Supreme Court of Canada Allows Indirect Purchaser Class Actions and Provides Guidance on Certification and Jurisdiction Issues

On October 31, 2013, the Supreme Court of Canada (SCC) released three long-awaited decisions that will have a significant impact on Canadian class actions going forward. The cases (Pro-Sys Consultants Ltd. v. Microsoft Corporation,¹ Sun-Rype v. Archer Daniels Midland Company,² and Infineon Technologies AG v. Option consommateurs³) address several important issues relevant to competition-related claims and to Canadian class actions generally:

• the Court ruled that indirect purchasers, including consumers, have standing to assert claims for damages suffered as a result of price-fixing or other criminal anti-competitive conduct;
   
• the Court also provided guidance on the evidentiary standard to be applied when assessing whether class actions should be certified; and
   
• in Infineon, the Court addressed the jurisdiction of Québec courts to consider claims against foreign defendants for conduct that occurred entirely outside of Canada.

Background

In 2011, the British Columbia Court of Appeal (BCCA) released the Pro-Sys and Sun-Rype cases and decided by a 2-1 margin that indirect purchasers did not have a cause of action under section 36 of the Competition Act.⁴ The majority determined that the SCC’s prior rejection of the "passing-on defence" (in Kingstreet⁵and Canfor⁶) meant that claims for losses passed on to indirect purchasers could not be recognized in law. The BCCA therefore refused to certify the cases and dismissed the claims.

Later in 2011, the Québec Court of Appeal released the Infineon decision in which it concluded that indirect purchasers had a recognizable cause of action. The Québec court explicitly rejected the BCCA majority’s reasons in Pro-Sys and Sun-Rype. It also addressed the issue of jurisdiction, concluding that Québec courts have jurisdiction over claims against foreign defendants involving anti-competitive conduct that occurs entirely outside Québec.⁷

Indirect Purchasers Have Standing to Sue

In Pro-Sys, the SCC reversed the BCCA’s 2011 decisions, concluding that indirect purchasers do have a cause of action. The Court confirmed that while defendants cannot raise a passing-on defence in these types of actions, the rejection of the passing-on defence does not prevent indirect purchasers from asserting that unlawful overcharges were passed on to them. In Infineon, it held that this result also applied in Québec, meaning indirect purchasers now have a cause of action in all Canadian jurisdictions. The Court further concluded in the Sun-Rype decision that combined classes of direct and indirect purchasers are permissible in Canada.

Standard of Proof at the Certification Motion

The Court also addressed other issues relevant to class actions across Canada, including the evidentiary standard that courts must apply at the certification stage. The SCC confirmed that the certification motion is not an assessment of the merits of the case, although it must still function as "a meaningful screening device." The Court confirmed its earlier ruling in Hollick v. Toronto (City)⁸ that a court must be satisfied in the certification motion that there is “some basis in fact” to conclude that each of the certification criteria have been met. The Court clarified that the evidentiary standard to establish "some basis in fact" is neither the civil standard of a balance of probabilities, nor a “superficial level of analysis” of the sufficiency of the evidence that would "amount to nothing more than symbolic scrutiny."⁹ Ultimately, the Court determined that there must be sufficient facts to satisfy a court at the certification motion that the certification criteria have been met to a degree that would "allow the matter to proceed on a class basis without foundering at the merits stage."

Applying this standard, the SCC certified the Pro-Sys case. The Court, by a 7-2 majority, refused to certify the Sun-Rype case because there was no evidence that there was an identifiable class of two or more indirect purchasers of the product at issue (drinks sweetened with high-fructose corn syrup).

Québec Courts Have Jurisdiction Over Foreign Defendants

In Infineon, the Court also considered the threshold issue of whether Québec courts have jurisdiction over foreign defendants for claims involving conduct that took place outside of the province. The Court unanimously affirmed the Québec Court of Appeal’s decision, which had determined that the Québec courts did have jurisdiction over such claims because damage had been suffered in the province.

The Court based its conclusion on article 3148(c) of the Québec Civil Code, which confers jurisdiction in a personal action of a patrimonial nature where "a fault was committed in Québec, damage was suffered in Québec, an injurious act occurred in Québec or one of the obligations arising from a contract was to be performed in Québec". The Court stated that a pure economic loss could constitute damage within the meaning of article 3148(c), as long as such damage was suffered rather than simply recorded in Québec. The SCC concluded that the relevant contract of sale in the case, which was for a computer that had been purchased over the internet, was a "remote-party contract" and as such deemed to have been entered in Québec under the Consumer Protection Act. The economic damage allegedly suffered by the representative plaintiff was said to have resulted from this contract. Consequently, the Court concluded that damage was suffered in Québec and that the Québec courts have jurisdiction under the Civil Code.

Conclusions

The SCC's decisions clarify several important issues that have previously been the subject of inconsistent judicial treatment. The decisions also confirm the clear differences in approach to class actions taken by courts in Canada and the United States—on issues from the standing of indirect purchasers to the applicable standard of proof, to the degree of scrutiny that will be applied to evidence at a certification motion. While two of the three actions were certified, the Court’s decisions provide guidance to defendants both when resisting certification and defending merits trials. Among other things, defendants can file evidence of parallel suits in other jurisdictions that have the potential to result in multiple recovery, and judges are justified in denying a claim or modifying a damage award to prevent overlapping recovery.¹⁰ The SCC also confirmed that indirect purchasers bear the burden of proving their loss, and that something more than “trust us” is required from plaintiffs pursuing these claims. The interpretations lower courts give to these decisions in practice will be important as some competition class actions move to trial and others begin the certification process.

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¹ 2013 SCC 57 [Pro-Sys].

² 2013 SCC 58 [Sun-Rype].

³ 2013 SCC 59 [Infineon].

⁴ See 2011 BCCA 186 and 2011 BCCA 187.

⁵ Kingstreet Investments Ltd. v. New Brunswick (Deparment of Finance), 2007 SCC 1.

⁶ British Columbia v. Canadian Forest Products Ltd., 2004 SCC 38.

⁷ 2011 QCCA 2116.

⁸ 2001 SCC 68.

⁹ Pro-Sys at para. 103.

¹⁰ Pro-Sys at para. 40.