On September 20, 2019, the Supreme Court of Canada (the SCC or Court) released its much-anticipated decision in Pioneer Corp v Godfrey (Godfrey), a case concerning long-debated issues relating to the certification of price-fixing class actions.1
While Godfrey will no doubt be known as the decision that confirmed "umbrella purchasers" can bring claims under s. 36(1) of the Competition Act (the Act), the most significant developments in Godfrey may be the 8-1 majority's approval of the certification of loss as a "common" issue for trial absent a finding that loss was determinable on a class-wide basis, and the incisive dissent of Côté J., which critiqued the majority's reasoning on that issue.
In addition to the umbrella purchaser issue and certification of loss question, the majority also addressed other issues relevant to the certification of price-fixing class actions in Canada, holding that (i) s. 36 of the Act is not a "complete code" for civil redress – a plaintiff may pursue a statutory claim for damages under s. 36(1) concurrently with a claim for civil conspiracy under the common law; and (ii) the discoverability rule applies to the limitation period in s. 36(4)(a)(i) of the Act.
In 2013, Neil Godfrey initiated a putative class action in British Columbia alleging that the defendants participated in a global price-fixing cartel that resulted in overcharges to British Columbians for optical disc drives and related products. In addition to direct and indirect purchasers of the defendants' products, the proposed class included "umbrella purchasers" – i.e., consumers who purchased products not from the alleged conspirators, but from their non-conspiring competitors.
The theory of umbrella liability derives from the notion that cartel activity could create an "umbrella" of supra-competitive prices that enable non-cartel members to set their prices higher than they otherwise would have under normal conditions of competition. In other words, in certain circumstances, a price-fixing conspiracy can increase prices of all relevant products in the market, not just those sold by the alleged conspirators.
Godfrey sought to certify a number of causes of action against the defendants, including both statutory conspiracy claims under s. 36 of the Act and the common law tort of civil conspiracy.
The BCSC certified the action as a class proceeding. The certification decision was upheld by the BCCA in 2017, and the defendants appealed to the SCC. One defendant appealed on issues related to limitation periods, discoverability and fraudulent concealment, while another defendant appealed on issues related to loss certification, the availability of common law conspiracy claims for price-fixing, and on the issue of whether umbrella purchasers have a cause of action under s. 36(1)(a). Their appeals were heard together in December 2018.
Certifying loss as a common issue
In Godfrey, the defendants argued that the standard outlined in the SCC's 2013 Microsoft decision2 required a plaintiff's expert methodology be capable of determining the existence of loss on a class-wide basis by either (i) demonstrating loss to each and every class member; or (ii) distinguishing between class members who suffered loss and those who did not. The defendants' position was that the methodology proposed by the plaintiff's expert failed to meet either of these requirements.
The majority rejected this argument. First, Brown J. disagreed with the defendants' characterization of the plaintiff's expert evidence holding that the plaintiff's expert had testified that "all class members were impacted" by the anti-competitive behaviour and therefore the methodology used in the lower courts in Godfrey satisfied the first requirement proposed by the defendants.
Second, Brown J. reasoned that, in any event, on certification a court need only be satisfied that the plaintiff has shown a plausible methodology to establish that the loss reached "one or more" claimants at the "purchaser level." For an indirect purchaser class, this would simply require a plausible methodology for showing that direct purchasers passed on the overcharge to at least one member of the putative class. The majority held that the methodology need not be capable of demonstrating loss to the entire class nor of identifying which class members suffered loss and which did not.
In addressing the related issue of aggregate damages, Brown J. acknowledged that certification of loss as a common issue in Godfrey could result in a failure to determine liability at the common issues trial. If the common issues trial judge found that it was impossible to determine on the plaintiff's expert methodology which class members had suffered a loss and which had not, individual issues trials would be required to determine the class members to whom the defendants are liable. Nevertheless, the majority reasoned that showing that loss reached the indirect purchaser level satisfies the criteria for certifying loss as a common issue under the B.C. Class Proceedings Act because the resolution of the issue would advance the litigation and would result in common success in the sense that success for one class member will not result in failure for another.
According to Côté J., this reasoning is problematic. In particular, Côté J. emphasized the distinction between (i) proving that loss reached the indirect purchaser level; and (ii) proving that loss reached all or an identified group of indirect purchasers. Justice Côté reasoned that loss is an essential element of both the statutory cause of action under s. 36 of the Act and the pleaded claims in conspiracy and unjust enrichment, and therefore a common issues trial judge cannot impose liability on the defendants if the plaintiff cannot show which class members actually suffered a loss. Further, Côté J. viewed the majority's reliance on Microsoft as misplaced. Specifically, a careful reading of Microsoft suggests that Pro-Sys's loss-related questions were found to be resolvable on a "class-wide" basis because there was a credible and plausible methodology capable of answering them in respect of all of the class members at the common issues trial. Justice Côté disputed the majority's finding that Microsoft was supportive of the proposition that a methodology that merely shows that some loss reached the indirect purchaser level in the distribution chain was sufficient to certify loss-related questions as common issues.
Umbrella purchasers have a statutory cause of action under s. 36(1)(a)
The majority of the Court agreed with the BCSC and the BCCA, holding that umbrella purchasers do have a statutory cause of action under s. 36(1)(a) of the Act.3
Writing for the majority, Brown J. described the theory of umbrella pricing as the idea that "a rising tide lifts all boats" wherein a cartel's conduct is alleged to affect the entire market for the subject product. Justice Brown held that the language of s. 36(1)(a) of the Act is, at a minimum, broad enough to encompass the claims of umbrella purchasers.
In particular, Section 36(1)(a) provides a cause of action to "any person who has suffered loss or damage" as a result of conduct contrary to Part VI of the Act.4 The majority found that Parliament's use of "any person" in this provision does not narrow the realm of possible claimants. Rather, it empowers any claimant who can demonstrate that loss or damage was incurred as a result of the defendant's breach of Part VI of the Act to bring a claim. The majority noted that this interpretation of s. 36(1)(a) furthers two important objectives of the Act – namely, the deterrence of anti-competitive behaviour, and the compensation for victims of such behaviour.
Sections 36 and 45: not a complete code for conspiracy
Another important issue in Godfrey was whether a breach of the Act could support the unlawfulness element for certain common law causes of action, including the tort of unlawful act/means conspiracy. On appeal, the defendants argued that this was not possible because the provisions of the Act formed a "complete code" for recovery of civil damages for breaches of the Act, displacing common law causes of action, such as conspiracy.
The majority rejected this argument. Brown J. held that courts have long recognized a tort of civil conspiracy based on the breach of a statute. A breach of the Act is no exception. Brown J. emphasized that the law admits of no ambiguity on this point, the question having been settled in A.I. Enterprises Ltd. v Bram Enterprises Ltd.5
The Court confirmed that plaintiffs may pursue claims in tort for civil conspiracy at common law concurrently with claims under s. 36(1) of the Act.
Discoverability rule applies to s. 36
Finally, the majority of the Court held that the common law rule of discoverability applies to the two-year limitation period in s. 36(4)(a)(i) of the Act. In other words, the limitations clock for a plaintiff begins to run only when the material facts are, or ought to be discovered by the plaintiff through the exercise of reasonable diligence.
In his reasoning, Brown J. observed that the discoverability rule is not technically a rule of limitations, but rather a rule of construction that aids the interpretation of statutory limitation periods and which can be displaced by legislation. According to Brown J., Parliament did not intend to displace discoverability, which would result in a plaintiff's right of action under s. 36(1)(a) of the Act expiring before they knew of alleged anti-competitive behaviour. Further, and in any event, Brown J. held that a plaintiff's ability to advance claims for loss arising out of conduct in breach of Part VI of the Act outweighs a defendant's interest in barring them, especially where such conduct is concealed from the plaintiff.
While the Court resolved a number of competition law issues that have been debated in Canada in recent years, there are two key takeaways from Godfrey.
First, umbrella purchasers in Canada are now free to advance statutory claims for conspiracy under s. 36(1)(a) of the Act.
Second, the majority in Godfrey has effectively downloaded determinations on the commonality of loss in a price-fixing class action from the certification judge to the judge at the common issues trial. This potentially opens the door for the certification of price-fixing class actions in cases where liability cannot ultimately be determined at a common issues trial. It remains to be seen what impact this ruling might have on the determination by certification judges of other certification criteria under provincial class proceedings legislation, including whether such price-fixing class actions are "manageable" or constitute a "preferable procedure."
1. 2019 SCC 42 [Godfrey].
2. Pro-Sys Consultants Ltd v Microsoft Corporation, 2013 SCC 57.
3. The Ontario Court of Appeal reached the same conclusion in Shah v LG Chem Ltd, 2018 ONCA 819.
4. Emphasis added.
5. 2014 SCC 12.
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