodologies for establishing class-wide harm is inappropriate in the Canadian class actions regime. Instead, an expert methodology must be sufficiently “credible or plausible” to establish some basis in fact to prove the existence of a common issue regarding proof of loss on a class-wide basis. This means that the methodology must (i) offer a realistic prospect of establishing a means to establish loss on a class-wide basis; and (ii) be based upon data that are actually available. The methodology cannot be purely theoretical or hypothetical – it must be grounded in the facts of the case. If there is conflicting expert evidence regarding a proposed methodology, however, resolving the conflict is an issue for trial and not one that should be engaged in at certification.
- At the Authorization Stage in Québec, the Court’s Role Is Only to Filter Out Frivolous Cases. The Court repeatedly emphasized that in Québec, the court’s role at the authorization stage is to filter out frivolous actions and ensure that parties are not being subjected unnecessarily to litigation in which they must defend against untenable claims. The Court noted that the evidentiary burden for authorizing a class action in Québec is less demanding than the burden that applies to certification of class actions in other parts of Canada. In particular, unlike in other Canadian jurisdictions, a Québec plaintiff in an indirect purchaser class action is not required to present expert evidence of a methodology capable of demonstrating class-wide loss at the authorization stage. Indeed, the plaintiff need not even propose at the authorization stage a possible methodology to be used at trial.
- Aggregate Damages Provisions of Class Proceedings Legislation Cannot Be Used to Establish Liability. The Court confirmed that the aggregate damages provisions of class proceedings legislation are procedural and cannot be used to establish any aspect of liability, such as proof of loss in antitrust claims.
- Claims for Waiver of Tort Are Capable of Certification. The Supreme Court permitted the plaintiffs in Microsoft to maintain their pleading of waiver of tort and seek restitution of the benefits of the defendants’ alleged wrongful conduct. The Court held that, in spite of the uncertainty and arguably contradictory law on the existence of the cause of action, a certification appeal was not the proper forum to resolve the details of the law of waiver of tort, nor the particular circumstances in which it can be pleaded.
- Canadian Courts May Exert Jurisdiction by Foreign Defendants in Respect of Foreign Competitive Conduct. In a significant finding in Option Consommateurs, the Court held that the Québec Superior Court can exercise jurisdiction under the civil law in respect of foreign based price-fixing arrangements that were entered into outside Canada, provided that there is some indication of injury or “economic damage” to a Québec consumer. Similarly, in Sun-Rype, the Court ruled that if it is alleged that defendants conduct business in Canada, make sales in Canada and conspire to fix prices on products sold in Canada, it is not plain and obvious that Canadian courts do not have jurisdiction over the alleged anti-competitive acts and claims based on such allegations should be permitted to proceed.
- Plaintiffs Must Establish That There Is an Identifiable Class. The Court refused certification of the indirect purchaser class action in Sun-Rype, largely on the basis that the plaintiffs had failed to establish “some basis in fact” that an identifiable class existed, since the plaintiffs did not offer any evidence to show that two or more persons could prove that they purchased a product actually containing high-fructose corn syrup during the class period (i.e., the class members could not self-identify). In such cases, the Court held that the goals of the Competition Act were best left to criminal enforcement by the Commissioner of Competition.
The decisions have a number of important implications for both Canadian and foreign companies that are facing or may face Canadian class actions, including but not limited to those involving competition claims:
- Indirect Purchasers May Bring Class Actions in Canada. Proposed competition class actions consisting of both direct and indirect purchasers are capable of certification in both civil and common law jurisdictions in Canada. This is at odds with the present approach of the U.S. federal courts, which follow the U.S. Supreme Court’s decision in Illinois Brick and do not permit claims by indirect purchasers.
- Coordinating the Defence of Price-Fixing Class Actions in Multiple Jurisdictions Is Required to Mitigate the Risk of Double Recovery. Although the Court found that a defendant’s liability is limited to the aggregate amount of the overcharge, defendants facing price-fixing claims in multiple jurisdictions must still lead evidence of settlements or judgments in other jurisdictions to mitigate the risk they will be required to overcompensate plaintiffs.
- The Waiver of Tort Debate Will Continue. The Court certified a claim for waiver of tort in the Microsoft case, in spite of the uncertain nature of that claim. While the Court declined to wade into the debate regarding waiver of tort in any significant way, the debate over whether waiver of tort is a proper cause of action will continue, and defendants can expect to see waiver of tort pleaded in many types of class actions to avoid the difficulties of proving loss or damage.
- Canadian Courts May Assume Jurisdiction Over Claims Against Foreign Defendants in Respect of Foreign Conduct. Foreign defendants with no presence in Canada may be required to defend competition class actions in Québec, and possibly other provinces, brought by persons who have allegedly suffered losses in those jurisdictions caused by a price-fixing scheme entered into entirely outside Canada.
- Certification Outcomes in Parallel Cases May Differ Between Canada and the United States. The Supreme Court’s guidance suggests that competition class actions may be certified in Canada, even though a companion U.S. case may not be certified in the U.S. federal courts. This is because the low evidentiary threshold for certification in Canada starkly contrasts with the U.S. Supreme Court’s recent decisions in Dukes and Comcast, which require U.S. district courts to conduct a “rigorous analysis” to determine if the class certification requirements are met. In particular, since plaintiffs in the U.S. federal courts are required to put forward a “just and reasonable” methodology for calculating damages on a class-wide basis, statistical or other models put forward by plaintiffs at the certification stage are more likely to meet the certification requirements in Canada, even though they may not be accepted in the companion U.S case.
- The Test for Class Certification Remains a Meaningful Screening Device. Although the evidentiary threshold at certification is low and Canadian courts may subject proposed methodologies for determining class-wide harm to less rigour than U.S. federal courts, the Supreme Court was clear that certification remains “a meaningful screening device” and that an expert’s methodology must still offer “realistic prospect” of establishing class-wide loss. Defendants therefore continue to have avenues for attacking the manageability of class actions and the feasibility of plaintiffs’ proposed methodologies.
- The Decisions May Chill Foreign Defendants’ Willingness to Enter the Competition Bureau’s Leniency Policy. As foreign corporations may now face Canadian competition class actions brought on behalf of broadly defined classes of both direct and indirect purchasers, coupled with a lenient approach to certifications, these rulings may “chill” corporate applications to the Bureau’s criminal leniency policy because of increased collateral civil liability consequences in Canada. When combined with the Federal Court’s decision in Maxzone, which would require significant public disclosure by corporations undertaking guilty pleas, these decisions greatly increase the risk of civil class actions for corporations that choose to make leniency applications.
- Impact for Criminal Enforcement. Bureau criminal enforcers may take comfort from the Court’s liberal approach to issues of foreign-conduct jurisdiction and extensive discussion of the rationale for permitting offensive use of the passing-on doctrine by indirect purchasers.
- The Identifiable Class Requirement Is Meaningful. The Court’s dismissal of Sun-Rype signals to courts and litigants that there must be some evidence that class members can prove they meet the class definition, which potentially has important implications for price-fixing or product liability class actions involving raw ingredients or component parts. In such cases, class members may have no means of proving they purchased a product containing the ingredient or part at issue, and the Supreme Court’s decision establishes that the absence of evidence that at least two class members have such means will be fatal to certification.
In summary, plaintiffs and defendants will each find some silver linings in this trilogy of decisions. The courts in Canada have clearly charted a path that is different from that of the U.S. courts.