Proof of loss by proof of gain: B.C. Court of Appeal reversal certifies DRAM price-fixing class action
On November 12, 2009, the British Columbia Court of Appeal unanimously allowed an appeal from the dismissal of a class certification motion in an action alleging price-fixing against certain manufacturers of DRAM (dynamic random access memory) chips, which are found in a wide variety of electronics products. The B.C. Court of Appeal certified a class of direct and indirect purchasers of DRAM and products containing DRAM.1
As reported in the May 2008 issue of The Competitor,2 the motion judge had denied certification largely on the grounds that the plaintiff had not proposed a workable class-wide method for determining the existence or fact of harm to members of the proposed class, consisting almost exclusively of indirect purchasers of DRAM. Such a methodology would require an examination of whether and in what amount any alleged overcharges from the alleged price-fixing agreement were passed by DRAM manufacturers through the chains of distribution to class members. The lower court found that the plaintiff had not satisfied its burden of "establish[ing] that the proposed methodology has been developed with some rigour and will be sufficiently robust to accomplish the stated task." In particular, the court rejected the use of statistical sampling or averaging methodologies, holding that "the plaintiff cannot circumvent the need to prove harm on a class-wide basis by resorting to the aggregation principles in the [Class Proceedings Act], which would be available only after such a pass-through was already established on a class-wide basis." In the absence of a class-wide means of proving liability, the motion judge held that a class proceeding would be unmanageable and was not the "preferable procedure" for resolution of the plaintiff's claims.
On appeal, the Court of Appeal held that the motion judge "erred in concluding that the aggregate monetary claim could not be tried as a common issue" and in concluding that a class action was not the "preferable procedure". With respect to common issues, the Court of Appeal concluded that the plaintiff's restitutionary claims of unjust enrichment, constructive trust and waiver of tort "can be established at trial by proof of unlawful gain without individual proof of loss by class members." The Court held that the B.C. Class Proceedings Act "authorizes the use of statistical evidence to assess an aggregate monetary award", and that "[i]t was common ground that statistical regression analysis is in theory capable of providing reasonable estimates of gain or aggregate harm and the extent of pass-through in price-fixing cases." The Court further held that while "[t]he burden is on the plaintiff to show 'some basis in fact' for each of the certification requirements, [.] in conformity with the liberal and purposive approach to certification, the evidentiary burden is not an onerous one" and the plaintiff's expert economic evidence "met the low threshold".
Remarkably, the B.C. Court of Appeal stated that the "total unlawful gain by the respondents from sales of DRAM to class members", calculated for purposes of the plaintiff's restitutionary claims, "would necessarily reflect the total loss suffered by the class." Contrary to the trial judge who held that "the invocation of the doctrine of waiver of tort or constructive trust by unjust enrichment does not enable the plaintiff to avoid the 'common issues' requirement to demonstrate a methodology that will establish the pass through effect to Class Members on a class-wide basis", the Court of Appeal reached the opposite conclusion:
[S]ince the gain obtained by the respondents will be the mirror image of the total loss suffered by the class, any legal objection to the use of the aggregation provisions of the [Class Proceedings Act] to assess aggregate damages in the conspiracy actions at common law and pursuant to the Competition Act would be of no practical importance. The common issues trial will have determined the respondents' wrongful conduct as common issues and, as a practical matter, will have determined the aggregate amount of the loss suffered by the class. [.] In any case, the participation of the respondents would not be required beyond the common issues trial.
Having concluded that proof of damage could be established as a common issue on a class-wide basis, the B.C. Court of Appeal held that a class action would be the "preferable procedure". The Court held that the trial judge "overlooked that the goal of behaviour modification also considers other potential wrongdoers" and "discounted the importance of access to justice". In this case, the Court stated that "the only apparent alternative to a class action is no action at all", and to the extent "potential difficulties of proof [arise] out of the complexities involved", these can be dealt with at trial. The Court remarked that if "it should turn out that a common issues trial is unmanageable", the motion judge can always decertify the action.
The DRAM decision from the B.C. Court of Appeal is a marked departure from the longstanding decision of the Court of Appeal for Ontario in Chadha v. Bayer3, which had been followed in several other decisions in Ontario and elsewhere, including with respect to the nature of the scrutiny of expert evidence to be performed by the judge hearing the certification motion and the preferable procedure analysis. The defendants note the complete absence in the record of any evidence to support the Court of Appeal's statement that ". the gain obtained by the respondents will be the mirror image of the total loss suffered by the class."; indeed, the evidentiary record establishes that the loss to the class is not capable of determination on a class-wide basis, and it certainly would not be the "mirror image" of any alleged gain to the defendants. The defendants are considering an application for leave to appeal to the Supreme Court of Canada.
1 Pro-Sys Consultants Ltd. v. Infineon Technologies AG, 2009 BCCA 503. Stikeman Elliott LLP represents Infineon Technologies AG and Infineon Technologies North America Corp. in Canadian class actions commenced in British Columbia, Quebec and Ontario, with a team that includes Katherine Kay, Eliot Kolers, Yves Martineau and Mark Walli.
2 See the May 9, 2008 issue of The Competitor.
3  O.J. 27