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Introduction

In Canada, price-fixing conspiracy class actions are relatively novel.  Although many cases have been commenced, the vast majority of those have been resolved through settlement.  An analysis of the decisions to date, along with decisions in other substantive areas of law, however, suggests that the Canadian courts are adopting, and will adopt, a fair and balanced method of adjudicating these cases.

This paper highlights some key differences between the Canadian and American systems for collective redress in the price-fixing conspiracy context.  In particular, this paper examines four areas where the approach adopted in Canada is more favourable to plaintiffs than those adopted in the United States:

  1. Pleadings Requirements: Recognizing that conspiracies are secretive in nature, Canadian courts have avoided setting unrealistically high requirements for pleadings in a price-fixing conspiracy case. In assessing the adequacy of pleadings, the Canadian courts will consider whether the requisite elements of the claim are set out and whether the pleading gives defendants notice of the case that they must meet.
  2. Certification Requirements: Unlike the United States, in Canada, the common issues do not have to “predominate” over the individual issues. It is sufficient that resolution of the common issues substantially advances class members’ claims.
  3. Evidentiary Requirements at Certification: The Canadian courts have kept the certification motion as a “screening” mechanism and have avoided engaging the merits of the action or weighing expert evidence. Recent authority in the United States suggests that U.S. courts (at least those in the Third Circuit) may now be tasked with the responsibility of resolving all factual or legal disputes relevant to class certification, even if they overlap with the merits, and must weigh conflicting expert evidence. This will only serve to increase the cost, complexity and duration of the certification motion.
  4. Claims by Indirect Purchasers: There is nothing in Canadian law to preclude indirect purchasers from recovering their losses. Indeed, the Ontario court has commented on the preferability of resolving the claims of all levels of purchasers in a single proceeding. In the United States, there is a fractured system of redress, with direct purchasers pursuing federal law claims and indirect purchasers, in some but not all states, pursuing their state law claims.
  5. While claims are in some ways easier for plaintiffs to advance in Canada, there are also important benefits for defendants:
  1. No treble damages – interest and costs: Canadian plaintiffs are entitled to recover only their actual damages, plus prejudgment interest and “costs”. Costs are measured in the English style and are some portion of the actual fees and expenses incurred by counsel in the litigation. The ability to recover costs is a positive attribute for plaintiffs in a meritorious case, but also protects defendants as it creates a disincentive where the merits are dubious, and an ability to recover some of the expense incurred where cases are defended successfully.
  2. No pre-certification discovery: Typically, defendants are not obligated to provide documentary or oral discovery until after a class is certified. This reduces the legal costs at least during the early stages of the litigation, and if a class is not certified or a settlement is reached, discovery is never conducted.
  3. Global settlements: Because a class will typically be comprised of all purchasers in the stream of commerce, defendants who wish to resolve their liability can do so by negotiating with a single counsel and for a single payment which gets divided amongst the different class members in a process which largely does not involve defendants.

Pleadings requirement

In Canada, a pleading will only be struck where it is “plain and obvious” that the statement of claim does not disclose a reasonable cause of action.[1]  Recognizing the secretive nature of price-fixing conspiracies, the Canadian courts have adopted a generous approach when assessing the adequacy of pleadings.  For example, in Chadha v. Bayer Inc.,[2] the court refused the defendants’ motion to strike the statement of claim for failing to disclose a reasonable cause of action despite the “very general” nature of the allegations:

The claim appears to be novel, but given the overall purpose and object of the Competition Act to discourage anti-competitive practices and to protect the public from such practices, it is my view that it cannot be said with the degree of certainty necessary at this stage of the proceeding that a party in the position of these plaintiffs has no right of action.

Stone Paradise Inc. v. Bayer Inc.[3] also refused the defendants’ motion to strike.  The court held “a reasonable cause of action is disclosed, the constituent elements of the tort having been set out.”  The court also refused the defendants’ motions for particulars, noting that the details of the alleged conspiracy would be within the knowledge of the defendants and largely unavailable to the plaintiffs.  To require greater particulars would be “oppressive and unfair to the plaintiff”.  The statement of claim provides the defendants with adequate particulars to understand “at least in broad strokes, what the plaintiff’s case is about.”

In the United States, the 2007 U.S. Supreme Court decision in Bell Atlantic Corp. v. Twombley[4] set a new heightened standard for pleadings.  The plaintiffs in that case alleged that the defendants conspired to restrain trade by inflating charges for telephone and internet services in “parallel conduct”.  The plaintiffs alleged that the conduct arose from an agreement between the defendants.  The defendants moved to dismiss.  The Supreme Court began by stating the Conley v. Gibson[5] requirement that a pleading “give the defendant fair notice of what the … claim is and the grounds upon which it rests.”  The “grounds” require “more than labels and conclusions, and a formulaic recitation of the elements of the cause of action will not do.”[6]  To state a claim under §1 of the Sherman Act, which prohibits unlawful agreements to restrain trade, the plaintiffs must provide “plausible grounds” to infer an agreement.  This calls for “enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement”.  An allegation of “parallel conduct and a bare assertion of conspiracy will not suffice.”[7]

The Twombley decision stems, at least in part, from concerns about the cost of discovery in an antitrust action: “it is only by taking care to require allegations that reach the level suggesting conspiracy that we can hope to avoid the potentially enormous expense of discovery in cases with no reasonably founded hope that the [discovery] process will reveal relevant evidence to support a §1 claim.”[8]

 

In a strongly worded dissent, Justice Stevens states that the majority’s concerns about discovery costs are better addressed through careful case management, rather than more stringent pleading requirements.[9]  Justice Stevens cited numerous cases holding that pleadings in an antitrust case should be viewed liberally because the relevant information is largely in the hands of the defendants.[10]

Twombley explicitly rejected a blanket requirement of heightened pleadings.[11]  As such, the decision has been interpreted as “not requiring a universal standard of heightened fact pleading, but . . . instead requiring a flexible ‘plausibility standard,’ which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible.”[12]  Since Twombley was decided, U.S. courts have adopted a more stringent approach towards antitrust pleadings, requiring plaintiffs to provide particulars about the role of each defendant.  For example, in In re Elevator Antitrust Litigation,[13] it was not enough that the plaintiffs pleaded that the defendants:

 

(a) Participated in meetings in the United States and Europe to discuss pricing and market divisions; (b) Agreed to fix prices for elevators and services; (c) Rigged bids for sales and maintenance; (d) Exchanged price quotes; (e) Allocated markets for sales and maintenance; (f) “Collusively” required customers to enter long-term maintenance contracts; and (g) Collectively took actions to drive independent repair companies out of business.[14]

The Second Circuit, quoting the district court, held that the complaint “enumerat[ed] ‘basically every type of conspiratorial activity that one could imagine. . . . The list is in entirely general terms without any specification of any particular activities by any particular defendant[; it] is nothing more than a list of theoretical possibilities, which one could postulate without knowing any facts whatever.’ ”[15]

Benefits of the Canadian Approach

Recognizing the secretive nature of cartel cases and the fact that the information is in the hands of the defendants, Canadian courts have adopted a realistic pleadings standard for plaintiffs that does not require plaintiffs to provide overly detailed particulars of the alleged conspiracy.

On the other hand, the U.S. courts have set a standard that will be difficult, if not impossible, for plaintiffs to meet in many cases, considering that, at the pleadings stage, plaintiffs have little access to information about the alleged cartel.  Moreover, the Twombley decision will undoubtedly create a practice of extensive pre-certification motions, delaying plaintiffs’ ability to pursue their claims on the merits.

Certification requirements

In Canada, in order to meet the certification requirements, plaintiffs must show, among other things, that claims of the class members raise common issues and that a class proceeding would be the preferable procedure for the resolution of the common issues.  In Markson v. MBNA Canada Bank,[16] the Ontario Court of Appeal summarized the principles that govern the preferable procedure analysis:

(1). The preferability inquiry should be conducted through the lens of the three principle advantages of a class proceeding: judicial economy, access to justice and behaviour modification;

(2). “Preferable” is to be construed broadly and is meant to capture the two ideas of whether a class proceeding would be a fair, efficient and manageable method of advancing the claim and whether a class proceeding would be preferable to other procedures such as joinder, test cases, consolidation and other means of resolving the dispute; and,

(3). The preferability determination must be made by looking at the common issues in context, meaning, the importance of the common issues must be taken into account in relation to the claims as a whole.[17]

The preferability inquiry must be considered in light of the importance of the common issues in relation to the claim as a whole.  While the common issues cannot be “negligible in relation to the individual issues”, the preferability requirement can be met even where there are substantial individual issues remaining to be litigated.[18]  As the Ontario Court of Appeal noted in Cloud v. Canada (Attorney General),[19] the drafters of the CPA specifically rejected the requirement that the common issues predominate over the individual issues in order for the class action to be the preferable procedure.  “The critical question is whether, viewing the common issues in the scope of the entire claim, their resolution will significantly advance the action.”[20]

In the United States meanwhile, plaintiffs must show that that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.  In satisfying this requirement, plaintiffs must show that common proof will “predominate at trial”.[21]  The common issues must “constitute a significant part of the individual cases.”[22]

Benefits of the Canadian Approach

The predominance requirement in the U.S. makes certification more difficult for plaintiffs, requiring sophisticated evidence on common harm amongst class members.  The Canadian approach is more flexible and recognizes the benefits of using a class proceeding to resolve the common issues, even if there remain significant individual issues.  After resolution of the common issues, assuming success for the plaintiffs, streamlined procedures can be used to resolve the individual issues.[23]

Evidentiary  burden at the Certification stage

General Requirements

  • In Canada, the courts have recognized that class proceeding legislation relates to procedure only. Accordingly, a certification motion does not entail an assessment of the merits of the case and the evidentiary burden is not onerous. Indeed, at the certification motion, the “court is ill-equipped to resolve conflicts in the evidence or to engage in finely calibrated assessments of evidentiary weight.  What it must find is some basis in fact for the certification requirement in issue.”[24]  It has been held that, at the certification stage, the court should not engage in resolving conflicts in evidence or in an evaluation of the strengths or weaknesses of a party’s evidence:

Other than being satisfied that there is “some evidence” to support a party’s assertions, the certification judge should not engage in a weighing of competing evidence. To do so would not only embark on a preliminary merits review, it would also ignore the recognized reality that a motion is generally an unsuitable forum in which to make such evaluations.[25]

This low evidentiary threshold is in keeping with the fact that in Canada discovery does not occur until after class certification.

Class-Wide Harm and Aggregate Damages

In order to establish a cause of action in a price-fixing conspiracy case whether in tort or pursuant to the Competition Act,[26] plaintiffs must establish proof of actual loss or damage.  After setting seemingly high standards for establishing fact of loss on a class-wide basis in Chadha v. Bayer,[27] recent Ontario decisions have adopted a more flexible approach.

In Chadha, the Court of Appeal adopted the evidentiary thresholds established by a U.S. court in In Re Linerboard Antitrust Litigation,[28] notwithstanding that the expert opinion in Linerboard was obtained only with the benefit of extensive defendant discovery evidence, including detailed sales data produced by the defendants in advance of certification, evidence not available pre-certification under the Ontario Rules of Civil Procedure.[29]

As summarized by the court in Chadha, in the U.S. Linerboard case, the court held that loss could be proven on a common basis for all class members using two types of evidence.  The first type of evidence was expert evidence regarding the presumed common impact of price-fixing.  This evidence showed that the price of linerboard was higher than it would have been under competitive conditions. The second type of evidence was “expert empirical investigations”. The plaintiffs’ experts testified that advanced economic models could be used to establish a class-wide impact and supported their opinion with “charts, studies, company records, industry data and articles from leading trade publications”.

In Chadha, the Court of Appeal held that the plaintiffs’ expert had not satisfied the evidentiary thresholds established in Linerboard.  The expert assumed the pass through of the illegal price increase, but did not present a methodology to establish pass through or present any evidence explaining how the pass through and other factors affected the price of new homes.

The Ontario Court of Appeal’s decision in Markson v. MBNA Bank Canada[30] provides a simple and more realistic mechanism for establishing loss on a class-wide basis.  Markson involved an alleged breach of section 347 of the Criminal Code Criminal Code, R.S.C., 1985, c. C-46 (illegal interest rates).  Examining each transaction individually would have been prohibitively expensive.  If this was required, the result would be to allow the allegedly illegal conduct of the defendant to continue and to leave the defendant’s customers without compensation for the previous violations.  The essence of the question before the Court of Appeal was whether a class proceeding is appropriate where all members of the class are at risk of being charged a criminal interest rate and thus, entitled to declarative and injunctive relief, but only some of the members were actually harmed and thus entitled to damages and restitution.

The plaintiffs sought to rely on the aggregate damages provisions of the Ontario Class Proceeding Act, 1992:

  1. (1) For the purposes of determining issues relating to the amount or distribution of a monetary award under this Act, the court may admit as evidence statistical information that would not otherwise be admissible as evidence, including information derived from sampling, if the information was compiled in accordance with principles that are generally accepted by experts in the field of statistics.
  2. (1)  The court may determine the aggregate or a part of a defendant’s liability to class members and give judgment accordingly where,

(a)   monetary relief is claimed on behalf of some or all class members;

(b)   no questions of fact or law other than those relating to the assessment of monetary relief remain to be determined in order to establish the amount of the defendant’s monetary liability; and

(c)   the aggregate or a part of the defendant’s liability to some or all class members can reasonably be determined without proof by individual class members.

(2)  The court may order that all or a part of an award under subsection (1) be applied so that some or all individual class members share in the award on an average or proportional basis.

(3)  In deciding whether to make an order under subsection (2), the court shall consider whether it would be impractical or inefficient to identify the class members entitled to share in the award or to determine the exact shares that should be allocated to individual class members.

The Court of Appeal considered whether the plaintiffs had satisfied the requirements of section 24.  Conditions (a) and (c) posed no difficulty.  Monetary relief was claimed on behalf of the class and statistical sampling could be used to determine the aggregate or part of the defendant’s liability without proof of individual claims.[31]

The analysis with respect to condition (b) was more complicated.  The defendant submitted that liability would turn on individual assessments and therefore resolution of the common issues concerning the alleged breach of s. 347 and breach of contract could not establish its liability to any particular class member.  The Court of Appeal rejected this notion, holding that “If the defendant is correct, the kind of action sought to be pursued in this case will almost never be capable of certification.  Large institutions allegedly receiving large amounts of illegal profits from millions of small transactions will effectively be immunized from suit.”[32]

  • The Court of Appeal held that condition (b) had to be interpreted in light of section 24(3):

Section 24(3) provides, in part, that, “In deciding whether to make an order under subsection (2), the court shall consider whether it would be impractical or inefficient to identify the class members entitled to share in the award”.  The subsection therefore contemplates that an aggregate award will be appropriate notwithstanding that identifying the individual class members entitled to damages and determining the amount cannot be done except on a case-by-case basis, which may be impractical or inefficient.  Condition (b) must be interpreted accordingly.  In my view, condition (b) is satisfied where potential liability can be established on a class-wide basis, but entitlement to monetary relief may depend on individual assessments.  Or, in the words of s. 24(1)(b), where the only questions of fact or law that remain to be determined concern assessment of monetary relief. (emphasis added)[33]

Importantly, Markson held that only potential liability had to be established on a class-wide basis in order to satisfy the conditions of s. 24:

In the context of this case, if the plaintiff can establish that the defendant administered its cash advances in a manner that violated s. 347 and/or breached its contract with its customers, it will have established potential liability on a class-wide basis.  Each member of the class would be entitled to declaratory and injunctive relief.  The only matter remaining would be the application of the decision on the common issues to the specific account activity of each class member to determine that class member’s entitlement to monetary relief.  Section 23 can be used to calculate the global damages figure. Section 24 can be used to find a way to distribute the aggregate sum to class members.  It may be that in the result some class members who did not actually suffer damage will receive a share of the award.  However, that is exactly the result contemplated by s. 24(2) and (3) because “it would be impractical or inefficient to identify the class members entitled to share in the award”.[34]

Cassano v. Toronto-Dominion Bank,[35] in considering whether the conditions to section 24 were satisfied, similarly held that a finding that there was a breach of contract would make all such fees improper and there would be no “questions of fact or law other than those relating to the assessment of monetary relief” remaining to be determined.  The only assessment necessary would be to quantify the amount of the fees charged.[36]

Lee Valley Tools Ltd. v. Canada Post Corporation,[37] another case dealing with unauthorized fees, followed Markson and Cassano holding that potential liability would be established if there was a finding that the fees were improper:

In Markson, the Court of Appeal held that the condition in section 24(1)(b) is satisfied where potential liability can be established on a class-wide basis, but entitlement to monetary relief may depend on individual assessments. Here, if there were a finding that the shipping charges were in violation of the Act, all such fees would be improper and the only remaining question would be the assessment of monetary relief. This satisfies s. 24(1)(b).[38]

The recent decision of the Ontario Divisional Court in 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corporation,[39] a case based on price maintenance, the tort of conspiracy and breach of contract, adopted a pragmatic approach to class-wide loss and aggregate damages.  First, the Divisional Court held that the common issues and preferable procedure requirements would be satisfied even if proof of loss could not be established on a class-wide basis.[40]  Second, the circumstances – including the homogeneous relationships between the class members and defendants, and the commonality of the products purchased, the prices the products were purchased at and the underlying agreements – provide some basis in fact that proof of loss is a common issue.  If the plaintiffs establish there was an illegal overcharge, the fact of loss must be common to all class members.[41]  Third, in assessing the expert’s proposed methodology for calculating aggregate damages, the Divisional Court held that “[t]he 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.”[42]  Fourth, noting that the plaintiffs were seeking declaratory relief and that liability for breach of the Competition Act and breach of contract are common issues, the Divisional Court held that the plaintiffs were entitled to rely on the aggregate damages provisions.[43]

American Approach

The low evidentiary burden in Canada is in sharp contrast with the recent United States Court of Appeal, Third Circuit, decision in In re: Hydrogen Peroxide Antitrust Litigation.[44]  The Court of Appeal overturned the certification judge’s decision and remanded the matter for re-hearing, holding that the certification judge erred by not weighing the defence expert opinion against the plaintiff’s expert opinion.  To what extent this decision will be followed by other courts is not yet clear, but a strict reading of the case clearly changes the U.S. certification landscape.

The Court of Appeal made three key findings about the certification requirements:

First, the decision to certify a class calls for findings by the court, not merely a ‘threshold showing’ by a party, that each requirement of Rule 23 is met.  Factual determinations supporting Rule 23 findings must be made by a preponderance of the evidence.  Second, the court must resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits – including disputes touching on elements of the cause of action.  Third, the court’s obligation to consider all relevant evidence and arguments extends to expert testimony, whether offered by a party seeking certification or a party opposing it.[45]

The Court of Appeal held that “[w]eighing conflicting expert testimony at the certification stage is not only permissible; it may be integral to the rigorous analysis Rule 23 demands”.  The Court of Appeal further held that “[r]esolving expert disputes in order to determine whether a class certification require has been met is always a task for the court – no matter whether a dispute might appear to implicate the ‘credibility’ of one or more experts, a matter resembling those usually reserved for a trier of fact.”[46]

Without overtly overruling the Bogosian shortcut, the Court of Appeal held that “[a]pplying a presumption of impact based solely on an unadorned allegation of price-fixing would appear to conflict with the 2003 amendments to Rule 23, which emphasize the need for a careful, fact-based approach, informed, if necessary, by discovery.”[47]

The Court of Appeal’s decision seems to be driven, at least in part, by concerns that class certification would force a defendant to settle weak claims instead of incurring the costs of defending the action to trial.[48]  The Court of Appeal’s decision has already received considerable commentary.  Commentators have expressed opinions that the decision will have practical consequences on the certification hearing.  First, given the increased rigor in which certification motions will be evaluated, the duration and costs of the certification hearing will undoubtedly increase.  Second, given the decision’s emphasis on the need to weigh competing expert opinions, parties will devote more time and money on expert witnesses at the certification stage and it is possible that live evidence will be given at the certification hearing.  Third, in order to provide the expert opinions required, parties will be seeking greater pre-certification discovery.  Fourth, plaintiffs will likely be more careful in choosing the cases that they pursue and may pursue a narrower class definition (to reduce the chance of losing at certification).[49]  These potential results weigh heavily against access to justice and effectively turn certification into a mini-trial.  The use of private litigation to complement regulatory action in the antitrust field will be reduced.

Benefits of the Canadian Approach

The low evidentiary burden at certification and the delay of discovery until after certification help to promote access to justice and keep costs of pursuing a case to certification more reasonable.  As it stands, considerable resources are required to pursue a case to the certification stage.  Increasing this burden on plaintiffs would reduce the number of cases brought and the number of law firms capable of financing litigation of this sort.  The courts have recognized that the objectives of the CPA – judicial economy, access to justice and behaviour modification – are dependent, in part, upon counsel’s willingness to take on class proceedings.[50]

While the main purposes of the class proceeding legislation are access to justice, judicial economy, and behaviour modification, another underlying policy “is to reach these goals in a way that is fair to defendants who are exposed to the aggregate claims.”[51]  In this regard, certification is “intended to screen claims… at least in part to protect the defendant from being unjustifiably embroiled in complex and costly litigation.”[52]  Where a defendant had relatively little involvement in the alleged wrongdoing, the class procedure legislation provides “numerous tools to the case management judge to manage the process to address some of this concern.”[53]  Increasing the evidentiary requirements at the certification stage or changing the rules to provide for pre-certification discovery would only drive up the expenses to both defendants and plaintiffs in hearing certification.

Under the American approach, both plaintiffs and defendants must incur enormous costs in pursuing the case to certification.  This will only be exacerbated (at least in the Third Circuit) by the recent Hydrogen Peroxide decision.  A more streamlined and cost-effective approach is more fitting with the purpose of the certification hearing (to screen claims) and the underlying purposes of class action legislation, access to justice, judicial economy and behaviour modification.

Claims by Indirect Purchasers

  • At present, there is nothing in Canadian law to prevent both direct and indirect purchasers from seeking recovery in a price-fixing conspiracy case. The Canadian courts have been willing, at least in the settlement context, to allow the claims of indirect purchasers to be pursued in tandem with the claims of direct purchasers.
  • Contested competition law cases have, to date, received relatively little judicial comment in Canada. While numerous Competition Act class actions have been commenced, only a small number of these cases have proceeded to a contested certification motion. In the few cases that have proceeded to certification, the results have been mixed. In the cases denying certification, the class has been comprised entirely or almost entirely of indirect purchasers, and the quality of the evidentiary records has been called into question.  In each case, the courts found that the experts’ conclusions were not supported by the necessary industry analysis or empirical evidence.  In two extreme examples, both of which were price maintenance cases, the court was asked to certify a class based solely on conclusions contained in newspaper articles.[54]

Availability of the Passing-On Defence

In the United States, it is well settled that the passing on defence is not a valid defence in law.  In Hanover Shoe v. United Shoe Machinery,[55] the U.S. Supreme Court rejected the defence, subject to a narrow exception for instances where the plaintiff has a pre-existing “cost-plus” contract.  In that case, the plaintiff brought a claim against the defendant for its alleged monopolization of the shoe manufacturing industry in violation of § 2 of the Sherman Act.  The defendant sought to limit the general principle that the victim of an overcharge is damaged to the extent of the overcharge.  The defendant argued that the plaintiff’s recovery should be limited to the extent that he was able to pass on his losses to his customers by charging a higher price.

The Supreme Court rejected this argument because of the difficulties in proving that the losses had, in fact, been passed on.  Also, central to the Supreme Court’s decision was the concern that allowing the passing on defence would undermine the deterrence objective of antitrust litigation, in that indirect purchasers would have insufficient incentive to bring a claim:

In addition, if buyers are subjected to the passing-on defense, those who buy from them would also have to meet the challenge that they passed on the higher price to their customers. These ultimate consumers, in today’s case the buyers of single pairs of shoes, would have only a tiny stake in a lawsuit and little interest in attempting a class action. In consequence, those who violate the antitrust laws by price fixing or monopolizing would retain the fruits of their illegality because no one was available who would bring suit against them. Treble-damage actions, the importance of which the Court has many times emphasized, would be substantially reduced in effectiveness.

  • In Canada, the passing on defence has recently come before the Supreme Court of Canada on several occasions, albeit not within the context of a price-fixing conspiracy case.[56] In its most recent decision on the issue, Kingstreet Investments Ltd. v. New Brunswick (Finance), the Supreme Court of Canada rejected the defence in its entirety.
  • The Supreme Court of Canada first considered the passing on defence in Air Canada v. British Columbia.[57] In Air Canada, the Supreme Court considered whether the plaintiff was entitled to damages in the amount of gasoline taxes paid by them under an ultra vires The Supreme Court took a seemingly results-driven approach, holding that the passing on defence could be applied in the circumstances to protect the treasury.
  • The Supreme Court of Canada revisited the passing on defence in British Columbia v. Canadian Forest Products Ltd.[58] The majority held that the passing on defence did not arise on the facts and did not address the validity of the defence in Canadian law. Nevertheless, the majority commented that it “is not generally open to a wrongdoer to dispute the existence of a loss on the basis it has been ‘passed on’ by the plaintiff.  Such an argument would require the court to engage in ‘the endless and futility of the effort to follow every transaction to its ultimate result'”.[59]
  • In a strong dissenting opinion, Lebel J. concluded that the passing on defence was not a valid defence at law. Lebel J. expressed concerns that to accept the defence in the law of tort, would make it more burdensome for plaintiffs to recover. Plaintiffs would not only have to prove damages, but would also that they did not engage in any other business activity that might offset that loss.  Every commercial entity could be accused of passing on all or part of any damages suffered by it, by its own rates or charges to its customers. Ultimately, the passing on defence would “result in an argument that no damages are ever recoverable in commercial litigation because anyone who claimed to have suffered damages but was still solvent had obviously found a way to pass the loss on”.[60]
  • The validity of the passing on defence was recently put to rest by the Supreme Court of Canada in Kingstreet Investments Ltd. v. New Brunswick (Finance).[61] Although this case was framed in restitution and dealt with whether monies paid pursuant to an ultra vires statute were recoverable, the general comments made by the court are applicable to a wide variety cases, including those relating to anticompetitive behaviour. Writing for the majority, Bastarache J. observed that the passing on defence is economically misconceived and has created serious difficulties of proof.[62]
  • Notwithstanding these Supreme Court of Canada decisions, defendants continue to argue pass-on in the price-fixing context. Canadian courts have not yet addressed the validity of the pass-on defence in the price-fixing context, but have indicated that the availability of the defence is not relevant at the certification stage in assessing the plaintiff’s ability to establish fact of harm. The Ontario court, in Axiom Plastics Inc. v. E.I. DuPont Canada Co.,[63] held that the “possibility that the defence of passing on might prevail at trial does not mean that there cannot be some basis in fact for finding that class members suffered loss.”
  • Notably, the Antitrust Modernization Commission in its report commissioned for the President and Congress of the United States also considered pass-on irrelevant at the certification stage: “the legislation should specify that courts should certify direct purchaser classes without regard to whether the injury alleged was passed on… Thus, the degree of pass on will be an issue only at trial, not at the class certification stage”.

Ability to Pursue Indirect Purchaser Claims

The ultimate impact of the passing on defence in Canadian price-fixing cartel cases is not yet clear. Indirect purchasers can recover damages in a cartel case, and how that would be impacted by a clear finding that no pass-on defence exists is not clear. At present, it is common practice for plaintiffs to pursue recovery for all levels of purchasers.

In the United States, the Supreme Court in Illinois Brick Co. v. Illinois,[64] held that because Hanover Shoe made the passing on defence unavailable to defendants in antitrust claims, pass on cannot be argued offensively by indirect purchasers seeking to recover damages in the Federal Court.  The court expressed concerns that the defendants would be subject to duplicative recovery and that it would take “massive efforts to apportion the recovery among all potential plaintiffs that could have absorbed part of the overcharge—from direct purchasers to middlemen to ultimate consumers.”

Since Illinois Brick was decided, more than 35 states through legislative reform or judicial decisions have allowed indirect purchasers to recover damages under state antitrust law.  The result is that direct and indirect purchaser cases are generally pursued separately, with direct purchaser cases pursued in federal courts and indirect purchaser cases pursued at the state level.

  • It has recently been recognized in the U.S. that the approach under Hanover Shoe and Illinois Brick is flawed and “leaves many of those injured by antitrust violations without compensation”. The Antitrust Modernization Commission recommends that Congress overrule the Supreme Court’s decisions in Illinois Brick and Hanover Shoe, to the “extent necessary to allow both direct and indirect purchasers to recover for their injuries”. Specifically, the Antitrust Modernization Commission states:

Legislatively overruling Illinois Brick and Hanover Shoe will allow a limitation of the defendants’ liability to treble the overcharges suffered by the direct purchasers as a result of the initial overcharge. These damages should be allocated among the different claimants, whether direct or indirect purchasers, according to the evidence regarding their actual damages.

To be sure, determinations of how to allocate damages among direct and indirect purchasers will often involve complex economic assessments of the extent to which each purchaser in the chain of distribution has suffered harm that can be traced to the overcharge. The federal courts have shown great ability to handle such complex economic issues, however, and they will develop rules and procedures to handle these issues. Consolidating all claims in a single proceeding will facilitate an appropriate allocation of relief among the claimants by the court. In addition, once all parties are before a single court, a global settlement becomes possible. Many of these disputes are likely to be settled; once liability and total damages are established, allocations of damages may often be determined by settlements among the claimants. Furthermore, limiting damages to the amount of the initial overcharge should streamline resolution of the litigation. Indeed, once the amount of overcharge has been determined, it may be possible to resolve the issues of how to allocate those damages among direct and indirect purchasers without the further involvement of the defendants.[65]

  • The approach advocated by the Antitrust Modernization Commission is consistent with that advocated by Canadian plaintiffs and endorsed by the Ontario court in Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd.,[66] a case involving claims by direct and indirect purchasers of various vitamins. In the context of a contested carriage motion, with one counsel team seeking to act for consumers only and another counsel team seeking to act for all purchasers, direct and indirect, the court held that Illinois Brick was “not relevant to the case at hand.” Section 36 of the Competition Act provides that “any person who has suffered loss or damage” can bring an action, “including it would seem, retail purchasers.”  The court further held that “upon a determination of the common issues, including the global damages with respect to a product, the plaintiffs would seek directions as to the appropriate manner and means of distribution amongst the class members.”  This distribution of damages would involve further economic analysis and it may be necessary to form subclasses at this stage so that the interests of claimants at any given level on the chain of distribution are properly represented.  Until determination of the common issues, including the assessment of global damages for each product, there is no divergence of interests among class members and through the “common pursuit of the common issues, all class members are more likely to maximize the quantification of their overall, global damages and achieve their ultimate, shared goal of a fair and just resolution of the claims of all class members.”

The Court of Appeal, in Chadha, did not take Illinois Brick as foreclosing the possibility of indirect purchasers advancing claims.  However, the Court of Appeal held that the motions judge did not adequately address the underlying reasoning in Illinois Brick in disallowing indirect claims, namely the complexity of proving the extent to which the illegal overcharge was passed through the chain of distribution.

Since these cases were decided, many price-fixing class actions have been certified in Canada in the context of negotiated settlements.  In each of the settled cases, all purchasers of the price-fixed product, including manufacturers, distributors, intermediaries and consumers, were included in the class.[67]

Benefits of the Canadian Approach

Although there is insufficient case law to say definitively how Canadian courts will handle indirect purchaser claims, there is an indication that they will adopt a system like that promoted by plaintiffs and endorsed in Vitapharm.  There are a number of benefits to proceeding in this manner:

  • Avoidance of multiplicity of proceedings. Multiple proceedings create a host of problems: parties, in particular, defendants, are forced to undergo duplicative and wasteful litigation; judicial resources are wasted; inconsistent findings are made; and there is potential for duplicative discovery. In addition to litigation costs, defendants are also at risk of paying multiple sets of damages.
  • Ensuring recovery by those injured. Allowing both direct and indirect purchasers to claim through a single proceeding will ensure that all those injured by the unlawful conspiracy are compensated for their losses. Relying on expert evidence, damages can be allocated based on the extent to which the illegal overcharge was passed through the chain of distribution. While this will undoubtedly be a difficult task, the court is commonly asked to consider expert economic evidence and victims of an illegal cartel should not be denied recovery simply because calculating damages is difficult.
  • Avoidance of a windfall to direct purchasers. In certain circumstances, direct purchasers will only absorb a small part of the illegal overcharge. For example, where the direct purchaser is a distributor who re-sells the price-fixed product without any further processing, the direct purchaser will be able to pass-on much of the overcharge to his, her or its customers. Allowing these direct purchasers to claim the full overcharge results in a windfall for the direct purchasers while leaving those persons injured by the alleged conspiracy entirely without compensation.
  • Encourages settlement. Defendants can resolve all claims as part of a single global settlement, negotiating with a single set of counsel and seeking court approval from a single court.In a white paper published in early 2008, the Commission of the European Communities recommends that defendants be allowed to invoke the passing-on defence. However, recognizing the fact that indirect purchasers at or near the end of the distribution chain often absorb most of the overcharge and the difficulties in proving that the overcharge was passed on, the Commission seeks to make it easier for indirect purchasers to claim by allowing them to rely on a rebuttable presumption that all of the illegal overcharge was passed on to them. To the extent that different levels of purchasers claim in joint, parallel or consecutive actions, the courts “are encouraged to make full use of all mechanisms at their disposal under national, Community and international law in order to avoid under- and over-compensation of the harm caused by an infringement of competition law.” [68]
  • Interestingly, the all-inclusive model advocated by Canadian plaintiffs is the very same model being recommended by the U.S. Antitrust Modernization Committee, as discussed above, and is similar to the model being recommended by the European Commission.

Allowing direct and indirect purchasers to assert claims in a single consolidated action ensures justice and is advantageous for both plaintiffs and defendants – plaintiffs can pursue the full value of any illegal overcharge through an aggregate damages assessment and are compensated for their actual injuries, while defendants are not exposed to the risk of multiple judgments or duplicative damages.  The aggregate damages assessment can be allocated to plaintiffs based on the extent to which the illegal overcharge was passed through the chain of distribution.

Conclusion

In many ways, Canada and the United States are moving in different directions in terms of the ability of plaintiffs to recover for antitrust damages, with Canada becoming the more plaintiff “friendly” jurisdiction.

In Canada, the courts are adopting a more realistic approach to pleading and certification requirements.  At the certification hearing, the Canadian courts will not engage the merits of the action or weigh competing expert evidence.  Furthermore, the Canadian courts are moving towards a more flexible approach in terms of what is required at the certification stage to establish class-wide fact of harm – a task that has proven difficult for plaintiffs in the past.

Meanwhile, recent decisions in the United States have established seemingly unrealistic standards for plaintiffs to satisfy both in terms of pleadings and certification.  At the pleadings stage, plaintiffs are expected to provide details about the alleged conspiracy, notwithstanding that this information is solely in the hands of the defendants and that plaintiffs have no means of knowing this information in the absence of discovery or cooperation from a settling defendants.  The recent Hydrogen Peroxide will make it more difficult for plaintiffs to satisfy the certification requirements and will undoubtedly increase the costs of the certification hearing for both plaintiffs and defendants.

Claims by indirect purchasers may – depending on whether the recommendations of the Antitrust Modernization Committee are adopted – be the only area where the Canadian and American courts are moving in the same direction.  As it stands now, the approach used by Canadian plaintiffs in pursuing the claims of all levels of purchasers in a single proceeding is favourable to the fractured American system which requires duplicative cases to be brought at the federal and state levels.

 

[1] Hunt v. T & N plc, [1990] 2 S.C.R. 959.

[2] 1998 CarswellOnt 5225 (S.C.J.) at para. 5.

[3] [2005] O.J. No. 5657 (S.C.J.) at para. 9.

[4] 127 S. Ct. 1955 (2007).

[5] 355 U.S. 41 (1957).

[6] Trowbly, supra, note 5 at 1964-5.

[7] Ibid. at 1965-6.

[8] Ibid. at 1967 (internal quotations and citations omitted).

[9] Ibid. at 1975.

[10] Ibid. at 1983.

[11] Ibid. at 1973.

[12] Iqbal v. Hasty, 490 F.3d 143 at 157-58 (2d Cir. 2007) (emphasis in original).

[13] 205 F.3d 46 (2d. Cir. 2007).  See also: In Re: Air Cargo Shipping Services Antitrust Litigation, Report and Recommendations, September 28, 2008, MDL 06-1775.

[14] Ibid. at 50-51.

[15] Ibid.

[16] [2007] O.J. No. 1684 (C.A.).

[17] Ibid. at para. 69.

[18] Hollick v. Toronto (City), [2001] S.C.J. No. 67 at para. 30.

[19] (2004), 73 O.R. (3d) 401 (C.A.).

[20] Ibid. at paras. 75-76, 84.

[21] In Re Linerboard Antitrust Litigation, 203 F.R.D. 197 at 214 (E.D. Pa. 2001); affirmed 305 F.3d 145 (C.A.3 Pa. 2002).

[22] Chiang v. Veneman, 385 F.3d 256, 273 (3d Cir. 2004) (internal quotations omitted).

[23] See for example: Ontario Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 25.

[24] Cloud v. Canada (Attorney General) (2004), 73 O.R. (3d) 401 (C.A.) at para. 50

[25] Hague v. Liberty Mutual Insurance Co. [2004] O.J. No. 3057 (S.C.J.) at paras. 74-75

[26] R.S.C. 1985, c. C-34.

[27] [2003] O.J. No. 27 (C.A.).

[28] 203 F.R.D. 197 (E.D. Pa. 2001); affirmed 305 F.3d 145 (C.A.3 Pa. 2002).

[29] Chadha, supra note 28 at paras. 32-41.

[30] [2007] O.J. No. 1684 (C.A.) at para. 48.

[31] Ibid. at para. 45.

[32] Ibid. at para. 46.

[33] Ibid. at paras. 47-48

[34] Ibid. at para. 49 [emphasis added].

[35] [2007] O.J. No. 4406 (C.A.).

[36] Ibid. at para. 47.

[37] [2007] O.J. No. 4942 (S.C.J.).

[38] Ibid. at para. 40.

[39] (April 27, 2009), Toronto, D.C. 07/606 (Ont. Div. Ct.) [unreported].

[40] Ibid. at para. 141.

[41] Ibid. at para. 95.

[42] Ibid. at para. 102.

[43] Ibid. at para. 123.

[44] 552 F.3d 305.  The evidentiary standard has also been increased in other Circuits.  See for example: In re IPO Sec. Litig., 27 FRD 65, 73 (SDNY 2004).

[45] Ibid. at 307.

[46] Ibid. at 323-324.

[47] Ibid. at 326.

[48] Ibid. at 310.

[49] http://www.metrocorpcounsel.com/current.php?artType=view&EntryNo=9576 and http://www.abanet.org/antitrust/at-source/09/02/Feb09-Ripley2-26.pdf

[50] Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd., [2005] O.J. No. 1117 (S.C.J.) at paras. 59-61; Parsons v. Canadian Red Cross Society (2000), 49 O.R. (3d) 281 at 287 (S.C.J.); and Kranjcec v. Ontario 2006 CarswellOnt 5535 (S.C.J.) at para. 24.

[51] Lavier v. MyTravel Canada Holidays Inc., [2008] O.J. No. 2753 (S.C.J.).

[52] Robertson v. Thomson Corp. (1999), 43 O.R. (3d) 389 (Gen. Div.) at para. 4.

[53] Quizno’s, supra note 40 at para. 146.

[54] See for example: 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corp., [2008] O.J. No. 833 (S.C.J.) (certification denied); reversed (April 27, 2009), Toronto, D.C. 07/606 (Ont. Div. Ct.) [unreported] (certification granted); Axiom Plastics Inc. v. E.I. DuPont Canada Co., [2007] O.J. No. 3327 (S.C.J.), aff’d [2008] O.J. No. 1973 (Div. Ct.); Pro-Sys Consultants Ltd. v. Infineon Technologies AG, [2008] B.C.J. No. 831 (S.C.J); Chadha v. Bayer (1999), 45 O.R. (3d) 29 (Gen. Div.) (Certification granted), (2001), 54 O.R. (3d) 520 at 549 (Div. Ct.) (Certification denied), appeal dismissed [2003] O.J. No. 27 (C.A.), leave to appeal to S.C.C. denied; Price v. Panasonic Canada Inc., [2002] O.J. No. 2362 (S.C.J.); Harmegnies v. Toyota Canada, [2007] J.Q. No 1072 (S.C.); and Steele v. Toyota Canada Inc., [2008] B.C.J. No. 1496 (S.C.J.).

[55] 392 U.S. 481 (1968).

[56] See: Air Canada v. British Columbia, [1989] 1 S.C.R. 1161; British Columbia v. Canadian Forest Products Ltd., [2004] 2 S.C.R. 74; and Kingstreet Investments Ltd. v. New Brunswick (Finance), [2007] S.C.J. No. 1.

[57] [1989] 1 S.C.R. 1161 at para 78.

[58] [2004] 2 S.C.R. 74.

[59] Ibid. at para. 111 [citations omitted].

[60] Ibid. at para. 206.

[61] [2007] S.C.J. No. 1.

[62] Ibid. at paras. 44, 48, 51.

[63] [2007] O.J. No. 3327 (S.C.J.) at para. 131, aff’d [2008] O.J. No. 1973 (Div. Ct.).

[64] 431 U.S. 720 (1977).

[65] Antitrust Modernization Commission “Report and Recommendations” April 2, 2007 at 273 and 277.

[66] [2000] O.J. No. 4594 (S.C.J.).

[67] See for example: Alfresh Beverages Canada Corp. v. Hoechst AG et al., [2002] O.J. No. 79 (S.C.J.); La Cie McCormick Canada Co. v. Stone Container Corp. et al. (May 24, 2006), (Ont S.C.J.) [unreported]; Bona Foods Ltd. et al. v. Ajinomoto U.S.A., Inc. et al., [2004] O.J. No. 908 (S.C.J.); Vitapharm Canada Ltd. v. F Hoffmann-La Roche Ltd., [2005] O.J. No. 1118 (S.C.J.); Randall Klein Inc. v. Nan Ya Plastics Corp. et al. (June 29, 2005), (Ont. S.C.J.) [unreported]; Stone Paradise Inc. v. Bayer Inc. et al. (November 16, 2005), (Ont. S.C.J.) [unreported]; Luigi Del Guercio o/a Westown Shoe Clinic v. Bayer Inc. et al (November 16, 2005), (Ont. S.C.J.) [unreported]; and Luigi Del Guercio o/a Westown Shoe Clinic v. Bayer Inc. et al (May 30, 2006), (Ont. S.C.J.) [unreported].

[68] Commission of the European Communities, “White Paper on Damages actions for breach of the EC antitrust rules”, Brussels, 2.4.2008.

 

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