Two recent decisions in Ontario and British Columbia certifying class actions alleging price fixing indicate that the courts in Canada may be adopting a new approach to these types of claims, potentially opening the door to more litigation in this area. On November 12, 2009, in Pro-Sys Consultants Ltd. v. Infineon Technologies AG,1 the British Columbia Court of Appeal reversed a lower court decision and certified a class proceeding involving allegations of a price-fixing conspiracy among producers of dynamic random access memory ("DRAM"), a memory chip used in computers and many other electronic devices. The Pro-Sys case was preceded by the decision handed down on September 28, 2009 by Justice Rady of the Ontario Superior Court of Justice, in Irving Paper Limited et al. v. Atofina Chemicals et al.,2 certifying a class proceeding involving allegations of price fixing among producers of hydrogen peroxide. These are the first class actions based on a multilateral price-fixing conspiracy that have been certified in Canada when certification has been contested by the defendants. Until now, such cases had been certified as class actions only in the context of a consent certification in furtherance of a settlement.
The central allegation in both of these actions and in similar actions is that the defendant competitors entered into an unlawful agreement relating to the pricing or supply of a particular product which resulted in an increase in price (or "overcharge") paid by purchasers of the product over what would otherwise have been paid in a competitive market absent such unlawful agreement. The central claims in these types of actions are usually based on the tort of conspiracy and the civil liability provisions of the Competition Act. The proposed plaintiff class typically includes both direct purchasers of the product (those who purchased the product in unaltered form directly from one of the defendants) as well as indirect purchasers (those who purchased the product from direct purchasers or other indirect purchasers, often as a component of a further manufactured or processed good). Both groups are alleged to have suffered harm as a result of increased prices. For example, in the DRAM case it is alleged that direct purchaser computer manufacturers paid higher prices for DRAM which resulted in higher prices for those computers purchased by consumers as indirect purchasers of DRAM.
Historically, the problem plaintiffs have faced in the certification of these claims as class actions stems from the determination of how much, if any, of the overcharge paid by the direct purchasers was "passed through" from the direct purchaser down through the chain of distribution to the indirect purchasers. If the overcharge is absorbed entirely by the direct purchaser without any resulting increase in price paid by the indirect purchasers, then the indirect purchasers have suffered no harm. Conversely, if the direct purchaser passed through the entire overcharge to the indirect purchasers, the direct purchaser has suffered no harm (assuming the increased prices do not result in a decrease in sales). As harm is a component of liability both in the tort of conspiracy and in related claims for damages under the civil liability provisions of the Competition Act,3 class members who have suffered no harm arguably have no actionable claim. The pass through issue presents a problem in the class action context because the question of whether pass through occurred and, accordingly, whether class members actually suffered harm, is not easily determinable on a class-wide basis. The question of whether the existence of harm can be determined on a class-wide basis has been the focus of certification motions in price-fixing class actions, a battle typically fought through the evidence of expert economists. The plaintiff presents expert evidence in support of proposed methodology for the class-wide determination of harm; the defendant files expert evidence in response contesting the viability of the plaintiff's proposed methodology and arguing that harm for any class member can only be determined by examining the existence and extent of pass through over the entire chain of distribution in respect of each class member's individual purchase transaction. Prior to the Pro-Sys and Irving Paper decisions, on contested certification motions in price-fixing class actions Canadian courts, including the Ontario Court of Appeal in Chadha v. Bayer,4 have generally accepted the opinions of the defence experts, holding that the inability to determine the existence of harm (and therefore liability) on a class-wide basis makes these cases unsuitable for certification as a class action.
Similar expert evidence on the class-wide determination of harm was filed by the plaintiff and the defence in both the Pro-Sys and Irving Paper cases. The courts in these cases certified the class actions not because they rejected the defence expert evidence in favour of the plaintiff's, but because they appear to have applied a lower threshold for certification. Neither court required the plaintiff to demonstrate that the existence of harm could, in fact, be determined on a class-wide basis. In Pro-Sys, the B.C. Court of Appeal held that the plaintiff had met its evidentiary burden on certification if the proposed methodology for the class-wide determination of harm was merely "plausible" or "credible". In Irving Paper, Justice Rady held that she need only be satisfied that such a methodology "may" exist. Both courts held that it was inappropriate for the court to weigh and consider the expert evidence on this issue at the certification stage and that the viability of the plaintiff's proposed methodology was ultimately an issue for the class action trial judge.
The courts in both Pro-Sys and Irving Paper also relied on the provisions in the provincial class action statutes that provide for the use of statistical evidence to determine damages to the class in the aggregate. Both courts held that such statistical evidence could be employed not only to assess the total amount of the damages to the class but also to support a determination of liability, potentially avoiding the need to demonstrate harm to each class member on an individual basis. Following a recent decision of the Ontario Court of Appeal, Justice Rady held that the plaintiff need only demonstrate "potential" liability to engage the aggregate assessment provisions in the legislation.
Taken together, the Pro-Sys and Irving Paper decisions signal a possible shift in direction for price-fixing class actions in Canada. Not only are these two decisions inconsistent with prior jurisprudence on price-fixing class actions, but the suggested use of statistical evidence and aggregate assessment to determine liability absent proof of individual harm also appears inconsistent with the well-established principle that a class proceeding is a procedural mechanism only and should not affect the substantive legal rights of the parties. An appeal has already been filed in the Irving Paper case and one is expected in Pro-Sys. Given the inconsistency with earlier jurisprudence (Chadha v. Bayer in particular), until these appeals are heard and determined, the law in this area will remain somewhat uncertain. In the meantime, we expect that class action plaintiffs' counsel will view these decisions as tilting the landscape in their favour, potentially resulting in an increase in litigation.
Footnotes
1. 2009 BCCA 503.
2. 89 O.R. (3d) 578.
3. R.S.C., 1985, c. C-34, s. 35
4. Chadha v. Bayer, 63 O.R. (3d) 22.
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