Canada: Certification In Irving Paper Signals End Of "High Water" For Defendants In Competition Class Actions

In her recent decision in Irving Paper Ltd. v. Atofina Chemicals Inc., [2009] O.J. 4051 (S.C.J.), Justice Rady of the Ontario Superior Court of Justice issued an order granting certification of a price-fixing class action involving both direct and indirect purchasers.

The representative plaintiff Irving Paper Limited, a New Brunswick-based paper mill, alleged that the defendants, FMC and Arkema Canada Inc. (a chemical company operating in the agricultural, industrial and consumer markets and a hydrogen-peroxide manufacturer) conspired to and did allocate markets, restrict supply and increase the price of hydrogen peroxide.

Hydrogen peroxide is an inorganic chemical used in many applications as a bleaching or oxidizing agent and is considered an environmentally friendly and sustainable chemical. This has led to a recent increase in its use in industrial and commercial applications, including pulp and paper, cosmetics, electronics and laundry detergent.

The alleged conspiracy has also been the subject of litigation in the U.S., where in parallel proceedings two defendants have already pleaded guilty, as well as an investigation by the European Commission, which resulted in fines for nine companies that were found to have participated in a cartel in the European hydrogen-peroxide market. Furthermore, a similar proceeding has already been certified in the U.S.

The defendants argued that the proposed class proceeding was unmanageable and wholly unsuitable for class treatment because of the enormousness of a class that would include both direct and indirect purchasers and the extremely long class period. Conceivably, they said, the class could include all residents of Canada. They predicted that serious issues would arise with respect to "pass-on," which occurs when direct purchasers pass on some or all of any price increase to indirect purchasers, and claimed that the evidence required to demonstrate any overcharge and whether it was actually included in the purchase price at all points in the distribution chain is complex and either unavailable or too costly to obtain. The defendants further submitted that the plaintiffs could not establish harm or damage on a class-wide basis, since hydrogen-peroxide products consist of a diverse set of chemicals with different applications and end-users, with each end-user industry having its own demand-and-supply characteristics and idiosyncrasies.

The case law has long recognized the ease with which direct purchasers can be recognized as an identifiable class in price-fixing class actions, especially in post-settlement certification. However, when it comes to allegations of price-fixing, potential plaintiffs composed of an indirect-purchaser class would likely not find previous jurisprudence an adequate basis for inspiration in considering whether to bring a contested motion for certification.

In the seminal competition class action case Chadha v. Bayer [2003], 63 O.R. (3d) 22 (C.A.) (Chadha), the plaintiffs alleged a conspiracy by the defendants to fix the price of iron oxide used in concrete bricks, contrary to the Competition Act, causing the ultimate purchasers of concrete bricks to incur an increased cost on their homes. It was ultimately decided that a class action was not the preferable procedure for claims brought by the indirect purchasers and that they had failed to provide an adequate evidentiary basis to establish loss, which was an essential component of liability. Chadha dealt with indirect purchasers for whom the proof of damages would necessarily be individual rather than aggregate.

However, the recent decision of the Ontario Superior Court in Irving Paper recognizes the breadth of the Court's liberal interpretative ability when it comes to the Class Proceedings Act (S.O. 1992, c. 6) (CPA).

In coming to her ultimate decision to certify the action, Justice Rady analyzed previous price-fixing cases dealing with post-settlement certification, as well as cases where certification motions were disputed.

Based on her analysis of post-settlement-certification case law, Justice Rady determined that it appeared that a class could be certified in an alleged price-fixing action, provided its prospective members shared a common issue and the class action would avoid multiple claims as well as duplication of fact-finding and legal analysis. She noted, however, that it did seem that the size of the classes would have an impact on their manageability.

On examination of disputed certification motions, Justice Rady concluded that there are considerable impediments to certification in price-fixing class actions involving indirect purchasers and stated that, "simply put, given their number, they must demonstrate a methodology to establish damages on a class-wide basis and avoid individual inquiries in order to succeed."

Notably, in analyzing the five steps for certification, Justice Rady concluded that the reasoning in Markson v. MBNA Canada Bank, [2007] 85 O.R. (3d) 321 (C.A.)) (Markson) and Cassano v. Toronto-Dominion Bank, [2007] O.J. No. 4406 (C.A.) (Cassano) was applicable. While neither of these cases involved price-fixing conspiracies, they raised the issue of the determination of damages on a class-wide basis and the aggregate assessment of damages, concluding that s. 24 of the CPA could provide a mechanism by which to calculate damages that otherwise would have to be determined on a case-by-case basis. A further conclusion was that at the certification stage a plaintiff need only establish a reasonable likelihood that aggregate assessment of damages could be made, and that an action may well be certified as a class proceeding even in cases where individual assessments of damages in small amounts may be necessary; otherwise, "the purposes of the CPA would be seriously eroded."

Justice Rady also considered the 2008 B.C. Supreme Court decision in Pro-Sys Consultants Ltd. v. Infineon Technologies Inc. [2008] B.C.J. No. 831 (S.C.)) in which Justice Masuhara refused to certify an indirect class, and held that the principles in Markson and Cassano had no application. At the time of Justice Rady's decision, Pro-Sys was under appeal; however, the B.C. Court of Appeal has just released reasons overturning Justice Masuhara (see [2009] B.C.C.A. 503).

Identifiable Class

Commenting that the class definition should not be overly broad or include persons who have no claim against the defendants while noting that, on the other hand, the class must not be defined so narrowly that it arbitrarily excludes persons with claims similar to those asserted by class members, Justice Rady agreed with the plaintiffs' class proposal, which encompassed all persons in Canada (excluding the defendants and their subsidiaries, affiliates and predecessors) who purchased hydrogen peroxide as well as products containing, or produced using, hydrogen peroxide in Canada between January 1, 1994 and January 5, 2005.

In holding that both direct and indirect purchasers could be part of the identifiable class, Justice Rady dismissed the defendants' argument that the proposed class definition was too large and thus unsuitable. Justice Rady reasoned that a result to be avoided is one where large numbers of the population are affected by "bad behaviour" engaged in by defendants who -knowing that the individuals affected would be most unlikely to bring individual actions-would effectively receive immunity from those actions. Justice Rady, incorporating Justice Rosenberg's words from Markson, noted that "the only serious issue is how many members of the class actually suffered economic loss," pointed out that some members of the class may have suffered no loss, and concluded that it is not necessary to show that every member of the class suffered damage.

Common Issues

In Justice Rady's view, at the heart of the debate was whether the decision in Chadha has been overtaken by the Court of Appeal decisions in Markson and Cassano. Her Honour held that these two decisions signal a different approach to be taken to certification, namely that plaintiffs need only prove that the defendants acted unlawfully to trigger the aggregate assessment provisions of the CPA.

Justice Rady found that the common issues surrounding the existence and scope of conspiracy could be made without any reference to individual class members and would significantly advance the litigation. The real question to be determined was whether there was sufficient evidence to support the plaintiffs' contention that the fact of harm and aggregate damages were valid common issues.

Although the plaintiffs' and the defendants' experts fundamentally disagreed on many aspects of the damage analysis, the underlying assumptions and the methodologies proposed for assessing whether the fact of harm and aggregate damages were appropriate and viable common issues, Justice Rady held that, at this stage of the proceeding, a court is ill-equipped and not required to reconcile competing expert opinions. In her view, she need only be convinced that a methodology may exist for the calculation of damages and that, although the defendants' expert's criticisms may be well-founded, the plaintiffs' expert had postulated such a methodology. Thus, Justice Rady held, the plaintiffs should be given the opportunity to advance their arguments at trial on the basis of a full evidentiary record.

Preferable Procedure And The Representative Plaintiff

In finding that a class proceeding would be the preferable procedure in this case and rejecting the defendants' position that no litigation would be preferable, Justice Rady found that the three objectives of the CPA would be satisfied and the proceeding would be a fair, efficient and manageable way of advancing the claim.

Behaviour modification would be induced by discouraging future "bad behaviour" through an accounting for the economic harm caused, should the alleged behaviour be found to have taken place. Access to justice would be found, particularly by the indirect class for whom the amounts involved were likely small. And judicial economy favoured the determination of whether there was a conspiracy on a class-wide basis. It was not necessary to establish that damages were suffered by every member of the class, and so the use of the aggregation provisions of the CPA favoured certification.

On the final stage of the test for certification, the adequacy of the representative plaintiff, Justice Rady agreed with the defendants' submission that there may be a conflict between the direct and indirect purchasers arising from the impact of passing-on. However, she was not persuaded that this conflict disqualified them from acting in a representative capacity.

Conclusion

Subject to any appeal, this decision represents a shift in competition class actions, to the extent that, despite the statutory requirement for both liability and damages, Justice Rady concluded that based on Markson and Cassano, only "potential liability" was relevant, and damages could be aggregated. Defendants will clearly have a significant hurdle to overcome unless and until the Court of Appeal clarifies the relationship between the statutory cause of action under the Competition Act, and the courts' interpretation of s.24 of the CPA.

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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