Competition Class Actions: The Pendulum Swings Back

As outlined in our November 2013 bulletin,1 plaintiffs in competition class actions recently won a major victory when the Supreme Court of Canada, in a trilogy of cases released together, permitted indirect purchaser claims while confirming that defendants could not assert passing on defences against direct purchasers.2 That was a swing in favour of plaintiffs, and reversed the 2011 defendants' victory in the BC Court of Appeal in which indirect purchaser claims had been prohibited.3 Now, new decisions released on January 30 and January 31, 2014 by the BC Court of Appeal4 and the Supreme Court of Canada have given defendants some fresh wind in their sails.5

In the BC Court of Appeal case, Wakelam, plaintiffs brought claims under both the Competition Act (alleging breach of the misleading advertising provisions rather than breach of the conspiracy provisions) and the BC Business Practices and Consumer Protection Act (BPCPA). The case involved claims against manufacturers of children's cough and cold medicines. For many years Health Canada had allowed these non-prescription medicines to be sold for use by children under the age of six, on the then prevailing scientific understanding that their safety and efficacy for young children could be extrapolated from adult testing. However, in 2008 Health Canada ceased to rely on extrapolation, and in the absence of direct evidence of efficacy in children required that the labels be revised to say that they should not be used by children under six. Most of these products were also labelled, and continued to be sold, for older children (and often adults as well) at higher dosages.

The makers of children's cough and cold medicines complied with the labelling changes and ceased to distribute them for use in children younger than six. Nevertheless, they were faced with a proposed class action by prior purchasers. The allegation was not that children had been injured, or that the manufacturers had been negligent in making or distributing the medicines for young children. Rather, the plaintiff alleged that, by marketing the medicines for use by children under six without direct evidence of their efficacy, the makers had engaged in deceptive acts or practices contrary to the BPCPA and had made representations which were materially false or misleading, contrary to the Competition Act. Under the BPCPA the plaintiff sought complete refunds for all purchases of medicines, or disgorgement by the defendants of all related revenues, with damages in...