Canada: Speculation, Lack Of Admissible Evidence, And The Conspiracy Net

There has been a proliferation of global price-fixing conspiracy class actions commenced in Canada in recent years. This increase has been aided in part by criminal investigations conducted by competition authorities as well as Supreme Court jurisprudence promoting the view that certification is a low bar and that consumer purchasers should be entitled to advance claims. These price-fixing conspiracy claims typically make allegations against dozens of multinational defendants and involve allegedly unlawful conduct occurring in many different jurisdictions around the world. Canadian courts have been hesitant to decline jurisdiction over these claims at the pre-certification stage, recognizing that conspiracies are inherently "secret and clandestine" and that the inculpatory evidence may not be available to the plaintiff prior to obtaining discovery from the defendants.

Despite the fertile ground for the development of global price-fixing conspiracy class actions in Canada, Justice Perell's recent decision in Shah v LG Chem, Ltd.[1] suggests that the courts will not allow plaintiffs to name a foreign corporations as defendants without any admissible evidence showing there is a "good arguable case" that the court has jurisdiction to entertain the claim. Relying on hearsay, speculation, and precarious theories of joint liability is insufficient to establish jurisdiction over a foreign defendant, even in a conspiracy claim.

Background

The plaintiffs in Shah commenced a class action in Ontario against 26 manufacturers of lithium-ion batteries typically used in mobile electronic devices such as cell phones, tablets, and laptops. They alleged that the defendants engaged in a conspiracy to artificially inflate the price of the batteries, resulting in higher prices paid by Canadians for products containing those batteries.

20 of the 26 defendants were foreign entities domiciled outside Canada. Among the foreign defendants were NEC Corporation and NEC Tokin Corporation (collectively "NEC"), both based in Japan. NEC brought a motion seeking to stay or dismiss the claim against them on the basis that the Ontario courts did not have jurisdiction simpliciter to entertain the claim as against them.

In order to assume jurisdiction simpliciter over a foreign defendant, the court must be satisfied that one of the four "presumptive connecting factors" identified in Club Resorts Ltd. v Van Breda[2] (the defendant resides in the jurisdiction; the defendant carries on business in the jurisdiction; the tort was committed in the jurisdiction; or a contract connected with the dispute was made in the jurisdiction) or that a new connecting factor exists that is sufficient to establish that Ontario has jurisdiction to adjudicate the claim. The test requires the plaintiff to establish a "good arguable case" for jurisdiction, which has repeatedly been described as a low or "very relaxed"[3] threshold, akin to the "some basis in fact" standard on certification motions.[4]

If unchallenged, the facts pleaded in the statement of claim may be taken as true. If they establish a "good arguable case" that the court has jurisdiction simpliciter, the inquiry ends there. If, however, the defendant tenders evidence on the motion challenging the existence of connecting factors, the plaintiff bears the burden of responding with enough evidence to establish a "good arguable case" that the court has jurisdiction simpliciter.

In support of its motion, NEC tendered evidence that it did not have an office in Ontario and did not carry on business there. Additionally, although it conceded that its batteries were sold to global manufacturers such as Apple, Siemens, and Motorola, NEC said there was no evidence its batteries, or products containing its batteries, were sold in Canada.

In response, the plaintiffs were unable to adduce any evidence that NEC carried on business in Ontario.

On the allegation that NEC's batteries were sold in Ontario, the plaintiffs filed evidence showing that NEC batteries were used in iPods and other mobile electronic devices sold by retailers in Ontario, but were unable to establish that the batteries actually manufactured by NEC made their way to the Ontario market. The plaintiffs argued that, on the basis of the evidence they tendered, it was "theoretically possible"[5] that NEC batteries were sold in Ontario, which was enough to establish a "good arguable case".

The plaintiffs also filed a clerk's affidavit attaching pleadings from a similar price-fixing conspiracy class action in the US. The pleading was retrieved from a website called PACER, and contained particulars concerning allegations that NEC engaged in a global price-fixing conspiracy. The plaintiffs argued that the US pleadings assisted in establishing a good arguable case that NEC committed the tort of conspiracy in Ontario. 

Finally, the plaintiffs argued that, even if NEC did not sell batteries in Ontario, its co-conspirators undoubtedly did. The plaintiffs argued that, as co-conspirators should be found jointly and severally liable, it was sufficient to establish that some of the other defendants committed the tort of conspiracy in Ontario in order for the court to assume jurisdiction over NEC.

Speculation and Inadmissible Hearsay are Insufficient to Establish Jurisdiction

The court granted NEC's motion, dismissing the action as against them. In doing so, Justice Perell held that the evidence proffered by the plaintiffs to meet the "good arguable case" threshold was "woefully inadequate and inadmissible".[6]

Justice Perell found there was no evidence that NEC carried on business in Ontario and, as a result, the plaintiff could not rely on that connecting factor to establish jurisdiction.[7]

Justice Perell also rejected the plaintiffs' arguments that the conspiracy was committed in Ontario by NEC:

1. The mere theoretical possibility that NEC's batteries were sold in Canada in iPods or other mobile devices constituted nothing more than speculation. The plaintiffs were required to show it was "reasonably foreseeable" that NEC-manufactured batteries entered the Canadian market. The speculative evidence offered was insufficient to meet the "good arguable case" test;[8]
2. Relying on allegations contained in pleadings from the US litigation, retrieved by a clerk at the plaintiffs' law firm from a website and attached to an affidavit, constituted fifth- or sixth degree hearsay. Justice Perell held that such hearsay is inadmissible where it is the only evidence relied upon to prove a key point on a motion. As a result, the US pleadings were insufficient to establish a "good arguable case" that the Ontario court had jurisdiction;[9] and
3. There is no authority for the proposition that the court should assume jurisdiction over one defendant on the basis that it has jurisdiction over a co-conspirator. Each co-conspirator must actually engage in a conspiracy to raise prices in Ontario. As there was no evidence of NEC engaging in conspiratorial conduct in the Ontario market or causing damages in Ontario, the plaintiffs could not meet the "good arguable case" standard.[10]

Having led evidence that was deemed insufficient or inadmissible, the plaintiffs were unable to satisfy the court that it had jurisdiction simpliciter.

Emerging Ground Rules for Global Price-Fixing Class Actions

The permissive environment for class actions in Canada has fostered an environment in which complex and costly global price-fixing conspiracy class actions are now commonplace. Plaintiffs name as many manufacturers and/or retailers as possible, and many of them are domiciled in a foreign jurisdiction. In some cases there is little or no evidence that those foreign defendants ever did business in Canada.

Courts have traditionally been reluctant to prevent these conspiracy claims from proceeding beyond a preliminary stage due to a lack of evidence because, due to its secret and clandestine nature, particulars of the alleged conspiracy are usually only within the knowledge of the co-conspirators. Justice Perell's decision in Shah, however, recognizes the need to assemble admissible evidence establish a connecting factor between Ontario and the foreign defendant. The decision represents a willingness by the court to exercise its gatekeeper function and sends a message to plaintiffs that more than hearsay evidence and speculation is required to satisfy the "good arguable case" to establish jurisdiction.