Canadian COMPETITION LAW

Earlier this month, the Quebec Court of Appeal unanimously overturned the earlier 2008 Quebec Superior Court decision in Option Consommateurs v. Infineon Technologies AG, which had denied a motion to commence class action proceedings.

The decision in this case, which follows U.S. proceedings and guilty pleas in relation to a price-fixing conspiracy for the supply of dynamic random access memory (“DRAM”), is significant in expressly allowing indirect class action plaintiffs to proceed despite two earlier British Columbia Court of Appeal decisions that created a de facto passing-on defence (see: British Columbia Court of Appeal Allows Microsoft Appeal in Pro-Sys v. Microsoft – Creates de facto Passing-on Defence).  (for the earlier BC judgments in Pro-Sys and Sun-Rype see: Pro-Sys Consultants Ltd. v. Microsoft Corporation and Sun-Rype Products v. Archer Daniels Midland Company).

In these two earlier British Columbia decisions, the Court of Appeal set aside the plaintiffs’ earlier certification decisions largely based on the risk that allowing indirect purchaser plaintiffs to proceed may lead to double recovery.  In this regard, Mr. Justice Lowry held:

“… in the absence of the passing-on defence, a defendant would be liable for both the whole of the charge passed on (liability to the direct purchasers) and for all or any portion of the charge passed on (liability to the indirect purchasers) … [that] would result in double recovery … which our law does not permit.”

In the recent Quebec Court of Appeal decision in DRAMs, a unanimous Court rejected the holdings in Pro-Sys and Sun-Rype, adopting instead the dissenting opinion of Donald J.A. in Sun-Rype to allow the DRAMs plaintiffs to proceed.

The Quebec Court of Appeal held, in reasons delivered by Kasirer J.A., that rather than automatically resulting in double recovery, allowing the indirect plaintiff purchasers to proceed in this case would instead mean they would be required to prove indirect harm suffered in a hearing on the merits:

“I disagree with the motions judge that the rules relating to passing-on are a bar to authorizing the class action here.  The appellant’s allegations of injury are not defeated by either the double recovery argument or the complexity argument raised by the respondents in connection with passing-on of the loss to indirect acquirers of DRAM.

I draw my views in large part from the dissenting opinion of Donald J.A. in Sun-Rype to conclude that it would be premature to dismiss the motion under article 1003(b) C.C.P. based on the claim for losses by members of the class who are indirect purchasers.  To my mind, the respondents do not face an unfair risk of double recovery given that the motion alleges a single, aggregate loss notwithstanding the mix of direct and indirect purchasers in the class.  In addition, the complexity not to be underestimated – is an evidentiary concern that can be properly attended to as part of the burden of proof resting on the appellants when the case is considered on the merits.

The facts of this case invite us to consider the use of the theory of passing-on not as a shield to protect the wrongdoers but as a sword to allow the indirect purchasers to make plain their losses.  The respondents are not invoking passing-on of the overcharge by direct purchasers as a defence to the claim against them; instead, the indirect purchasers are arguing that, as a matter of fact, those losses moved down the chain, in whole or in part, and justify, aggressively rather than defensively, a claim by them against the respondents for price fixing. … As the trial judge noted in [Sun-Rype], ‘it is a mistake to equate pass-through as a defence at law with pass-through as a factual occurrence.’”

The Quebec Court of Appeal in essence held in this decision that allowing indirect purchasers to proceed will not necessarily lead to double recovery and, rather than assuming this result, they should be permitted to argue their indirect damages at trial (despite the difficulty and complexity of doing so, which the court acknowledged).

This case now means that the status of the passing-on defence in Canada is now more unsettled than ever, with conflicting decisions by two Canadian appellate courts.

This Quebec Court of Appeal decision is also leading to more speculation of how the Supreme Court of Canada will rule in relation to leave applications made to Canada’s highest court in Sun-Rype and Pro-Sys.

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