Canadian Antitrust Class Actions: The Indirect Purchaser Class Hangs By A Thread

  1. Introduction

    Class actions are an increasingly significant feature of international cartel enforcement. In Canada, antitrust class actions have seen more developments in the last three years than in the preceding decade. Whereas defendants had enjoyed a distinct advantage and successfully defended many contested certification motions, more recently, courts appeared to relax previously strict evidentiary requirements on certification, arguably giving plaintiffs the upper hand.

    However, no sooner was the law looking more plaintiff-friendly, than Canadian appellate courts suddenly and surprisingly dealt plaintiffs a blow by engaging with a long-settled issue in American antitrust law, but one hardly considered in Canada. Can indirect purchasers sue for antitrust losses?

    The first appellate decision proved a victory for defendants and dealt a blow to indirect purchaser classes across Canada. The second appellate decision gave plaintiffs the victory. With the Supreme Court of Canada set to consider the issue (although not until late 2012 or early 2013), its decision will likely be the most significant decision in Canadian antitrust law in recent times.1

    In the authors' view, the Supreme Court should bring Canadian antitrust law in line with American federal jurisprudence. Indirect purchasers do not have a cause of action in Canadian law.

    This paper briefly outlines the development of Canadian antitrust jurisprudence over the last decade and the recent trend of plaintiff-friendly decisions. It also examines the Canadian appellate decisions that suddenly and unexpectedly confronted the indirect purchaser issue and their implications as the Supreme Court of Canada considers the merits of the issue.

  2. Canadian experience with antitrust class actions

    Canadian antitrust plaintiffs typically make three types of claims: statutory, tort, and restitutionary. The statutory claims arise under section 36 of the Competition Act,2 which creates a private right of action for harm caused by criminal antitrust conduct prohibited by the Act. Prohibited conduct includes price-fixing, bid-rigging and other "hardcore" cartel offences. Unlike the US, plaintiffs cannot claim treble damages. Instead, plaintiffs may recover costs and investigation expenses, which can themselves be large depending on the complexity of the matter.

    In tort, plaintiffs usually allege an unlawful conspiracy. Critically, the conspiracy must have harmed the plaintiffs. This is a key element of the cause of action and plaintiffs must plead actual harm and prove it on a balance of probabilities at trial. Likewise, actual harm is a requirement of the private cause of action in section 36.

    Plaintiffs' restitutionary claims usually rest on allegations that the defendants have been unjustly enriched. Plaintiffs demand that the defendants remedy the wrong, such as by disgorging their ill-gotten profits. An actual loss that corresponds to the defendants' gain is a prerequisite for a finding of unjust enrichment.

    Thus, actual harm suffered by the plaintiffs is critical not just to damages calculations but to determining the liability of the defendants. Early on, Canadian defendants' counsel targeted plaintiffs' vulnerability on this issue at certification.

    American antitrust jurisprudence was more mature than Canadian jurisprudence and American counsel had already advanced two main arguments to address this issue on certification. First, plaintiffs who did not purchase directly from the defendants had not suffered any harm. Second, if plaintiffs had suffered harm, they could not prove harm on a class-wide basis, negating any of the efficiencies of a class proceeding.

    In the early leading decision of Chadha v. Bayer,3 the Ontario Court of Appeal adopted the second argument but appeared to reject the first. The Chadha plaintiffs had alleged a price-fixing conspiracy related to the iron oxide pigments which colour some types of concrete bricks and paving stones used in home construction. As home buyers, the plaintiffs claimed that higher prices for these pigments had raised the price of their homes because brick manufacturers passed on the higher price of the pigments to them (i.e. charged a higher price for bricks used to build the homes).

    The Ontario Court of Appeal acknowledged American federal jurisprudence which does not recognize claims by indirect purchasers, such as the Chadha home buyers. However, the Court did not foreclose an action by indirect purchasers as the US Supreme Court had done in Illinois Brick Co. v. Illinois.4 Instead, it refused to certify the plaintiffs' claim as a class proceeding because of the plaintiffs' inadequate evidentiary record. Focusing on whether plaintiffs could prove harm on a class-wide basis, the Court held that the plaintiffs' expert evidence was insufficient to demonstrate that harm could be proved on a class-wide basis.5 Without class-wide damages as a common issue, the Court held that individual trials would be necessary to establish loss and therefore liability. This would render the action unmanageable as a class proceeding.6

    However, the Court did not foreclose certification of any antitrust class action. Instead, it stated that better expert evidence in future cases might satisfy the court that liability could be proved as a common issue.7

    Despite this proviso, the result in Chadha continued to frustrate plaintiffs' attempts to certify complex antitrust class actions with classes of direct and indirect purchasers.8 Defendants led their own expert evidence on certification to demonstrate that proving class-wide harm was impossible or far too complex.

    Defendants successfully defended many certification motions on this basis until a series of decisions in 2009 and 2010 largely eliminated the advantage defendants enjoyed post-Chadha. These decisions arose in three actions.

    First, in 2009 Justice Rady of the Ontario Superior Court certified a class of direct and indirect purchasers of hydrogen peroxide in Irving Paper Ltd. v. Atofina Chemicals Inc.9 In June 2010, Justice Leitch denied the defendants leave to appeal from Justice Rady's decision. Whereas courts after Chadha had scrutinized plaintiffs' expert evidence to determine if plaintiffs could prove harm on a class-wide basis, Justice Leitch held that such strict scrutiny was not required. Instead, plaintiffs need only...

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