Canada: Competition Class Actions: The Pendulum Swings Back

As outlined in our November 2013 bulletin,1 plaintiffs in competition class actions recently won a major victory when the Supreme Court of Canada, in a trilogy of cases released together, permitted indirect purchaser claims while confirming that defendants could not assert passing on defences against direct purchasers.2 That was a swing in favour of plaintiffs, and reversed the 2011 defendants' victory in the BC Court of Appeal in which indirect purchaser claims had been prohibited.3 Now, new decisions released on January 30 and January 31, 2014 by the BC Court of Appeal4 and the Supreme Court of Canada have given defendants some fresh wind in their sails.5

In the BC Court of Appeal case, Wakelam, plaintiffs brought claims under both the Competition Act (alleging breach of the misleading advertising provisions rather than breach of the conspiracy provisions) and the BC Business Practices and Consumer Protection Act (BPCPA). The case involved claims against manufacturers of children's cough and cold medicines. For many years Health Canada had allowed these non-prescription medicines to be sold for use by children under the age of six, on the then prevailing scientific understanding that their safety and efficacy for young children could be extrapolated from adult testing. However, in 2008 Health Canada ceased to rely on extrapolation, and in the absence of direct evidence of efficacy in children required that the labels be revised to say that they should not be used by children under six. Most of these products were also labelled, and continued to be sold, for older children (and often adults as well) at higher dosages.

The makers of children's cough and cold medicines complied with the labelling changes and ceased to distribute them for use in children younger than six. Nevertheless, they were faced with a proposed class action by prior purchasers. The allegation was not that children had been injured, or that the manufacturers had been negligent in making or distributing the medicines for young children. Rather, the plaintiff alleged that, by marketing the medicines for use by children under six without direct evidence of their efficacy, the makers had engaged in deceptive acts or practices contrary to the BPCPA and had made representations which were materially false or misleading, contrary to the Competition Act. Under the BPCPA the plaintiff sought complete refunds for all purchases of medicines, or disgorgement by the defendants of all related revenues, with damages in the alternative. Damage claims were asserted under section 36 of the Competition Act. In addition, the plaintiff asserted that the alleged breaches of these statutes constituted the necessary element of "wrongful act" needed to found restitutionary causes of action in unjust enrichment, waiver of tort and constructive trust.

Wakelam was certified as a class proceeding on all these grounds in 2011. The defendants appealed all aspects of that decision. With respect to the restitutionary claims that depended on a breach of statute, they relied on the intervening BC Court of Appeal decision in Koubi v. Mazda.6 Koubi held that the BPCPA is an exhaustive code regulating consumer transactions, and that the only remedies available for its breach are those it expressly provides. Other restitutionary remedies which rely on breaches of that "code" are not available in law. The BC Court of Appeal in Wakelam applied Koubi to strike out the restitutionary claims that were parasitic of breaches of the BPCPA.

More importantly, the BC Court of Appeal extended the same approach to the Competition Act. In particular, the Wakelam court held that the Competition Act is also is also an exhaustive code, and that there was no evidence of legislative intent to create restitutionary or tort based causes of action arising from or based on its breach. One of the recent trilogy of Supreme Court of Canada cases noted above found that cartel cases will not support a cause of action in constructive trust, but did not dismiss the other restitutionary causes of action.7 The Court in Wakelam noted that the Supreme Court's focus had been the question of indirect purchasers, and not the question of whether the Competition Act's civil damages provisions should be seen as an exhaustive code. When it examined that question, the Wakelam court concluded that Parliament had not intended to create additional causes of action for beach of the Competition Act, beyond the damages claims specifically provided for in Section 36. Accordingly, Wakelam's restitutionary claims that were parasitic of breaches of the Competition Act were also struck.

This decision has obvious and significant implications for class action claims alleging price fixing conspiracies under the Competition Act. Virtually all such cases brought to date have alleged, as well as damages specifically provided for in the Competition Act, causes of action in unjust enrichment, waiver of tort and constructive trust. Wakelam expressly determined that unjust enrichment and waiver of tort – as well as constructive trust – will not be supportable as causes of action based on breach of the Competition Act, which has its own exhaustive code for damages claims. And although no conspiracy claims were advanced in Wakelam, a subsequent BC certification decision confirms that the reasoning and logic of the Wakelam also means that common law conspiracy cause of action – at least those based on wrongful or unlawful acts – cannot now be founded on breach of the Competition Act.8

The day after the decision in Wakelam, the Supreme Court of Canada decided to give class action defendants its own gift, by way of its decision in A.I. Enterprises Ltd. et al. v. Bram Enterprises Ltd.9 Bram dealt with a dispute between the minority and majority shareholders of a company owning a rental property as to whether the building should be sold. The minority opposed the sale, but did not buy the property pursuant to the right of first refusal agreement. It did, however, take actions to deter and deflect a sale to third parties, and then itself bought the property for $400,000 less than the third party would have paid. The majority sued the minority alleging, amongst other things, the tort of unlawful interference with economic relations.

In Bram the Supreme Court of Canada struggled with the proper definition of the tort, which it noted is variously referred to as unlawful interference with economic relations, interference with a trade or business by unlawful means, intentional interference with economic relations, or causing loss by unlawful means. The Court chose to refer to it as the "unlawful means tort". It explored the scope this tort as reflected in the Canadian jurisprudence and jurisprudence throughout the common law world and concluded that, at least in common law Canada, the tort should be defined in a limited way so as not to interfere with aggressive competition in the marketplace and so as not to have unintended consequences. Otherwise, the Court noted, there was a risk that expanding liability pursuant to the tort could undermine legislative choices.

The Court concluded that for the unlawful means tort the requirements are that there be a wrong injuring one person which would be actionable by that person, and there be an intention to harm a third person by means of that wrong. In those circumstances the third person who was intentionally targeted by conduct, which was actionable by someone else, has a cause of action in the unlawful means tort. This claim would be, in the terminology of the Court, "parasitic" to the cause of action enjoyed by the direct party. That is, such a cause of action cannot be expanded beyond the cause of action of the direct party. It would also, of course, have to reflect an intentional infliction of harm on the plaintiff.

The unlawful means tort is not always asserted in cartel class actions, because the conduct is not obviously targeted at injuring the plaintiff as opposed to benefitting the defendants. That said, Bram makes it clear that, to be asserted at all, the conduct would have had to be actionable by a third party, and any cause of action asserted by way of the unlawful means tort would be limited to that which the third party enjoyed. Thus, in as far as the third party has a cause of action under section 36 of the Competition Act, the logic of Bram suggests that the plaintiff's action would similarly be limited. The Supreme Court expressly did not deal with the cause of action in conspiracy to injure.

The importance for price fixing class actions of the Wakelam decision, if upheld,10 and of the Bram decision, will be fundamental. They eliminate many of the traditionally alleged causes of action – limiting plaintiffs to the statutory cause of action for damages provided for in section 36 of the Competition Act and to typically tenuous claims for conspiracy to injure. As a result, as a practical matter, the limitation periods available for bringing such actions will largely be restricted two years from the day on which the conduct was engaged in or the day in which any criminal proceedings related thereto were finally disposed of. As well, plaintiffs' ability to rely on restitutionary theories that lead to disgorgement remedies, and that relieve plaintiffs from having to prove causation and actual damages, are severely undermined.

The November 2013 decisions of the Supreme Court of Canada in the trilogy of cases were hailed as game changing victory for plaintiffs on the competition law class action battlefield. The Wakelam and Bram cases, while lacking the immediate profile of the trilogy, may well prove to be an equally or even more significant swing of the pendulum in favour of defendants. The Bram case provides a highly circumscribed ambit for the unlawful means tort. The Wakelam case, if upheld on appeal, is even more significant. It provides that the Competition Act is a complete code, and that the proposed remedies for plaintiffs are limited to that which Parliament established.

Footnotes

1 "Supreme Court of Canada trilogy holds that indirect purchasers may advance class actions for recovery of unlawful price fixing", McMillan Class Action Bulletin, November 2013.

Pro-Sys Consultants v Microsoft Canada, 2013 SCC 57 ("Pro-Sys"); Sun-Rype Products Ltd. v Archer Daniels Midland, 2013 SCC 58 ("Sun-Rype"); Infineon Technologies AG c. Option consommateurs, 2013 SCC 59 ("Infineon").

Pro-Sys Consultants v Microsoft Canada, 2011 BCCA 186; Sun-Rype Products Ltd. v Archer Daniels Midland, 2011 BCCA 187.

4 The BC Court of Appeal is one of the three provincial appellate courts that decide most competition law class action certification motions.

Wakelam v Wyeth Consumer Healthcare et al, 2014 BCCA 36 and A.I. Enterprises Ltd. v Bram Enterprises Ltd., 2014 SCC 12. Note, one of the authors was counsel to a defendant in the Wakelam case.

Koubi v Mazda, 2012, BCCA, 310.

Pro-Sys Consultants v Microsoft Canada, 2013 SCC 57.

Watson v Bank of America Corporation, released March 26, 2014 (BCSC).

9 Supra, note 5. Note, for competition law enthusiasts, the minority corporation was owned by the acquitted defendant in the R. v Sdelew (1984), 78 CPR (2d) 102.

10 The plaintiff sought leave to appeal to the Supreme Court of Canada on March 31, 2014.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2014

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James B. Musgrove
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