Canada: Court Clarifies Conditions To Certify A Class Action For Damages Under Section 36 Of The Competition Act

On August 7, 2015, Justice R. LeBlanc of the Federal Court of Canada dismissed a motion to certify a class action in Murphy v. Amway Canada Corporation, clarifying the conditions a proposed class plaintiff must meet in order to certify a class action for damages pursuant to section 36 of the Competition Act (Act). The plaintiff claimed that the operator of a multi-level marketing plan made misrepresentations regarding the level of income he could achieve under the plan and that it operated a pyramid scheme, in violation of subsections 52(1), 55(2) and 55.1 of the Act.

BACKGROUND

The plaintiff, a distributor for Amway Canada Corporation (Amway) in British Columbia, filed a proposed class action before the Federal Court on behalf of all Canadian residents who distributed Amway's products starting October 23, 2007. He claimed that Amway had breached various dispositions of the Act and sought damages of C$15,000 as a result, under section 36 of the Act.

In a previous stage of the proceedings, Amway obtained a stay of the action in favour of arbitration, on the basis of an arbitration agreement and a class action waiver for claims exceeding C$1,000 in the distributor agreement. The class action waiver provides that a party may not "assert any claim as a class, collective or representative action if the amount of the party's individual claim exceeds $1,000." For a summary of the Federal Court and the Federal Court of Appeal decisions staying the proceedings in this regard, see our February 2013 Blakes Bulletin: Federal Court Confirms Validity of Arbitration Agreement and Class Action Waiver.

The plaintiff subsequently waived the portion of his claim above C$1,000, had the stay of proceeding lifted, and was granted the right to amend his statement of claim to seek damages of up to C$1,000 before the Federal Court.

FEDERAL COURT OF CANADA DECISION

The Court conducted a thorough analysis of the five conditions a plaintiff must meet in order to have a class action certified, pursuant to section 334.16 of the Federal Courts Rules.

  1. A Reasonable Cause of Action: Notwithstanding the strong arguments and evidence presented by the defendant respecting the merit of the lawsuit, the Court found that the causes of action pleaded by the plaintiff raised mixed questions of fact and law, such that a hearing would be required to determine whether they should succeed. Thus, taking the allegations as true at this stage, the motion could not be dismissed on that ground alone.
  2. An Identifiable Class of Two or More Persons: The Court found that that plaintiff had failed to provide evidence that a single other distributor shared his complaints, and therefore failed to establish the existence of a class. The judgment on this issue clarifies that a plaintiff must actively seek out other class members who share his complaints against the defendant, and must provide evidence thereof. A mere inference that other class members likely exist is insufficient.
  3. Common Questions of Law or Fact: The Court confirmed the existing case law regarding class certification of misrepresentation claims, finding that section 36 of the Act requires the plaintiff to show a causal link between the alleged misrepresentations and the damages claimed. The necessity to show reliance and causality in the context of a misrepresentation claim raises issues that are highly individual to each class member, such that there was an absence of common questions of law or fact that would substantially advance the claims of the class members. The Court noted that the alleged violations of subsections 52(1) and 55(2) of the Act do not, on their own, create a cause of action: rather, section 36 creates the cause of action, of which damages caused by the alleged violations of the Act are an essential component.

    The evidence adduced by Amway showed that distributors joined the business for many reasons. Thus, claiming violations of the Act does not obviate the need for an individual trial for each class member, to determine whether they had joined as a result of the alleged misrepresentations or for some other reason, whether they had relied on these representations, and whether they had suffered damages as a result.
  4. Preferable Procedure: The Court found that a class action was not the preferable procedure to handle the issues raised by the plaintiff because, aside from the predominance of individual over common questions (discussed above), other class members had a legitimate interest in individually controlling the prosecution of the proceedings. In particular, because the claims before the Federal Court were capped at an amount of C$1,000 for each class member (as a result of the class action waiver in the distributor agreement), any class member with a claim above that sum has an interest in bringing it to arbitration for its full value.

    Furthermore, the Court found that a complaint to the Competition Bureau would be significantly less costly and more efficient than class action proceedings to address the issues raised by the plaintiff in this matter, since the Bureau has extensive investigation powers in this regard and can impose significant fines as the case may be. Yet, the plaintiff had failed to lodge such a complaint.
  5. A Proper Class Representative: It appears from the Court's ruling that a proposed representative plaintiff must be more than a simple placeholder in the proceedings in order to have a class action certified. In this matter, the Court found that the plaintiff would not adequately represent the class for several reasons, including that:
  • He lied in his affidavit respecting the circumstances surrounding his registration with Amway
  • His claim was really the initiative of his common law spouse, who had since withdrawn from the proceedings
  • He never called the Competition Bureau or other Amway distributors respecting his claim
  • He could not give information about the agreement respecting the fees and disbursements of his attorneys
  • He could not explain certain key concepts of his own claim
  • He was not aware of the procedural stage of his proceedings
  • The litigation plan he provided was deficient

CONCLUSION

This ruling shows that the courts will take a serious look at the proceedings and evidence of a proposed class representative before certifying a class action. It confirms that the onus is on proposed class representatives to exhaust other available avenues, and to ensure that the action they seek to put forward can properly be the subject of class action proceedings.

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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