Canada: Supreme Court Of Canada Clarifies Requirements For Certification Of Class Actions

Last Updated: November 22 2013
Article by Jordan Watson

The Supreme Court of Canada released reasons for judgment in three cases on October 31, 2013: Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57 ("Pro-Sys") and Sun-Rype Products Ltd. v. Archer Daniels Midland, 2013 SCC 58 ("Sun-Rype"), both cases on appeal from the British Columbia Court of Appeal, and Infineon Technologies AG v. Option consommateurs, 2013 SCC 59 ("Infineon"), on appeal from the Quebec Court of Appeal.

All three cases required the Supreme Court to consider the law on the certification of class actions and in particular, the law surrounding the composition of classes.

Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57

In Pro-Sys, a class action proceeding was brought by Pro-Sys Consultants Ltd. in which it was alleged that the defendant, Microsoft Corporation ("Microsoft"), overcharged for its operating systems and applications software. The proposed class was comprised of the ultimate consumers of Microsoft's products, who acquired the products from retailers. The ultimate consumers are also known as "indirect purchasers" because they have no direct commercial relationship with Microsoft.

The British Columbia Supreme Court initially certified the class in Pro-Sys, but that decision was subsequently overturned by the British Columbia Court of Appeal.

The main issue that the Supreme Court was tasked with deciding was the viability of the indirect purchasers' claims against Microsoft. The first requirement for certification of a proposed class under the Class Proceedings Act, R.S.B.C. 1996, c. 50 (the "CPA") is that the pleadings disclose a cause of action. The British Columbia Court of Appeal found that the indirect purchasers had no cause of action against Microsoft, and therefore found that there was no basis for certifying the proposed class.

The Court of Appeal's decision in this regard was based almost solely on the rejection of what is known as the "passing on defence" in Canadian jurisprudence. The passing on defence has been put forth by manufacturers at the top of distribution chains who have been accused of overcharging for products. As part of the defence, manufacturers allege that since parties that purchase overcharged products from them pass on those overcharges further down the distribution chain, those purchasers have not suffered a loss. In simple terms, if a manufacturer sells a product to a distributor for $10 that should cost $5, and the distributor then sells that product to a consumer for $12 instead of $6, that distributor has not suffered a loss and cannot bring a claim against the manufacturer. The loss caused by the overcharges in this example is passed onto the ultimate consumer.

The passing on defence has been rejected by Canadian jurisprudence and by Kingstreet Investments Ltd. v. New Brunswick (Department of Finance), 2007 SCC 1 in particular. The rejection of the passing on defence means that, in practice, direct purchasers such as distributors have a cause of action against manufacturers for overcharges even if that direct purchaser passes on the overcharges to indirect purchasers further down the distribution chain.

In Pro-Sys, Microsoft argued that since direct purchasers such as Pro-Sys Consultants Ltd. had a cause of action against Microsoft, the indirect purchasers (who comprised the proposed class) did not have a similar cause of action. The Supreme Court explicitly rejected this argument, and instead held that the rejection of the passing on defence does not logically lead to a corresponding rejection of what could be called the "offensive use of passing on". The indirect purchasers, therefore, had a cause of action against Microsoft and the first requirement in the certification of a proposed class was met.

The Supreme Court then went on to consider the various causes of action alleged in the proceeding, such as a breach of the Competition Act, R.S.C. 1985, c. 34, conspiracy, and intentional interference with economic interests. The Supreme Court found that it was not plain and obvious that those causes of action would be unsuccessful. In so finding, the Supreme Court acknowledged that a healthy amount of deference ought to be shown to the applications judge.

Viewing the remaining requirements for certification, the Supreme Court stressed that some basis in fact for each of the requirements must be set out; proof on a balance of probabilities is not necessary. With that in mind, the Supreme Court upheld the findings of the applications judge that:

a. there was a common issue amongst the proposed class;

b. damages could be determined on an aggregate basis; and

c. a class action is the preferable procedure.

In considering whether a class action is the preferable procedure, the Supreme Court noted the objectives of deterrence and behaviour modification, which it found would not be addressed if individual plaintiffs were forced to bring claims on their own.

The Supreme Court unanimously allowed the appeal from the British Columbia Court of Appeal and restored the certification of the class action granted by the applications judge.

Sun-Rype Products Ltd. v. Archer Daniels Midland, 2013 SCC 58

Sun-Rype, the companion case to Pro-Sys, also concerned a certification of a class action. The defendant in the Sun-Rype proceedings was the manufacturer of high fructose corn syrup, and was alleged to have conspired to fix the price to the detriment of those below it in the distribution chain. The plaintiffs were a proposed class comprised of both direct and indirect purchasers of the corn syrup.

In Sun-Rype, the Supreme Court was again asked to consider the viability of claims made by indirect purchasers and again found that indirect purchasers do have a cause of action against manufacturers of products. The principal difference between the Sun-Rype case and the Pro-Sys case was the composition of the respective proposed classes of plaintiffs: the proposed class in Sun-Rype consisted of both indirect and direct purchasers, whereas the proposed class in Pro-Sys consisted only of indirect purchasers.

The Supreme Court found that it was unimportant that the proposed class in Sun-Rype consisted of both indirect and direct purchasers; a mixed class may lead to more complications than would otherwise exist, but those difficulties do not preclude a mixed class from being certified.

The proposed class in Sun-Rype was not certified; however, because the Supreme Court agreed with the British Columbia Court of Appeal's finding that there was no identifiable class of indirect purchasers. The principal problem for the proposed class was a lack of evidence establishing that the proposed class members actually purchased a product containing corn syrup manufactured by the defendant. Simply put, the indirect purchasers could not trace the sweeteners used in products to the corn syrup made by the defendant. Just as this would have been fatal if the indirect purchasers had brought claims on their own, so too was it fatal to their claims as part of a proposed class under the CPA.

The Supreme Court also dismissed the claim on behalf of the direct purchasers for a constructive trust, as there was an insufficient connection to property, which is a necessary element of the claim. The Supreme Court ruled 7-2 on these issues, with Justices Karakatsanis and Cromwell dissenting.

Infineon Technologies AG v. Option consommateurs, 2013 SCC 59

Infineon entailed similar issues to those in Pro-Sys and Sun-Rype, but was decided under the regime of the Quebec Civil Code. The defendant companies in Infineon manufacture and sell a microchip that allows information to be stored and rapidly retrieved electronically. The defendant admitted to participating in an international conspiracy to fix prices and thereby eliminate competition; it had been subject to fines in both the United States and Europe.

The plaintiffs in Infineon were a group of direct and indirect purchasers of the defendant's microchip. Certification of the group was not granted at the application level, was granted by the Quebec Court of Appeal, and was confirmed unanimously by the Supreme Court.

One of the key issues the Supreme Court was required to decide related to the jurisdiction of the Quebec courts to deal with the allegations raised. In the end, the Supreme Court upheld the decision of the Quebec Court of Appeal to the effect that where damage is suffered in Quebec, the Quebec Civil Code gives jurisdiction to the Quebec courts to hear matters. In Infineon, despite the widespread business of the defendant, the damage was found to have occurred in Quebec.

The remainder of the Supreme Court's decision in Infineon largely followed the framework of the Pro-Sys and Sun-Rype cases. Considerations such as the commonality of interests among the members of the proposed group were determined in favour of the plaintiffs. Any conflicts that could arise between direct and indirect purchasers had not yet manifested themselves and could be dealt with in the future should those conflicts arise.

Option consommateurs was allowed to continue to act as the representative plaintiff in these proceedings despite the arguments of the defendant to the effect that Option consommateurs was conflicted in its role; it was argued that its advocacy for the rights of consumers ran counter to the interests of the direct consumers. The Supreme Court rejected the arguments in this regard, stated that it was premature to deal with Option consommateurs' potential conflicts, and stated that it would be most appropriate to deal with actual conflicts if and when those conflicts actually arise.

Conclusion

The conclusions to be drawn from the three cases above are that:

a. indirect purchasers have a cause of action against manufacturers of products;

b. indirect purchasers and direct purchasers can together comprise a class for the purposes of class action lawsuits;

c. any conflicts that could arise between direct purchasers and indirect purchasers do not preclude the two groups from forming a class; conflicts ought to be dealt with once they arise; and

d. regardless of the composition of a class, evidence must still be advanced to demonstrate the connection between the members of that class and the actions/products of the defendant manufacturers.

Justice Rothstein wrote both the Pro-Sys and the Sun-Rype decisions, while Justices LeBel and Wagner wrote the Infineon decision. All 9 judges participated in the three hearings.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Gowling WLG
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Gowling WLG
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions