Canada: Developments In Price-Fixing Class Actions: Québec Court Of Appeal Authorizes Proposed Class Action On Behalf Of Indirect Purchasers

On November 16, 2011, the Québec Court of Appeal (the "QCA") rendered its decision in Option Consommateurs v. Infineon Technologies AG ("Infineon Technologies") authorizing a proposed price-fixing class action on behalf of Québec class members against foreign manufacturers of dynamic random access memory chips (or DRAM), a type of semiconductor memory chip found in many commonly-used electronic devices including computers, servers and cell phones.

Infineon Technologies is a potentially important decision in the area of competition class action litigation on behalf of indirect purchasers. "Direct purchasers" are those who purchased the product in question directly from those involved in the alleged anti-competitive conduct. "Indirect purchasers" are those who purchased the product from intermediaries in transactions subsequent to the direct purchase (e.g., consumers who purchased a product containing DRAM from retailers).

Class proceedings relating to DRAM were commenced in British Columbia, Ontario (the certification hearing in Ontario has not yet been scheduled) and Québec on behalf of both direct and indirect purchasers against foreign manufacturers based on the same alleged conspiracy. A motion for certification was heard first by the courts in British Columbia. In November 2009, the British Columbia Court of Appeal certified the proposed class action on behalf of residents of British Columbia and, in so-doing, departed from the approach taken in previous Canadian cases wherein the courts had denied certification of proposed indirect purchaser class actions on the basis of, among other factors, the difficulty of establishing loss or damage on a class-wide basis. Leave to appeal from the decision of the B.C. Court of Appeal was denied by the Supreme Court of Canada.

In May 2011, however, a different panel of the B.C. Court of Appeal rendered its decisions in the companion appeals of Pro-Sys Consultants Ltd. v. Microsoft ("Microsoft") and Sun-Rype Products Ltd. v. Archer Daniel Midland Co. ("Sun-Rype"). In those decisions, a majority of the B.C. Court of Appeal held that indirect purchaser class actions are not available in Canada as a matter of law. In sum, the majority held that indirect purchasers do not have a cause of action because the so-called "passing-on defence" (pursuant to which a defendant may avoid or reduce liability to customers by showing that the unlawful charge to its customers was passed on by those customers to others) is not available under Canadian law. Otherwise, defendants could face the impermissible prospect of double recovery (i.e., they could be liable to direct purchasers for 100 per cent of the overcharge they paid and could also be liable to indirect purchasers for whatever amount of the overcharge may have been passed on to them). The dissent rejected this analysis. The plaintiffs in Microsoft and Sun-Rype have sought leave to appeal to the Supreme Court of Canada.

In its November 16 decision authorizing the proposed class action on behalf of both direct and indirect purchasers, the QCA endorsed the dissenting opinion in Microsoft and Sun-Rype. Among other things, the QCA held that the defendants in Infineon Technologies did not face the risk of double recovery because the proposed class action seeks "a single aggregate loss notwithstanding the mix of direct and indirect purchasers in the class" and that the aggregate loss claimed by the class remains the same whether or not the overcharge was passed on from direct to indirect purchasers. The QCA also noted that while the evidentiary issues associated with proving "passing-on" to indirect consumers should not be underestimated, under Québec's class action authorization regime this is a matter to be addressed at trial, not at the authorization stage.

The judgment of the QCA in Infineon Technologies is also important with respect to its analysis of the international jurisdiction of the Québec courts. Despite the fact that the defendants did not have a place of business in Québec and that the alleged conspiracy did not take place in Québec, the QCA held that the Québec courts have territorial jurisdiction over the defendants. The QCA held that the contract, entered into online by the proposed representative plaintiff, a consumer domiciled in Québec, with a retailer for the purchase of a computer which contained DRAM, was deemed under the Consumer Protection Act (Québec) to have been entered into in the province of Québec. The QCA concluded that the proposed representative's alleged financial injury, "suffered on the occasion of concluding her contract", was "substantially suffered in Québec" (as opposed to financial damage that is merely "recorded" in Québec) and that this conferred jurisdiction on the Québec courts.

Given the conflicting decisions of the highest courts in British Columbia and Québec with respect to the availability of indirect purchaser class actions, it will be extremely interesting to follow developments in this area, including the leave to appeal decisions of the Supreme Court of Canada in the Microsoft and Sun-Rype cases which are widely expected to be issued before the new year.

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.

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