Canada: Supreme Court Of Canada To Consider Indirect Purchaser Rights In Price-Fixing Class Actions

On December 1, 2011, the Supreme Court of Canada granted leave to appeal from a pair of British Columbia Court of Appeal decisions that overturned orders certifying price-fixing claims as class actions. The two BC cases relate to allegations of conspiracies to increase the prices of high-fructose corn syrup (HFCS) and computer software.  The BC appeals were argued consecutively before the same panel of judges and the decisions were released concurrently. In both instances, the majority of the BC Court of Appeal held that persons who did not purchase products directly from a defendant, and instead purchased such products indirectly from a non-defendant further down the product distribution chain, do not have a cause of action against the defendants in relation to an alleged unlawful conspiracy to fix the price of the product.

The case of Sun-Rype Products Ltd. v Archer Daniels Midland Company (Sun-Rype)1 is a proposed class proceeding brought on behalf of direct and indirect purchasers of HFCS, a sweetener used in various food products, but primarily soft drinks.  The claim alleges that the defendants unlawfully conspired to fix the price of HFCS sold to direct purchasers and that some of the overcharge was passed through to indirect purchasers, including end consumers.

The proposed class proceeding of Pro-Sys Consultants Ltd. v Microsoft Corporation (Microsoft)2 was commenced on behalf of retail purchasers of computers installed with Microsoft operating systems and applications software. The action alleges that Microsoft engaged in unlawful anti-competitive behaviour in order to overcharge for its products.

Decision of the BC Court of Appeal

Reasons of the majority

Mr. Justice Lowry, for the majority in both cases, relied on recent Supreme Court of Canada jurisprudence in concluding that indirect purchasers of products alleged to be the subject of an unlawful overcharge do not have a cause of action for price-fixing.  In Kingstreet,3 a case concerning an unlawful tax, the Supreme Court of Canada had determined that a defendant cannot reduce its liability to those who paid an unlawful charge by establishing that some or all of it was "passed through" to others. In other words, and if applied to the price-fixing context, the defendant is liable to the direct payor of the unlawful charge (the direct purchaser) for 100% of that charge, regardless of any passing through to others (the indirect purchasers). Lowry J.A. reasoned that if the law does not recognize pass-through as a defence to a claim, logically the law cannot recognize pass-through as the basis for a claim. In the context of a price-fixing class action, this means that if direct purchasers are entitled to recover 100% of an unlawful overcharge they paid, regardless of any pass-through, it follows that indirect purchasers cannot claim against the defendant for any portion of the overcharge passed through to them, as that would result in double recovery. In short, because pass-through cannot be a "shield," it also cannot act as a "sword."4 

Lowry J.A. considered and rejected the finding of the motions judge in Sun-Rype (and endorsed by the dissent on appeal, as discussed below) that the problem of double recovery could be avoided through the class action procedure. The motions judge proposed a "top-down" approach to assessing damages, whereby the class action proceeds first with an assessment of the aggregate unlawful overcharge allegedly taken by the defendants; only after such aggregate assessment would the court be asked to determine how the aggregate amount should be distributed as damages among the direct and indirect purchasers, thus avoiding double recovery. Justice Lowry held that such an approach ignores the fact that, at law, the direct purchasers are entitled to 100% of any unlawful overcharge and the indirect purchasers have no claim for any overcharge that might have been passed through. Referring to recent Supreme Court of Canada jurisprudence,5 he held that the Class Proceedings Act is a procedural statute that can neither create nor modify a cause of action. The fact that the indirect purchasers' claims are being advanced in a class proceeding cannot alter the fact that those claims do not disclose a cause of action.  

Reasons of the dissent

Donald J.A., in dissent in both cases, would have dismissed the appeals. Justice Donald agreed with the majority that the defence of pass-though was not available and that the rule against double recovery is a "bedrock principle." However, he held that it did not necessarily follow that indirect purchasers had no cause of action based on pass-through. Justice Donald reasoned that the Supreme Court of Canada's rejection of the pass-through defence is based on considerations of proximity which would not apply to pass-through as the basis for a claim. He held that it was not plain and obvious that indirect purchaser claims based on pass-through did not disclose a cause of action. Justice Donald further relied on the flexibility of the class proceedings legislation and endorsed the top-down approach to assessing damages suggested by the motions judge in Sun-Rype. Donald J.A. concluded that, in employing such an approach, there is no real possibility of double recovery as the total amount will never exceed the amount of the overcharge, and therefore there is no justification for barring indirect purchasers from making a claim.

An opportunity for clarification

Many price-fixing class actions certified in Canada have included both direct and indirect purchasers, often with reference to an approach similar to the top-down approach endorsed by the dissent in the Sun-Rype and Microsoft appeals.6 Such cases include the very recent decision of the Quebec Court of Appeal in Option Consommateurs v Infineon Technologies AG,7 in which the court considered and rejected the reasons of the majority in Sun-Rype and Microsoft, and instead favoured the approach of the dissent.

As a result, there are now conflicting decisions from appellate courts in different provinces on the key issue of whether indirect purchasers have a cause of action in the context of a price-fixing case. Now that leave to appeal has been granted in Sun-Rype and Microsoft, it is hoped that the Supreme Court of Canada will provide a clear answer to this important question. These two appeals from BC may also provide an opportunity for the Supreme Court of Canada to resolve other important issues common to price-fixing cases, such as whether the interests of indirect and direct purchasers are in conflict and whether the existence of pass-through – if legally relevant – can properly be determined on a class-wide basis. The Supreme Court of Canada's decision is bound to have an impact not only on future price-fixing class actions in Canada, but also on a number of existing class actions currently before the courts in different provinces, many of which include indirect purchasers as members of the class.

Footnotes

1. Sun-Rype Products Ltd. v. Archer Daniels Midland Company, 2011 BCCA 187.  Norton Rose OR LLP is co-counsel to Archer Daniels Midland Company.  In this case the Court also granted the defendants' motion for leave to cross-appeal with respect to whether the plaintiffs' claims in constructive trust disclose a cause of action.

2. Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2011 BCCA 186.

3. Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1.  See also British Columbia v. Canadian Forest Products Ltd., 2004 SCC 38 (per Lebel. J, dissenting, though not on this point).

4. Justice Lowry's reasons are consistent with earlier jurisprudence of the United States Supreme Court on these issues:  see Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968); Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).

5. Bisaillon v. Concordia University, 2006 SCC 19 at para. 17.

6. See Pro-Sys Consultants Ltd. v. Infineon Technologies AG, 2009 BCCA 503 and Irving Paper Limited et al. v. Atofina Chemicals et al., (2008) 89 O.R. (3d) 578 (Sup. Ct.) leave to appeal denied 2010 ONSC 2705.

7. 2011 QCCA 2116.  A summary of the decision, entitled "Indirect purchaser class actions: Quebec Court of Appeal decision highlights disparity in Canadian law" is available here.

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