There has been a surge in competition class actions in Canada in recent years, and in most instances, these cases have been brought on the heels of international regulatory investigations in the U.S., Europe and elsewhere. However, to date, there have only been a small number of antitrust class actions in Canada that have proceeded to a contested certification motion. In virtually all of these cases, certification was denied, largely on the basis that the plaintiffs had failed to demonstrate a "rigorous" and "workable" expert methodology for establishing loss and liability under the Competition Act on a class-wide basis. However, in the past two years, the courts in Ontario have certified two vertical class actions involving narrow and (arguably) direct classes. More recently, in September, the Ontario Superior Court certified a consolidated class of direct and indirect purchasers in the hydrogen peroxide case. However, these decisions were issued by lower or intermediate courts, and there has not been a significant appellate decision in Canada on class certification in the antitrust field for a number of years.
On November 12, 2009, in Pro-Sys Consultants Ltd. v. Infineon Technologies AG, the B.C. Court of Appeal released its decision in the DRAM case. In DRAM, the plaintiffs had launched class proceedings in B.C. in conjunction with parallel class proceedings in the U.S. relating to the ongoing global regulatory and criminal investigations into the pricing of computer memory components. In its decision, the B.C. Court of Appeal unanimously granted certification of a consolidated direct and indirect class of DRAM purchasers in B.C. This decision is particularly significant given that this is the first appellate decision in Canada that has certified a class action in an antitrust case on a contested basis. The Court concluded that there were a number of common issues relating to the existence of a potential conspiracy, and that it was possible to establish liability on a class-wide basis in reliance on the statistical aggregation provisions contained in provincial class proceedings legislation as well as "the admissions inherent in the guilty pleas and the plea agreements in the U.S. criminal proceedings." The Court also found that the certification judge had erred in applying "rigorous scrutiny" to the plaintiff's expert evidence, on the reasoning that the plaintiff only needed to show "a credible or plausible methodology" using regression techniques which "in theory" might be able to address loss on a class-wide basis.
On its face, the Court's decision represents a marked departure from the existing law on antitrust class certification in Canada. Given the existence of conflict at the appellate level in Ontario and B.C., this case is arguably ripe for review by the Supreme Court of Canada. But in the interim, this decision will almost certainly lead to more antitrust class proceedings in Canada in international conspiracy cases, particularly where there have been guilty pleas in the U.S. and where there are parallel class proceedings in the U.S.
Antitrust class actions are relatively new to Canada. While there has been a private right of action in Canada's Competition Act since the 1970s, private actions only emerged as a significant influence on Canada's competition laws in the 1990s, following the gradual adoption of provincial class proceedings legislation across Canada. Since that time, private plaintiffs have initiated a number of competition class actions in respect of a wide-range of vertical and horizontal anti-competitive conduct, including both domestic and foreign conduct. In most of these cases, however, plaintiffs have launched class proceedings on the heels of an ongoing global price-fixing investigation, often in close coordination with U.S. plaintiffs who were pursuing parallel class proceedings before federal and state courts.
Plaintiffs in Canada have been successful in some of these cases in negotiating high-profile settlements, and the settling parties have consented to certification for the purpose of implementing the settlement. Outside the settlement context, however, there have only been a small number of cases that have proceeded to a contested motion on the merits of certification. And, in contrast to the U.S. experience thus far, the courts in Canada have generally held that the test for certification on a contested basis is more demanding than where certification is sought to implement a settlement on consent.
The Test For Certification In Canada
While the test for class certification in Canada varies by province, the test in the common law provinces is generally similar to the test for certification under Federal Rule 23 in the U.S., albeit with some important differences (such as the absence of a predominance or typicality requirement). In particular, plaintiffs in Canada must demonstrate the existence of a viable cause of action, an identifiable class, meaningful common issues and an adequate representative plaintiff. But in the place of the U.S. predominance requirement, plaintiffs in Canada must also demonstrate that a class proceeding is the "preferable procedure" for trying the common issues.
The courts in Canada have underscored the importance of applying the test for certification under class proceedings legislation in a flexible and purposive manner which reflects the underlying goals of class proceedings legislation, namely, access to justice, judicial economy and behaviour modification. Notwithstanding this flexible and purposive approach to certification, plaintiffs in Canada have for the most part experienced significant difficulty in seeking to certify antitrust class actions in Canada. In short, in nearly all of those cases that have proceeded to a contested certification motion in Canada, the courts have rejected certification, largely on the basis that the plaintiffs had failed to adduce sufficient expert evidence that there was a "viable" and "workable" economic methodology for ascertaining the core issues of loss and liability on a class-wide basis, particularly where indirect claims are involved and the alleged price-fixing overcharge may have been absorbed or "passed-on" to other participants within the applicable distribution chain.
For instance, in the leading appellate case to date, Chadha v. Bayer Inc. (Chadha), decided in 2003, the Ontario Court of Appeal denied certification of a proposed antitrust class action on behalf of indirect purchasers relating to an alleged price-fixing conspiracy for the distribution of iron oxide. The Court of Appeal in Chadha found that the plaintiff had simply assumed the existence of "passing-on" through the distribution chain and had failed to adduce sufficient evidence that "loss" as a component of liability could be ascertained on a class-wide basis.
A recent and noteworthy exception to the judicial trend of denying certification of class proceedings on contested motions, however, is the decision of the Ontario Superior Court in Irving Paper Limited v. Atofina Chemicals Inc. (Irving Paper) (please see our Osler Update from September 30, 2009). In Irving Paper, Justice Rady granted certification of a proposed consolidated class of direct and indirect purchasers relating to an alleged price-fixing conspiracy for the distribution of hydrogen peroxide. In granting certification, Justice Rady suggested that the more recent certification law in Ontario appeared to be moving away from Chadha. In particular, she noted that in two recent certification decisions of the Ontario Court of Appeal in credit card cases, the Court suggested that a plaintiff may be able to establish "potential liability" on a class-wide basis for certification purposes by reference to the aggregation provisions of the Ontario Class Proceedings Act. Justice Rady found that under this "different approach," the plaintiffs could establish "potential liability" by showing that "the defendants acted unlawfully" and "it is not necessary to show damages on a class-wide basis."
In light of the Ontario Superior Court's radical break with Chadha in its decision in Irving Paper, which will almost certainly be appealed, the decision of the British Columbia Court of Appeal in the DRAM case has assumed even more importance as a bellwether for the direction of Canadian antitrust class proceedings.
The DRAM Case
DRAM, or dynamic random access memory, is an essential input component of virtually all electronic products used today, including computer mainframes and servers, laptops, automobiles, global positioning systems, cellular phones, cameras and video games. Beginning in 2002, the U.S. Department of Justice (DOJ) initiated investigations and proceedings with respect to DRAM price-fixing in the U.S. In late 2004, a number of defendants in these proceedings reached plea agreements and paid fines for participating in an alleged international conspiracy to fix prices in the DRAM market. In total, to date, the U.S. Department of Justice has collected over US$731 million in fines. Moreover, a number of the defendants have reached significant settlements of direct purchaser class actions in the U.S. By contrast, there have been no pleas in Canada.
In coordination with plaintiffs in the U.S., the plaintiff Pro-Sys Consultants Ltd. brought class proceedings in an attempt to certify a consolidated class of direct and indirect purchasers of DRAM chips in British Columbia between April 1, 1999 and June 30, 2002.
At first instance, the B.C. Supreme Court denied certification. In applying similar reasoning employed by the Ontario Court of Appeal in Chadha, Justice Masuhara found that the plaintiff failed to adduce a viable expert methodology for dealing with loss and liability on a class-wide basis, particularly given the complex distribution channels for DRAM. Given the plaintiff's failure to establish this critical issue as a common issue, the court found that the plaintiff's case would dissolve into multiple individual trials and therefore lacked "the semblance of a manageable and workable process." The court also found that the representative plaintiff had irreconcilable conflicts with the other putative class members, and expressed considerable doubt as to whether a representative plaintiff could adequately represent a consolidated class of both direct and indirect purchasers in Canada in light of the serious conflicts of interest relating to the incidence of overcharge.
The British Columbia Court Of Appeal Grants Certification
In a unanimous decision, the Court of Appeal reversed the British Columbia Supreme Court's denial of certification. The Court confirmed that the provisions of the Class Proceedings Act permit the use of statistical evidence to assess an aggregate monetary award. The Court also found that the defendants' class-wide liability can reasonably be determined on common evidence and on the basis of "the admissions inherent in the guilty pleas and the plea agreements in the U.S. criminal proceedings." In particular, the Court held that at the certification stage the plaintiff is required to show only a credible or plausible methodology for the determination of damages on a class-wide basis using regression techniques which "in theory" might be able to address loss on a class-wide basis.
Moreover, the Court concluded that at the class certification stage, the plaintiff's expert evidence should not be subjected to the same "rigorous scrutiny" as it would be at trial. Rather, the gatekeeper role of the court at the certification stage is to apply a reduced level of scrutiny in assessing whether the expert evidence adduced meets the "low threshold" required to show that damages can be established on a class-wide basis on common evidence. In conformity with the liberal and purposive interpretation that must be given to the provisions of the Class Proceedings Act, the Court noted that the plaintiff's evidentiary burden is not an onerous one and requires only "a minimum evidentiary basis."
The Court also found that a class proceeding was the preferable procedure in this case, noting that despite the complexities involved in the marketing and distribution of DRAM, the Class Proceedings Act is a powerful and flexible procedural statute that provides case management judges with the appropriate tools to manage such complexity. Finally, the Court held that the representative plaintiff is, at least at this stage of the proceedings, a suitable representative plaintiff in light of its common interest with all class members in establishing the defendant companies' wrongful conduct and the aggregate amount of their alleged unlawful gain.
The Significance Of DRAM
The British Columbia Court of Appeal's unanimous decision is significant because it marks the first time that a senior appellate court in Canada has granted the certification of an antitrust class action on a contested basis. But on its face, the B.C. Court of Appeal's decision appears to represent a marked departure from the existing law in Canada. In prior cases, numerous courts have held that the aggregation provisions in class proceedings legislation were intended to assist with the valuation of damages at trial once liability has already been determined on the merits, and cannot be used to establish the existence of class-wide issues at the certification stage. In addition, the Court's apparent reliance on the existence of pleas in the U.S. to establish common issues overlooks the substantive differences between the conspiracy offences in Canada and in the U.S. Furthermore, the Court appears to have endorsed a more deferential and less "rigorous" approach to the assessment of the plaintiff's proposed expert methodologies that is difficult to reconcile with the Ontario Court of Appeal's decision in Chadha and the recent case law on class certification in the U.S. Finally, the Court appears to have overlooked the inherent conflicts associated with a class proceeding that includes direct and indirect purchasers.
Given the facial conflict between the B.C. Court of Appeal's decision in the DRAM case and the Ontario Court of Appeal's decision Chadha, this area of law may be ripe for review by the Supreme Court of Canada. But in the interim, the Court's decision in the DRAM case will likely encourage the pursuit of further antitrust class proceedings in Canada, particularly in international conspiracy cases.
A copy of the full decision in the DRAM case is available upon request. Please contact the authors of this article.
Peter Franklyn is the Chair of the firm's highly regarded Competition/Antitrust Law Group. Christopher Naudie is a partner in the Litigation Department in firm's Toronto office. Tris Mallett is the Managing Partner of Osler, Hoskin & Harcourt LLP's Calgary office where he carries on a litigation practice focussed on complex corporate and commercial disputes.
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