Competition class actions are on the upswing in Canada, especially those involving allegations of price-fixing. Two upcoming developments could have a significant impact on whether the number of competition class actions continues to increase:
- the ultimate outcome of two class certification applications in British Columbia and Ontario; and
- the coming into force of amendments to Section 45 of the Competition Act on March 12, 2010.
The British Columbia and Ontario Applications
In a class action alleging price-fixing, classes of purchasers of the allegedly price-fixed products claim damages for higher prices paid (overcharges) as a result of the alleged conspiracy. To date, there have been several settlements of competition class actions, but plaintiffs have had limited success in contested certification applications. That is largely because price-fixing allegations raise difficult issues relating to the pass-through of any overcharge through the distribution chain. While the existence (or not) of a conspiracy can be an issue common to all class members, that is not the end of the story: the plaintiffs must also prove where in the distribution chain any loss was suffered. Members of the proposed class may have conflicting interests, especially when the proposed class includes direct and indirect purchasers. Hence, liability may not be a common issue for the class, and a class proceeding may not be the preferable procedure for resolution of the dispute. In recent cases, the British Columbia and Ontario courts took different approaches to these issues and came to different conclusions. The ultimate outcome of these cases could have a significant impact on future class actions in this area.
Pro-Sys Consultants Ltd. v. Infineon Technologies AG
In its May 2008 decision in Pro-Sys Consultants Ltd. v. Infineon Technologies AG, the British Columbia Supreme Court refused to certify a class action on behalf of direct and indirect purchasers of DRAM (Dynamic Random Access Memory) products, which are memory chips used in personal computers and other "high tech" products. The proposed class was " ... all persons resident in British Columbia ... who purchased DRAM or products which contained DRAM in, into or from British Columbia ...." The court denied certification because the plaintiffs had failed to establish that liability to class members was a common issue: the plaintiffs did not demonstrate "a class-wide basis of establishing that an overcharge filtered down to and was borne by direct and indirect purchasers of DRAM products in British Columbia." Without this methodology to identify harm on a class-wide basis, the court found that the case "dissolves into a series of individual inquiries that would overwhelm the common aspects of the case." The decision has been appealed to the British Columbia Court of Appeal and the appeal court's decision is under reserve.
Irving Paper Ltd. v. Atofina Chemicals Inc.
In contrast, the Superior Court of Ontario, in its September 2009 decision in Irving Paper Ltd. v. Atofina Chemicals Inc., granted certification of a proposed class consisting of "all persons in Canada ... who purchased hydrogen peroxide, products containing hydrogen peroxide, or products produced using hydrogen peroxide in Canada ...." The proposed class included virtually the entire Canadian population. Nevertheless, the court granted certification on the basis that a) it is not necessary for plaintiffs to demonstrate that liability is a common issue for all members of the class, and b) with respect to pass-through, at the certification stage, the court only needs to be satisfied that a "methodology may exist for the calculation of damages." Hence, the court certified the case by essentially deferring the pass-through issue to the trial judge. The defendants in the hydrogen peroxide case have sought leave to appeal the decision from the Ontario Divisional Court.
The approaches taken by the courts in these two cases are markedly different. If the British Columbia Court of Appeal ultimately accepts the DRAM case approach of requiring plaintiffs to demonstrate, at the certification stage, a viable method of dealing with pass-through issues, plaintiffs will continue to have difficulty certifying price-fixing cases. On the other hand, if the courts adopt the approach of deferring that issue to trial, as was done in the Ontario hydrogen peroxide case, more cases are likely to be certified.
Competition Act Amendments
In January 2009, the Parliament of Canada enacted significant amendments to the Competition Act. Most of those amendments came into force in 2009, but one of the more significant amendments was deferred to March 12, 2010 — the one changing the conspiracy provisions in Section 45 of the Competition Act. For a discussion of details of changes to Section 45 and other significant changes to Canada's competition laws, see our August 2009 issue.
The current Section 45 requires the Crown (and class action plaintiffs) to demonstrate in a price-fixing case that the agreement in question is likely to lessen competition "unduly." Under the new Section 45, that element will be removed for agreements among competitors involving price-fixing, market allocation or supply restriction. Instead, those agreements will be subject to criminal prosecution and civil liability upon proof of the existence of the agreement. The Crown and class action plaintiffs will no longer be required to prove that the alleged conspiracy is likely to have anti-competitive effects. This will bring Canada's conspiracy law more in line with that of the United States, where there has been per se liability for so called "hard core" price-fixing for a considerable period of time.
From a class action perspective, the new Section 45 will make it easier for class action plaintiffs to prove liability by removing the requirement that they prove anti-competitive effects. This may lead to some increase in class action activity.
McCarthy Tétrault Notes:
The new Section 45 may encourage plaintiffs' class action counsel to bring more price-fixing cases. However, under the new Section 45, the plaintiffs will still have to prove damages and will still have to deal with "pass-through" issues. As such, whether the number of competition class actions in Canada will continue to increase is likely to depend more on the outcomes of the DRAM and hydrogen peroxide cases than on the enactment of new Section 45.
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.