Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Class Actions, April 2011
On April 15, 2011, the British Columbia Court of Appeal released its reasons for judgment in two important class actions brought in British Columbia: Pro-Sys Consultants Ltd. v. Microsoft Corporation and Sun-Rype Products Ltd. v. Archer Daniels Midland Company.
The action against Microsoft, which had been certified as a class proceeding, alleged that Microsoft had engaged in various kinds of anticompetitive behaviour that purportedly allowed it to overcharge for its products. The class members were all indirect purchasers who had purchased computers or software licences from various stores, distributors, or manufacturers who had installed Microsoft operating systems and application software into those computers.
The plaintiffs alleged that Microsoft had combined with the computer manufacturers in schemes to exclude competition and keep prices higher than they should have been. The plaintiffs further alleged that the overcharges at the direct-purchaser level were passed through to the indirect purchasers, and they claimed redress in tort and restitution.
The majority of the British Columbia Court of Appeal set aside the certification order and dismissed the action. The court held the pleadings failed to disclose a cause of action that could be maintained at law on the basis of the decision of the Supreme Court of Canada in Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1, [2007] 1 S.C.R. 3 in which the Supreme Court rejected the pass-on defence as a matter of law. On this basis, the Court of Appeal held that it follows that any passing on of an overcharge is not recognized in law and cannot give rise to a cause of action for its recovery by those to whom the charge was in whole, or in part, said to have been passed on. To hold otherwise would result in liability for double recovery; that is, some of or all of the same charge being recoverable from the defendant twice.
The court further held that Canadian law was consistent with American federal law, as established by the Supreme Court of the United States in Hanover Shoe v. United Shoe Machinery Corp. and Illinois Brick Co. v. Illinois.
In the Sun-Rype Products Ltd. case, the court allowed the appeal from a certification order and declared that the pleading did not disclose a cause of action as against the indirect purchasers of high-fructose corn syrup, a sweetener used in various food products.
In this case, the plaintiffs alleged that the defendants had fixed the price of high-fructose corn syrup. Claims were asserted on behalf of both direct and indirect purchasers. The court allowed the appeal on the basis that there was no passing on defence in Canadian law and no sound basis upon which it could be said that a claim can be made for an illegal overcharge that may have been passed on to an indirect purchaser.
These two decisions of the British Columbia Court of Appeal are the clearest statements from a Canadian appellate court that the passing on defence will not be recognized in anticompetitive or restraint of trade cases. These decisions are further signals that Canadian and federal U.S. rulings on this important issue are consistent.
It is anticipated that the plaintiff in both cases will seek leave to appeal to the Supreme Court of Canada.
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