In Godfrey v Pioneer, 2019 SCC 42 (“Godfrey“), the Supreme Court of Canada has lowered the bar for certifying price-fixing class actions brought under the federal Competition Act, while also allowing new categories of claimants to participate as class members.

The decision arose from a class action filed in British Columbia against a group of 42 foreign companies who manufactured optical disc drives and related products. The plaintiff alleged that the defendants conspired to fix the prices of their products, which were distributed into British Columbia where the putative class members allegedly sustained losses by purchasing the products at artificially inflated prices. The plaintiff sought to certify a class comprised of “direct purchasers” (who bought products directly from the defendants that manufactured those products), “indirect purchasers” (who bought from non-defendant intermediaries/resellers products manufactured by the defendants) and “umbrella purchasers” (who bought similar products sold and manufactured by non-defendants).

Relaxed Standard of Proof on Certification Motion

Class actions will be certified if the plaintiff establishes five requirements: (a) the pleadings disclose a cause of action; (b) there is an identifiable class; (c) the claims of the class members raise common issues; (d) a class proceeding would be the preferable procedure for the resolution of the common issues; and (e) there is a representative plaintiff who would fairly and adequately represent the interests of the class.

These requirements are assessed on two standards of proof. The cause of action requirement will be satisfied if, assuming all the pleaded facts are true, it is not “plain and obvious” that the cause of action cannot succeed. The other four requirements will be satisfied if the plaintiff establishes “some basis in fact” for each. The certification analysis does not test the merits of the claim, but instead determines whether the action may proceed in the form of a class action.

In Godfrey, the Court considered what kind of evidence is required to meet these standards of proof at certification for price-fixing class actions. In particular, given that the statutory cause of action under s. 36(1)(a) of the Competition Act includes an element of loss, to what extent must the plaintiff demonstrate loss to satisfy the cause of action requirement? Likewise, given that common issues will only be certified if they are capable of class-wide resolution, to what extent must plaintiffs establish that the loss was suffered across the entire proposed class? Moreover, given the complexity of tracing price-fixing overcharges through product distribution chains, particularly for intermediary products, what type of evidence will be necessary to establish “some basis in fact” for the alleged loss?

These issues were previously addressed in the Supreme Court of Canada’s trilogy of decisions in Pro‑Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, Sun-Rype Products Ltd v ADM, 2013 SCC 58 and Infineon Technologies AG v. Option Consommateurs, 2013 SCC 59 (collectively, the “Trilogy“). The Supreme Court held that plaintiffs must adduce an expert methodology at certification which offers “a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge is eventually established at the trial of the common issues, there is a means by which to demonstrate that it is common to the class“. Likewise, if the action asserts claims by indirect purchasers, “the methodology must be able to establish that the overcharges have been passed on to the indirect-purchaser level in the distribution chain“. These expert methodologies typically take the form of economic models.

The Supreme Court was clear in the Trilogy that the purpose of expert methodologies at certification is not to quantify damages, but to establish the plaintiff’s ability to prove a “common impact” and thus to proceed as a class action. As Justice Rothstein held, “in order to determine if the loss-related issues meet the “some basis in fact” standard, some assurance is required that the questions are capable of resolution on a common basis.” The expert methodologies were introduced to provide those assurances of commonality for loss-related issues.

Following the Trilogy, controversy emerged over whether the expert methodology must demonstrate a realistic prospect of establishing loss suffered by any class member or by all class members. Lower Courts offered conflicting answers. However, many commentators suggested the requirement was all rather than any, which was more consistent with the expert methodologies’ originating purpose of providing evidence of commonality of loss.

In Godfrey, an 8-1 majority instead established the lower standard of proof. Going forward, it would appear that price-fixing class actions can be certified if the plaintiff’s expert methodology presents a realistic means of demonstrating that the overcharge reached “one or more” purchasers at the requisite purchaser level (i.e. direct, indirect or umbrella). Put another way, the “expert’s methodology need only be sufficiently credible or plausible to establish loss reached the requisite purchaser level“.

The decision in Godfrey has therefore lowered the standard of proof for a plaintiff at the certification stage. Whereas the Trilogy decisions required plaintiffs to demonstrate at certification a “realistic prospect” of establishing “the actual loss to the class” and present “a methodology capable of doing so“, the Godfrey decision merely requires a methodology to demonstrate that loss reached “one or more” person at the relevant purchaser-level.

Importantly, the Court was clear that, at an eventual trial, a finding of liability to the entire class will require a finding of loss by every class member. However, if it turns out that the plaintiff’s methodology is only capable of proving that one or a few class members at the requisite level suffered a loss, the Court will be incapable of resolving loss-related common issues at trial. At that late stage, defendants may fairly question why the action was ever certified as a class proceeding.

The purpose of certification is not to screen out unmeritorious claims, but to determine which common issues of law and fact are capable of being determined at once. Accordingly, it would be logical for the certification judge to determine whether the plaintiff’s expert methodology presents a sufficiently credible means of establishing the class members’ loss to justify continuing as a class action. The trial judge could then determine whether the methodology actually proves the class members’ loss. Instead, following the Godfrey approach, the task of screening whether the alleged loss is capable of class-wide determination will now, in some cases, be postponed from certification to trial. This deferral may well tax defence and public resources.

Justice Côté issued a dissenting opinion tracing similar arguments. She held that the standard of proof should be “all” not “any“. At certification, she would require “a methodology capable of answering the loss-related questions on an individualized basis, either by showing that all of the indirect purchasers suffered a loss or at least by identifying those who did and separating them from those who did not or those about whom we cannot be sure (and for whom individual hearings will therefore be necessary).

Justice Côté was critical of the majority’s approach. She found that resources would be wasted by delaying until trial the assessment of whether the plaintiff’s expert methodology is capable of establishing class-wide loss. If a matter proceeds to trial, the Court may decline to make an assessment of loss one way or the other, and instead find the plaintiff’s expert methodology incapable of establishing whether the class suffered a loss. Justice Côté found “it would be a gross waste of private and public resources to litigate if the only prospective ‘benefit’ was to show that there was no point bringing the case in the first place”.

Certifying claims of “Umbrella” Purchasers

The Godfrey decision is also significant because the Supreme Court has, for the first time, allowed the claims of umbrella purchasers brought under s. 36 of the Competition Act to be certified.

The legislation provides a cause of action to “any person who has suffered loss or damage as a result of” conduct contrary to certain legislative provisions. It has long been established that direct purchasers have a cause of action under this provision. In the Trilogy, the Supreme Court also allowed claims of indirect purchasers to be certified, under the theory that indirect purchasers may sustain a loss when purchasing from intermediaries or resellers who pass-on an overcharge resulting from the price fixing conspiracy.

The claims of umbrella purchasers are based on a different theory of loss. Just as a “rising tide raises all ships“, a price-fixing conspiracy may raise the prices of products manufactured by the conspirators as well as non-conspirators selling similar products in similar markets.

The majority in Godfrey decided that Parliament’s use of the words “any person” in the legislation “empowers any claimant who can demonstrate that loss or damage was incurred as a result of the defendant’s conduct to bring a claim.” This interpretation was found to be consistent with the purpose of the Competition Act, which is to “maintain and encourage competition in Canada” with a view to providing consumers with “competitive prices and product choices“.

Justice Côté dissented on this issue as well. The claims of umbrella purchasers seek to recover from defendants with whom they have no relationship, having instead bought products from non-defendants that were manufactured by non-defendants. Justice Côté canvassed the principles underlying indeterminacy and remoteness, and found that it would be “unfair” to hold the defendants responsible for losses suffered as a result of other companies deciding to raise their own prices on their own products. She also found the majority’s approach may open the possibility of a “cascade of liability“. She concluded that “the Competition Act should not be interpreted in a manner that would permit claimants to recover from defendants for any losses that in some way flowed from the alleged conspiracy.” Rather, “the line should be drawn at loss and damage that flowed from the pricing decisions of the Defendants themselves …and not those that are attributable to third parties who did not participate in — but who nevertheless would have benefitted from — the alleged price-fixing conspiracy.

Take-Away Points

There was an uptick in price-fixing class action filings following the Trilogy. Since the release of the Godfrey decision, numerous class action plaintiffs have sought to amend their pleadings to add claims for umbrella purchasers. The combined effect of relaxing the standard of proof at certification while also expanding the kind of claimants who can participate in class proceedings will likely encourage new filings in the coming months.

To date, no price-fixing class action in Canada has continued through a common issues trial to judgment. However, with the reduced standard of proof, particularly in respect of commonality of alleged losses, defendants may be increasingly tempted to test the plaintiff’s case at trial.

 

**The authors would like to thank Jan Nato, Student-at-Law, for his contributions to this post.

Print:
EmailTweetLikeLinkedIn
Photo of David Gadsden David Gadsden

David Gadsden has deep experience in fraud and financial crime matters.  He is counsel on multijurisdictional fraud investigations, including related civil disputes and regulatory proceedings.  David acted as counsel for a primary defendant in the Sino-Forest litigation, the largest securities fraud class action…

David Gadsden has deep experience in fraud and financial crime matters.  He is counsel on multijurisdictional fraud investigations, including related civil disputes and regulatory proceedings.  David acted as counsel for a primary defendant in the Sino-Forest litigation, the largest securities fraud class action in Canada.  He is known for his pragmatic advice on fraud prevention and investigations, and has extensive expertise in ‘Ponzi scheme’ litigation and asset recapture, including cross-border tracing, Anton Piller orders and Mareva injunctions.  David has been recognized as a “Litigator to Watch” in Lexpert’s annual Guide to the Leading US/Canada Cross-border Litigation Lawyers in Canada and has been ranked in Legal 500 for dispute resolution.

Photo of John Pirie John Pirie

John Pirie leads the Firm’s Canadian Litigation and Government Enforcement Group. He acts for clients in complex litigation and investigations. Mr. Pirie’s practice includes a significant fraud law and asset recovery component, often involving matters in the financial services industry. He routinely acts…

John Pirie leads the Firm’s Canadian Litigation and Government Enforcement Group. He acts for clients in complex litigation and investigations. Mr. Pirie’s practice includes a significant fraud law and asset recovery component, often involving matters in the financial services industry. He routinely acts for our clients in coordination with other Baker McKenzie offices globally. Mr. Pirie has expertise concerning asset recovery strategies and emergency relief measures related to fraud, including Mareva injunctions, Anton Piller orders, Norwich Pharmacal orders, global asset tracing and fraudulent conveyance proceedings. Mr. Pirie has acted as lead counsel on an array of reported cases in this field, and he has been recognized in Lexpert’s Annual Guide to the Leading Canada/US Cross-Border Litigation Lawyers, and in the Legal 500 for Dispute Resolution (Canada). He appeared in the Supreme Court of Canada on a case ranked by Lexpert Magazine as Canada’s #1 business decision for 2007. Mr. Pirie has previously been named one of Lexpert’s Rising Stars, a “top 40” award that recognizes Canadian lawyers with an outstanding record of success.

Photo of Brendan O'Grady Brendan O'Grady

Brendan O’Grady is a member of Baker McKenzie’s Litigation & Government Enforcement Practice Group in Toronto. He advises on commercial litigation matters with an emphasis on fraud law and asset recovery. Brendan has represented government agencies, financial institutions and individual victims of investment…

Brendan O’Grady is a member of Baker McKenzie’s Litigation & Government Enforcement Practice Group in Toronto. He advises on commercial litigation matters with an emphasis on fraud law and asset recovery. Brendan has represented government agencies, financial institutions and individual victims of investment and mortgage fraud schemes in asset recovery actions and insolvencies. Brendan has also acted in securities class proceedings involving misrepresentations to shareholders.