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Competition Law

Canadian Competition Class Actions Developments

Published: 06/29/2010

Canadian Competition Class Actions Developments

Recent Decisions Relax Certification Test

Canadian courts have typically not certified competition law class actions involving both direct and indirect purchasers on a contested basis.[1] This was largely the result of the imposition of a fairly onerous requirement for plaintiffs to demonstrate, at the certification stage, a “viable” and “workable” economic methodology for ascertaining loss on a class-wide basis. Prior decisions held that, to satisfy this element, plaintiffs needed to present evidence as to how they intended to demonstrate the loss on a class-wide basis and that merely assuming that a portion of the overcharge had been paid by the various class members was insufficient. Further, in determining whether this certification criterion was met, courts rigorously evaluated the plaintiffs’ expert evidence supporting the proposed methodology, in particular, evidence relating to the degree to which the alleged overcharge may have been passed on to indirect purchasers.

In 2009, two significant decisions signalled a potential change with respect to how courts approached the certification of competition law class actions. The first by the British Columbia Court of Appeal in Pro-Sys Consultants Ltd. v. Infineon Technologies AG et al. (the “DRAM” case) (For full text of the decision, please click here: 2009) and the second by the Ontario Superior Court in Irving Paper Ltd. v. Atofina Chemicals Inc. (the “Hydrogen Peroxide” case) (For full text of the decision, please click here: 2010). These cases involved allegations of price fixing conspiracies against, respectively, manufacturers of a semiconductor memory chip known as “DRAM” (dynamic random access memory) and hydrogen peroxide. In both cases certification was granted on a contested basis for claims made on behalf of consolidated classes including both direct and indirect purchasers.

Both decisions were appealed and, earlier this month, the Supreme Court of Canada [2] and the Ontario Divisional Court denied both leaves to appeal within a week of each other. This suggests that courts may continue to take a more permissive approach to the certification of competition law class actions by:

certifying competition law class actions that include indirect purchaser claims on the basis that establishing damages on a class-wide basis is a suitable common issue;
holding that, to satisfy the "workable methodology" criterion at the certification stage, plaintiffs need only show a "credible or plausible methodology" for proving loss on a class-wide basis; and
not weighing or evaluating conflicting expert evidence at the certification stage – in particular, the economic evidence submitted by the parties in support of or against the proposed method of proving loss on a class-wide basis.

We will consider each of these points in more detail below.

Class-Wide Damages Assessment as Common Issue

Historically, Canadian courts (including the motions court in the DRAM proceedings) have refused to certify competition law cases on the basis that proof of damages on an individual basis (in particular with respect to claims made on behalf of indirect purchasers, which necessarily involve an analysis of the extent to which any of the overcharge was passed on by direct purchasers) was necessary and that, accordingly, a class proceeding was not the preferable procedure for resolving the putative class members’ claims. This approach is supported by the language of section 36 of the Competition Act, which provides that any “person” may claim recovery for “loss or damage proved to have been suffered by him”. In other words, proof of actual damage is an essential element of a claim under section 36.

To circumvent this obstacle, plaintiffs have, in addition to damages under the Competition Act, claimed various forms of restitutionary relief (for example, waiver of tort), that are premised on the disgorgement of unlawful gain, as opposed to loss actually incurred by the proposed class. The certification decisions in the DRAM and Hydrogen Peroxide cases, in particular, the decision of the British Columbia Court of Appeal in the DRAM case, legitimize this strategy.

Workable Method Criterion

Under both the British Columbia and Ontario class proceedings legislation, the plaintiffs must demonstrate that they have a workable method for advancing the proceeding. In the context of competition class actions, the focus has been on the ability of plaintiffs to establish damages on a class-wide basis, in particular with respect to indirect purchasers.

In considering the threshold that must be met by plaintiffs in these cases, the courts in the DRAM and Hydrogen Peroxide cases indicated that it is sufficient for the plaintiffs to demonstrate a "credible or plausible methodology" for addressing liability on a class-wide basis. Given the view of the courts that it is not appropriate to attempt to weigh or resolve conflicting evidence on this point at the certification stage, it seems that satisfying this test will not be a major hurdle for plaintiffs in future cases.

Evaluation of Expert Evidence at the Certification Stage

A key issue in these cases was the treatment of conflicting evidence at the certification stage. The courts in both the DRAM and Hydrogen Peroxide cases, citing relevant jurisprudence from decisions outside of the competition law area, affirmed that the purpose of the certification hearing was to determine whether the case should proceed as a class action and not to assess the merits of the claim. According to the courts, the approach to this evidence was “in conformity with the liberal and purposive approach to certification, [the plaintiff’s] evidentiary burden is not an onerous one [and] requires only a ‘minimum evidentiary basis’”.

In short, these decisions affirm that, at the certification stage, courts are not obliged to resolve conflicting evidence, assess the evidence in relation to the merits of the claims or subject the plaintiffs’ expert evidence to the “rigorous scrutiny” that it would be subject to at trial. Based on this approach, it seems that, absent some deficiency in the plaintiffs’ expert report, defendants will likely be hard-pressed to demonstrate that the plaintiffs have not met their evidentiary burden on this issue.

Implications

Effectively, these decisions make it significantly more likely that courts will certify competition law class actions going forward. While the courts in both the DRAM and Hydrogen Peroxide cases certified the actions, the British Columbia Court of Appeal made several interesting comments regarding the practical difficulties these types of cases are likely to raise at trial, in particular:

The considerable difficulties of proof relating to products that have complex marketing and distribution chains, which could ultimately render the class action unmanageable;
If damages are assessed on a class-wide basis, the issue remains as to how they will be apportioned between differently situated class members (i.e., direct vs. indirect purchasers, as well as possibly among different indirect purchaser sub-classes); and
The British Columbia Court of Appeal indicated that this may involve a bifurcated proceeding, the second phase of which would be to allocate the pool of damages among the various plaintiff classes.

Regardless of how this may ultimately be dealt with, the effect of the approach used by the plaintiffs seems to merely shift (rather than eliminate) the complex issues associated with quantifying indirect purchaser claims to another phase of the litigation. Additionally, there is a real possibility that the issue of allocation of any damages will raise significant conflicts between differently situated sub-classes – with the result that they may wish to be represented by separate counsel. In short, there is a real question as to whether, at the end of the day, certification of these cases truly promotes the policy goals of class proceedings.

It is too early to say whether these decisions alone or in conjunction with the recent move to a per se criminal conspiracy offence [3] will result in a proliferation of cases (in particular, stand-alone cases). What is clear, however, is that more competition law class actions will proceed to trial in Canada.

For more information regarding the potential implications of these decisions or Canadian competition and foreign investment review matters generally, please contact Mark Nicholson, Chris Hersh, Yana Ermak or Nicole Washington in our Competition, Antitrust & Foreign Investment Law group.

[1] However, Canadian courts have approved several settlements of competition law class actions involving both direct and indirect purchaser claims.

[2] The Supreme Court of Canada did not provide reasons for denying leave to appeal in the DRAM case.

[3] Until March 2010, the criminal conspiracy provisions of the Competition Act required the conduct in question to have “unduly” prevented or lessened competition. This required plaintiffs to both define the relevant market, as well as demonstrate that the defendants’ actions had the requisite anticompetitive effect, which is often both a difficult and expensive task. As a result, very few “stand alone” cases (cases where there had been no guilty pleas or convictions) have been brought in Canada – a considerable contrast with the situation in the US, which has had a per seconspiracy provision in place for over a century.