Canada: Indirect Purchaser Decisions Now Ripe For Release

Last Updated: October 30 2013
Article by W. Michael G. Osborne

The Supreme Court of Canada has announced that it will release its long-awaited decisions in three cases that raise the issue of whether indirect purchasers can sue for damages on Thursday, October 31. The three cases are: Sun-Rype Products Ltd. v. Archer Daniels Midland Company; Pro-Sys Consultants Ltd. v. Microsoft Corporation; and Options Consommateurs v. Infineon Technologies AG.

Indirect purchasers of a product that was the subject of a price fixing conspiracy cannot sue to recover losses passed on to them by direct purchasers, the British Columbia Court of Appeal ruled in Sun-Rype and Microsoft. The Quebec Court of Appeal came to the opposite conclusion in Infineon. All three cases were heard by the Supreme Court together last fall.

Sun-Rype and Microsoft

The Sun-Rype and Microsoft cases were both proposed class actions to recover damages on behalf of direct and indirect purchasers for an alleged overcharge caused by price fixing conspiracies.

In Sun-Rype, juice company Sun-Rype Products Ltd. and an individual sued a group of producers of high-fructose corn syrup (HFCS), alleging that a price fixing conspiracy among the producers raised the price of HFCS. The proposed class consisted of both direct purchasers, represented by Sun-Rype, and indirect purchasers, represented by the individual plaintiff.

On the certification motion, the defendants objected that indirect purchasers have no cause of action because Canadian law does not recognize the passing-on defence. The motion judge rejected this contention. He distinguished between using passing-on as a defence, which is not allowed, and passing-on as a factual occurrence (giving rise to a loss). He also reasoned that because the proposed class included both direct and indirect purchasers, all of those who potentially suffered a loss were included in the class, and the question was liability to the class as a whole. The motion judge certified the case, and the defendants appealed.

In Microsoft, the plaintiff sought to certify a class of indirect purchasers to sue Microsoft for various kinds of anticompetitive behaviour. The claim originally was based primarily on alleged abuse of dominance by Microsoft. After losing a motion in 2006, the plaintiffs then restructured their pleading to base it on conspiracy contrary to section 45 of the Competition Act. Microsoft argued, among other things, that the claim continued to be primarily about abuse of dominance and that, as indirect purchasers, the plaintiffs could not found a claim based on passing-on of the losses to them. The motion judge certified the case, and Microsoft appealed.

The majority's reasoning proceeded in two steps. First, it follows from the Supreme Court's rejection of passing-on as a defence in Canfor and Kingstreet that the direct purchasers are entitled in law to recover the whole amount of the overcharge.

Second, if the direct purchasers are entitled to recover the whole overcharge without deduction on account of passing on, it follows that there is nothing left for the indirect purchasers to recover. The law refuses to recognize passing-on to reduce the amount recoverable by direct purchasers; equally it must refuse to recognize passing-on to grant recovery to indirect purchasers.

If this were not the case, the majority reasoned, the defendants would have to pay twice: they would have to pay the direct purchasers the whole of the overcharge, and then they would have to pay the indirect purchasers for whatever was passed on to them. The law does not sanction such double recovery.

In his dissenting reasons, Donald J.A. adopted the motion judge's distinction between passing-on as a defence and passing-on as a factual occurrence. He accepted that "the rule against double recovery is a bedrock principle".  Double recovery is avoided by including direct and indirect purchasers in one class, so that damages are assessed once, for all purchasers, thus avoiding double recovery. He contended that "the double recovery rule should not in the abstract bar a claim in real life cases where double recovery can be avoided".


In November 2011, the Quebec Court of Appeal certified a class action against makers of DRAM memory chips on behalf of all Quebecers who bought DRAM chips of products containing DRAM chips between April 1999 and June 2002. The plaintiff class likely consists mainly of indirect purchasers.

The Court of Appeal's discussion largely follows, and adds little to, Donald JA's dissenting reasons in Sun-Rype. The court did suggest that if the direct purchasers were to capture the whole of the overcharge in opt-out litigation against the price-fixers, the indirect purchasers would have an action in unjust enrichment against the direct purchasers. However, it is unlikely that this putative unjust enrichment action would satisfy the required elements for an unjust enrichment action. In particular, indirect purchasers would not have a deprivation corresponding to the recovery by the direct purchasers. Their losses would have occurred at the time the overcharge was passed on by the direct purchasers, and not as a result of the later recovery of the overcharge. As well, this passing-on by the direct purchasers is neither unlawful nor actionable. Moreover, it would be impossible to show an absence of a juristic reason for recovery by the direct purchasers pursuant to a judgment of the court.

For a complete analysis of the indirect purchaser issue, see The Loss Stops Here.

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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W. Michael G. Osborne
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