Canada: Preferability And Proposed Changes To Ontario's Class Action Legislation: Implications For Private Antitrust/Competition Enforcement

Since the Supreme Court of Canada's trilogy of decisions in Pro-Sys, Sun-Rype and Infineon, plaintiffs have had considerable success certifying private antitrust/competition class actions in Canada. The province of Ontario's proposed changes to its class action legislation may change that trend.

On December 9, 2019, the Ontario government introduced Bill 161, the Smarter and Stronger Justice Act, 2019. Bill 161 is omnibus legislation that includes proposed amendments to Ontario's Class Proceedings Act, 1993 (the "CPA"). Many of the proposed changes arise from recommendations made by the Law Commission of Ontario ("LCO") in its July 2019 Final Report on Class Actions.

The proposed changes to the CPA are both numerous and significant. If implemented, the changes will impact all types of class actions, including private class action enforcement under Canada's Competition Act (the "Act"). At a glance, the proposed changes would:

• amend the preferable procedure portion of the certification test (more on this below);
• streamline appeal routes arising from the certification decision;
• reform and expedite the carriage motion process;
• require the registration of class actions and create a database of all ongoing cases;
• provide a process for automatic dismissals for delay unless the plaintiffs file a certification motion within a year after the originating process is issued;
• create procedures for the multijurisdictional coordination of class actions with other provinces;
• encourage pre-certification preliminary motions that can dispense with the proceeding or narrow issues;
• require "plain language" in court-approved notices;
• explicitly provide for cy-près orders where it is impractical or impossible to directly compensate class members;
• strengthen the settlement approval process, including heightening evidentiary and reporting obligations; and
• require earlier notice to the Public Guardian and Trustee and the Office of the Children's Lawyer of cases affecting individuals that they represent.

Of these changes, the most significant would be to the preferable procedure portion of the certification test that currently requires plaintiffs to prove that a class action would be the "preferable procedure for the resolution of the common issues". Implications for antitrust/competition private enforcement are discussed more fully below.

I.  Preferable Procedure: New Superiority and Predominance Requirements

Currently, the preferability analysis under the CPA has two core components: even if there is an identifiable class whose claims raise common issues, those issues will not be determined through a class proceeding unless: (1) such a proceeding would be inherently fair, efficient and manageable; and (2) a class proceeding is better than other reasonably available procedures for obtaining redress for class members. The representative plaintiff bears the onus of demonstrating some basis in fact that a class action would be preferable to any other reasonably available means of resolving the class members' claims. However, if the defendant relies on a specific alternative to the class action, the defendant has the evidentiary burden of proving the viability of the alternative.

Plaintiffs would bear the burden to satisfy additional preferability requirements if the proposed changes are enacted. A class action would be a preferable procedure for the resolution of common issues only if, at a minimum:

• it is superior to all reasonably available means of determining the entitlement of the class members to relief or addressing the impugned conduct of the defendant, including, as applicable, a quasi-judicial or administrative proceeding, the case management of individual claims in a civil proceeding, or any remedial scheme or program outside of a proceeding; and
• the questions of fact or law common to the class members predominate over any questions affecting only individual class members.

Professor Jasminka Kalajdzic and Paul-Erik Veel helpfully discuss the implications of these changes to the preferability test in their respective blog posts. As they discuss, the proposed changes would introduce a superiority test and a predominance requirement similar to the US Federal Rule 23(b)(3).

With respect to the superiority test, the phrases "determining the entitlement of the class members to relief" and "addressing the impugned conduct of the defendant" seem to compel plaintiffs to demonstrate that a class action is preferable to resolve the class members' claims entirely, including ultimate relief for each class member.

The preferability requirement is generally met when the common issues form a substantial ingredient of the class members' claims even if individual issues trials or claims assessment processes are necessary to finally dispose of each class member's claim.  However, and as Professor Kalajdzic notes, the proposed enumerated list of "other reasonably available means", namely "a quasi-judicial or administrative proceeding, the case management of individual claims in a civil proceeding, or any remedial scheme or program outside of a proceeding" suggests that the onus is shifting entirely back to plaintiffs to prove that none of the other procedures are superior.

With respect to the predominance requirement, the phrase "questions of fact or law common to the class predominate over any questions affecting only individual class members" suggests that the number of common issues must predominate over any individual issues for the preferability requirement to be met.

If interpreted like US Federal Rule 23(b)(3), certification judges will engage in a rigorous assessment of whether common questions of law or fact predominate over individual questions. While jurisprudence arising from the predominance requirement under US Federal Rule 23(b)(3) is somewhat varied, certification judges consider whether there would be too many individual issues to be resolved notwithstanding that common issues may form a substantial ingredient of the class members' claims, rendering the class action impractical and unlikely to promote judicial economy.

As a practical matter, the proposed preferability test could cause future intended class actions with one or a few common issues (focused on liability) to not satisfy the certification test because individual issues focused on harm and damages outweigh the commonality. As discussed below, this is particularly relevant for competition class actions where the issues in dispute tend to focus on loss or damage allegedly suffered by class members and increasingly the ultimate relief of each class member – whether a direct, indirect and umbrella purchaser – rather than whether a violation of the Act has, in fact, taken place.

II.  Implications the New Preferability Requirements would have on Antitrust/Competition Class Action Enforcement

Section 36(1) of the Act provides a statutory right of action for damages to any person who has suffered loss or damage as a result of conduct contrary to Part VI of the Act (i.e. criminal offences under the Act). Class actions alleging conduct contrary to Part VI of the Act typically involve collusion (e.g., price-fixing, bid-rigging) and, to a lesser extent, criminal deceptive marketing practices.

A court may order a remedy under section 36(1) of the Act if a person proves, on a balance of probabilities, loss or damage suffered as a result of conduct contrary to any provision of Part VI of the Act. Compensable loss or damage under the Act is limited to single damages—namely, an amount equal to the loss or damage proved to have been suffered by that person, and any additional amount that the court may allow not exceeding the full cost to that person of any investigation in connection with the matter and of proceedings under section 36(1).

Accordingly, a prerequisite to recovery under section 36(1) is actual damage or loss suffered by the plaintiff, as well as a causal connection between the damage or loss suffered and the impugned conduct, regardless of the impugned conduct at issue. For example, the elements of a collusion offence are that competitors agreed to engage in certain impugned conduct, whether fixing prices, restricting output or allocating markets. However, for a private plaintiff to obtain damages for conduct underpinning these offences, the private plaintiff must prove that it suffered actual loss or damages, as well as a causal connection between the conduct underpinning the offence and the loss or damage claimed.

By way of further example, for the offence of false or misleading representations under the Act, it is not necessary to prove that a person was, in fact, misled or deceived in order to obtain a conviction. However, for a private plaintiff to obtain damages, the plaintiff must prove that it suffered actual loss or damage, as well as a causal connection between the false or misleading representation and the loss or damage claimed.

Recognizing the interconnection between public and private enforcement of competition laws in Canada, the Act permits a private plaintiff to use the "record of proceedings" in the criminal court in which the defendant was convicted of the offence as rebuttable proof that the defendant engaged in the impugned conduct. As many price-fixing class actions in Canada follow guilty pleas, plaintiffs are relieved from proving that the defendants committed an offence contrary to the Act, absent evidence to the contrary.

Having regard to the foregoing, liability is typically not an issue of focus in competition class actions. Liability typically preoccupies a limited number of common issues, such as (i) whether the defendants, or any of them, engaged in specified conduct contrary to a section under Part VI of the Act; and (ii) what is the period in which the conduct at issue took place. As noted, the "record of proceeding" typically addresses these common issues entirely or in part.

In contrast, and as demonstrated in many US antitrust class actions, commonality in respect of loss damage suffered and the predominance requirement presents unique and complex challenges for plaintiffs. It is not uncommon for economic models to fall far short of establishing that damages are capable of measurement on a class wide basis, including where proposed economic models do not provide a clearly defined list of variables and lack proof that data related to the proposed variables exist.

Class definitions in Canadian price-fixing class actions, particularly following the Supreme Court of Canada's recent decision in Godfrey, are vast and diverse, encompassing direct, indirect and now umbrella purchasers. There is no shortage of skepticism regarding the viability of economic methodologies seeking to establish that the alleged overcharges have been passed on to various levels in the distribution chain. There is also skepticism regarding methodologies offering a realistic prospect of establishing loss on a class-wide basis.

If it is established that there is a need for individual inquiries to determine loss or damage under section 36(1) of the Act and what ultimate relief each class member is entitled to, then loss or damage issues may be found to overwhelm questions common to the class. Further, if certification judges see fit to inquire into the merits of the case as part of the predominance analysis – which is not unprecedented in US antitrust class actions – proposed methodologies purporting to offer a realistic prospect of establishing loss on a class-wide basis may be subject to significant probative challenges. Having particular regard to these issues, plaintiffs may not be able to satisfy the proposed preferability requirements.

Of course, even if the proposed preferability requirements are implemented, they will be interpreted by Ontario's certification judges. There is no way to predict how these new changes would be interpreted and the outcome of those decisions. However, the proposed preferability requirements could be game changers in a province where plaintiffs have otherwise had considerable success certifying private antitrust/competition class actions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.