Making it rain: Supreme Court allows umbrella purchaser claims

On September 20, the Supreme Court of Canada issued its long-awaited decision in an important competition class action. Pioneer Corp. v. Godfrey (Godfrey) 2019 SCC 42, provides guidance on a number of issues that recur in these types of cases. Significantly, the case resolves an issue that judges in Ontario and British Columbia (including at the appellate level) had disagreed on: can “umbrella purchasers” be part of a class action for price fixing? An eight-member majority of the Supreme Court of Canada sided firmly with the plaintiffs and answered “yes”.

What you need to know

• The Supreme Court’s decision means that plaintiff classes involved in competition class actions are likely to become larger, increasing exposure for defendants.
• Going forward, it will also make assessing harm in these claims even more complex as they move toward trial, because another group of claimants will have to be considered in the damages analysis, and data may be needed from third parties to complete that analysis.

What are “umbrella purchasers”?

Plaintiffs in competition class actions usually seek damages from co-conspirators who are alleged to have agreed to fix the prices of their products, on behalf of both direct purchasers (those who bought the product directly from a defendant) and indirect purchasers (usually end-users, though there can be other intermediate purchasers in the supply chain). So-called umbrella purchasers are in a different category. Although they purchased the affected product from a non-conspirator, they allege that the conspiracy created a price “umbrella” allowing other firms to charge higher prices than they otherwise would have. Defendants have argued that these purchasers cannot maintain a cause of action against them, in part because recognizing such an action would lead to indeterminate liability.

The Godfrey case

The Godfrey case has had a long history. The action was started in September 2010, when the representative plaintiff sought to certify a class action on behalf of all British Columbia residents who purchased optical disc drives (ODDs) or ODD products (computers, video game consoles and external ODDs) between January 1, 2004 and January 1, 2010. The claim advances numerous causes of action including statutory and common law conspiracy claims alleging that the defendants fixed prices of ODDs.

The Supreme Court of British Columbia certified the class action in 2016, holding that umbrella purchasers could advance a cause of action under the Competition Act. On appeal, the British Columbia Court of Appeal agreed, reasoning that neither the spectre of indeterminate liability nor other concerns raised by the defendants provided a basis for denying umbrella purchaser claims. This conclusion was directly opposite to decisions from the Ontario Superior Court and Divisional Court in Shah v. LG Chem Ltd. (Shah) (where judges concluded that umbrella purchasers did not have a cause of action).¹ However, two months before the Supreme Court of Canada heard the Godfrey appeal in December 2018, the Ontario Court of Appeal allowed the plaintiff’s appeal in Shah and determined that umbrella purchasers do have a cause of action.

The Supreme Court of Canada held that recognizing umbrella purchasers claim would not risk exposing defendants to indeterminate liability for three main reasons:

• First, liability is limited by the class period and the specific products the prices of which are alleged to have been fixed. The umbrella effect (i.e., the entire market price increase) is an intended consequence of the cartel members’ conspiracy and, therefore, the intended results are pre-determined rather than indeterminate.
• Second, the Competition Act limits recovery by requiring umbrella purchasers to demonstrate they have suffered loss or damage “as a result of” the defendants’ conspiracy.
• Third, the criminal conspiracy provision of the Competition Act limits liability to those who specifically intend to agree to participate in the conspiracy.

The Godfrey decision also clarified certain other issues that have been the subject of debate among competition lawyers for several years:

• The Competition Act is not a “complete code” and therefore plaintiffs can seek remedies under section 36 of the Act, as well as through common law or equitable claims for conspiracy.
• Discoverability principles apply to competition claims when considering defences based on limitation periods.
• The standard required of a plaintiff expert’s proposed methodology for determining damages is that it be sufficiently “credible or plausible” to establish that loss reached the requisite purchaser level. This is a low standard, as it does not require that the methodology be capable of identifying particular class members who may have suffered damage from the alleged conduct.

Conclusion

As plaintiff classes involved in competition class actions are likely to become larger, assessing harm in these claims is expected to become even more complex as they move toward trial and the damages of another group of claimants is considered. Our Torys Quarterly article “What to expect in class action law in 2019” discussed the implications of the Godfrey case and its potential to expand the size of plaintiff classes involved in competition class actions.

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¹ See 2015 ONSC 6148 and 2017 ONSC 2586.