Academic journal article Defense Counsel Journal

Canadian Price-Fixing Class Actions: The Supreme Court of Canada Gives the Green Light to Indirect Purchaser Claims

Academic journal article Defense Counsel Journal

Canadian Price-Fixing Class Actions: The Supreme Court of Canada Gives the Green Light to Indirect Purchaser Claims

Article excerpt

ON October 31, 2013, the Supreme Court of Canada released its highly anticipated rulings in Pro-Sys Consultants Ltd. v. Microsofi Corporation,1 Sun-Rype Products Ltd. v. Archer Daniels Midland Company,2 and Infineon Technologies AG v. Option consommateurs.3 In this trilogy of decisions, the Court considered, among other things, whether defendants in price-fixing and other class actions are entitled to invoke the "passingon" defense, whether indirect purchasers have a cause of action at law, jurisdictional issues, the appropriate standard of proof for certification under provincial class proceedings legislation, and whether aggregate damages provisions in such legislation can be used to establish liability.

I. Rejection of the Passing-On Defense

Like the Supreme Court of the United States in Hanover Shoe Inc. v. United Shoe Machinery,4 the Court rejected the passing-on defense, confirming that it is "inconsistent with the basic premise of restitution law",5 "economically misconceived,"6 and "would force a difficult burden of proof on the plaintiff to demonstrate not only that it had suffered a loss, but that it did not engage in any other transactions that would have offset the loss."7

II. Indirect Purchasers Have a Cause of Action

Unlike the approach taken by the majority of the Supreme Court of the United States in Illinois Brick v. Illinois,8 the Court concluded that prohibiting the "offensive use of passing on" was not a necessary corollary to its rejection of the passing-on defense, and that indirect purchasers therefore have standing to sue for losses passed on to them. In reaching that conclusion, the Court held that: (a) the risks of multiple recovery and the concerns of complexity and remoteness are insufficient bases for denying indirect purchasers a right of action; (b) the deterrence function of Canadian competition law is not likely to be impaired by indirect purchaser actions; (c) although the passing-on defense is contrary to basic restitutionary principles, allowing passing on to be used offensively promotes those very principles; and (d) there are numerous reasons to question the rationale of the rule in Illinois Brick, namely, the existence of numerous so-called "repealer" statutes at the state level, a report to Congress recommending its reversal at the federal level, and recent doctrinal commentary calling for Illinois Brick to be overturned.9

The Court further held that the risk of double recovery-which the majority in Illinois Brick identified as a key reason for barring indirect purchaser claims-could adequately be addressed at the trial stage. Specifically, the Court indicated that "it will be open to the defendant to bring evidence of this risk before the trial judge and ask the trial judge to modify any award of damages accordingly."10

In a similar vein, the Court concluded that: (a) the trial judge retains the discretion to deny the claim if the defendant presents evidence that the court's ability to mitigate the risk of double recovery is beyond its control; and (b) if the defendant adduces evidence of parallel suits pending in other jurisdictions that would have the potential to result in double recovery, the trial judge may deny the claim altogether or modify the damage award in accordance with an award sought or granted in the other jurisdiction in order to prevent overlapping recovery."

Importantly, the Court also held that classes may be composed of both direct and indirect purchasers, and that a conflict between those two groups as to how aggregate damages are to be distributed amongst them should not bar indirect purchasers from becoming members of a proposed combined class.'2

III. Jurisdictional Issues

In Sun-Rype, the respondents argued that the plaintiffs' claims failed to disclose a reasonable cause of action because, among other things, "an alleged conspiracy entered into outside Canada, among foreign defendants, to fix prices of products sold to foreign direct purchasers" lacks a real and substantial connection to Canada, and therefore does not give rise to a civil remedy under section 36 of the Competition Act}3 Although the Court agreed with the defendants that plaintiffs must demonstrate such a real and substantial connection to Canada, it disagreed with respondents' characterization of the factual situation in the case before it. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.