Earlier this morning, the Supreme Court of Canada released a trilogy of decisions in three pending class actions appeals that have revisited the scope and availability of class proceedings for consumers in Canada, particularly in respect of allegations of anti-competitive harm. In its trilogy of decisions, the Court addressed the evidentiary threshold of certification in the common law provinces and Quebec, the relative standards for class certification in Canada vs. the U.S., the requirement to demonstrate an identifiable class, the test for jurisdiction over foreign defendants as well the standing of indirect purchasers to assert a claim under the Competition Act. The Supreme Court’s rulings in these cases are particularly significant, since this is the first time in over 10 years that the court had revisited the evidentiary threshold for class certification, and the first time in over 20 years that our highest court had considered the scope of the private right of action for anti-competitive conduct.
In summary, the Court issued a landmark ruling that reiterated that plaintiffs face a relatively low evidentiary threshold for class certification, particularly relative to the standard of certification that exists in the U.S. courts. Moreover, the Court found that consumers and indirect purchasers can assert a claim for anti-competitive harm under the Competition Act. However, the Court also rejected certification of one proceeding, and reiterated that plaintiffs must still adduce persuasive evidence to meet the requirements for class certification. It is particularly notable that the Court rejected certification of one class proceeding on the basis of the lack of an identifiable class, and that ruling will have implications for many class proceedings pending before the courts in respect of competition cases, securities cases, product liability cases and other cases. The significance and meaning of the rulings will no doubt be debated among the class action bar in Canada for years to come.
Brief Background
By way of background, in 2012, our Supreme Court granted leave to appeal and heard argument in three certification appeals in connection with a number of leading antitrust class proceedings in Canada – namely, Pro-Sys Consultants Ltd. v. Microsoft Corporation (from British Columbia, relating to a class action based on price-fixing allegations in connection with Microsoft operating systems), Sun-Rype Products Ltd. v. ADM (from British Columbia, relating to a class action based on price-fixing allegations in connection with high-fructose corn syrup) and Infineon Technologies AG v. Option Consommateurs (from Quebec, relating to a class action based on price-fixing allegations in connection with DRAM computer chips). In each case, a class proceeding had been brought in Canada on the heels of a similar class proceeding in the U.S. The Supreme Court granted leave/certiorari primarily to consider the core issue of whether indirect purchasers have a cause of action under our federal Competition Act (i.e., whether Illinois Brick applies in Canada), but argument proceeded on all certification and jurisdictional issues, including the evidentiary standard for class certification in Canada as well as the test for personal jurisdiction over foreign defendants in Canada.
The Findings
The Supreme Court had these decisions under reserve for over a year, which is an unusually long period for the court. The Court rendered its rulings this morning. The key findings:
- The Court Issued a Mixed Ruling. In the result, the Supreme Court unanimously (9-0) certified the indirect purchaser class in Microsoft and the combined direct and indirect purchaser class in DRAM. However, a majority of the Court (7-2) rejected certification of the direct and indirect purchaser class in Sun-Rype, subject to a dissent.
- The Court Recognized the Right of Action of Indirect Purchasers. In the Microsoft case, the Supreme Court ruled that a defendant in Canada is generally precluded from asserting a passing-on defence in an antitrust class proceeding (i.e., the Court largely adopted the rule of Hanover Shoe in the U.S.). However, the Supreme Court took note of the ongoing criticism of the unpopular rule of Illinois Brick in the U.S. that bars indirect purchaser claims, and found that an indirect purchaser may nonetheless assert a cause of action under the Competition Act and an indirect purchaser class action may be certified in the common law provinces in Canada. In the DRAM case in Quebec, the Supreme Court held that similar principles apply for the purposes of the Quebec civil law, and an indirect purchaser class action may be certified in Quebec as well. In other words, the Court rejected the application of Illinois Brick in Canada, in spite of the concerns of potential double recovery on behalf of direct and indirect purchasers.
- The Court Clarified the Evidentiary Standard on Certification. In the Microsoft case, the Supreme Court also specifically considered the evidentiary standard of class certification in the common law provinces in Canada. The Court considered the “rigorous” approach to class certification that had recently evolved in the U.S. as reflected in the U.S. Supreme Court’s decision in Wal-Mart v. Dukes and the Third Circuit’s decision in Hydrogen-Peroxide. However, the Supreme Court rejected these authorities and held that this “rigorous” approach of class certification does not apply in Canada. Rather, for the purposes of establishing the requirements of certification in the common law provinces, the plaintiff does not need to prove the existence of the certification requirements on a balance of probabilities. Furthermore, the court does not need to resolve “conflicting facts and evidence at the certification stage”. Rather, in class proceedings that involve potential issues of loss, a plaintiff need only adduce a “credible” or “plausible” methodology to try these issues of loss and liability on a class-wide basis. In an antitrust class proceeding, “the methodology must offer a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge is eventually established at the trial of the common issues, there is a means by which to demonstrate that it is common to the class”. The methodology must be “grounded in the facts” and “there must be some evidence of the availability of the data”. In the DRAM case in Quebec, the Court held that the standard of certification in Quebec is lower, since the evidentiary burden is “less demanding” under the Civil Code. The plaintiff must demonstrate an “arguable case that an injury was suffered” and “presentation of expert evidence is not the norm at the authorization stage in Quebec”.
- The Court Reiterated that a Plaintiff Must Demonstrate an Identifiable Class. In applying those principles, the Supreme Court certified the indirect purchaser class action in the Microsoft case. However, the Court declined certification of the indirect purchaser class action in the Sun-Rype case, largely on the basis that the plaintiffs had failed to establish “some basis in fact” that there existed an identifiable class, since the plaintiffs did not offer any evidence to show that two or more persons could prove that they purchased a product actually containing high-fructose corn syrup during the class period (i.e., the class members could not self-identify). In such cases, the Court held that the goals of the Competition Act were best left to criminal enforcement by the Commissioner of Competition.
- The Court Found Jurisdiction Over Foreign Defendants in respect of Foreign Anti-Competitive Conduct. In a significant finding in the DRAM case, the Supreme Court held that the Quebec Superior Court could exercise jurisdiction in respect of foreign based price-fixing arrangements that were entered into outside Canada, provided that there is some indication of injury or “economic damage” on a consumer in Quebec.
- The Court Found that the Potential Conflict Between Direct and Indirect Purchasers was Not a Bar to Certification. In both the Sun-Rype and DRAM cases, the Court was faced with a proposed consolidated direct and indirect purchaser class, but the court found that the existence of a potential conflict was not a bar to certification, given that all purchasers have an interest in the common issues relating to the alleged existence of anti-competitive conduct.
In summary, plaintiffs and defendants will each find some silver linings in this trilogy of decisions, and the courts in Canada have clearly charted a path that is different from the U.S. courts.