Volkswagen and Audi settled environmental marketing claim with $15 million penalty

Vanessa Leung

On December 19, 2016, Volkswagen Group Canada Inc. (VW) and Audi Canada Inc. (Audi) entered into a consent agreement with the Commissioner of Competition to resolve the Commissioner’s concerns that VW and Audi had made false or misleading environmental marketing claims about certain of its 2.0 litre diesel vehicles. The consent agreement is one component of a broader Canadian settlement relating to VW’s and Audi’s allegedly misleading environmental claims.

The Bureau alleged that software installed in the affected VW and Audi vehicles could detect a test being conducted and alter the operation of the vehicle during the test to reduce nitrogen oxide emissions. The Bureau also alleged, however, that during normal use, the nitrogen oxide emissions would exceed the amounts at which the vehicle had been certified. The Bureau concluded that the statements, warranties and/or guaranties made about the performance or efficacy of these vehicles were false and misleading in a material respect, and were not based on adequate and proper testing, contrary to the Competition Act

In addition to its independent consent agreement, the Bureau participated in a proposed class action settlement that Volkswagen reached with consumers of certain affected vehicles. If approved by the courts, the settlement will provide total buyback and restitution payments totalling up to C$2.1 billion. The Bureau’s consent agreement provides for an additional, C$7.5 million administrative monetary penalty for each of VW and Audi, and provides that the parties will compensate the Bureau for C$200,000 toward its investigative costs. In the consent agreement, the Bureau also acknowledged an “Owner Credit Package” program, established voluntarily by VW and Audi, that provides certain benefits for affected owners and lessees.

As part of the consent agreement, VW and Audi agreed not to create a false or misleading general impression that: (a) their vehicles’ emissions are “clean”; (b) their vehicles produce lower emissions than other vehicles; (c) their vehicles are less polluting than other vehicles; (d) their vehicles are “green”, or less harmful to the environment than other vehicles; and/or (e) their vehicles are environmentally friendly. VW and Audi further agreed that, unless adequate and proper testing was performed, they would not make any representations that: (a) their vehicles’ emissions are cleaner than gasoline; (b) their vehicles produce less sooty emissions than older diesel engines; and/or (c) their vehicles produce fewer emissions than other vehicles.

VW and Audi also agreed to use their best efforts to stop selling or leasing affected vehicles, unless the emissions system of the vehicles was first modified to reduce nitrogen oxide emissions. VW and Audi will also enhance and maintain a corporate compliance program to ensure compliance with the Competition Act.

The Bureau noted that it had agreed to more favourable terms in the consent agreement due to VW and Audi’s cooperation with its inquiry. The Bureau also noted that the consent agreement does not resolve its ongoing inquiry with respect to certain vehicles equipped with 3.0 litre diesel engines. The consent agreement is part of a broader, global investigation into VW’s and Audi’s environmental marketing claims, and demonstrates the Bureau’s active role in such broader, industry investigations, both as a participant in the private class action process and as an independent law enforcement agency to enforce the provisions of the Competition Act.

Qu├ębec Court of Appeal authorizes price-fixing class action involving indirect purchasers

Sultana L. Bennett -

On November 16, 2011, the Québec Court of Appeal issued a judgment unanimously reversing the 2008 Québec Superior Court decision in Option Consommateurs v. Infineon Technologies AG dismissing the motion for authorization to institute class action proceedings. Significantly, the class includes both direct and indirect purchasers, and the Quebec decision thus follows the dissent in the 2011 British Columbia Court of Appeal decision in Sun-Rype Products Ltd. v. Archer Daniels Midland Company, holding that the defendants would not face an unfair risk of double recovery because the plaintiffs alleged a single, aggregate loss notwithstanding the mix of direct and indirect purchasers in the class.

Background and Decision in the Superior Court

The defendants were manufacturers of dynamic random access memory or “DRAM,” a semiconductor memory product used in electronic devices, each of whom had admitted participation in a price-fixing conspiracy between 1999 and 2002 and all but one of whom had pleaded guilty to Sherman Antitrust Act violations arising from that conduct in the United States.

In its motion to institute the proceedings in Québec Superior Court, Option Consommateurs, a consumer advocacy organization, alleged that the defendants failed to respect statutory obligations under the Competition Act, and breached the general extracontractual duties imposed upon them by the Civil Code of Québec. Claudette Cloutier, a Montreal resident, sought status as the designated representative in the proceedings on behalf of direct and indirect purchasers of DRAM in Québec. In October 2001, Cloutier had purchased a computer containing DRAM online from Dell Computer Corporation’s website, and claimed to have paid an artificially inflated price for the computer as the result of the defendants’ price-fixing activity.

Justice Mongeau of the Superior Court denied the motion to authorize proceedings on two grounds: first, that Québec did not have proper territorial jurisdiction to hear the class action, but that even if it had, the allegations did not meet the test for authorization under Québec class proceedings law. Option Consommateurs and Cloutier appealed the ruling to the Court of Appeal.

The Québec Court of Appeal’s Ruling

In rendering its judgment reversing the decision of the Superior Court, the Court addressed three major issues: (i) the source in law of the claims made by the putative class members; (ii) jurisdiction over the alleged losses of the class members; and (iii) and the authorization of the class action under Québec class proceeding law.

As a threshold matter, the Court held that the direct and indirect purchasers of DRAM within the class both essentially alleged a single extracontractual fault as the basis for their causes of action: the conspiracy to inflate artificially the price of DRAM, a conspiracy that would have if not for the passing of the statute of limitations given rise to a civil remedy pursuant to section 36 of the Competition Act. Accordingly, the Court found that there would be no impediment to the authorization of the class action based on a different source of liability between direct and indirect purchasers.

The Court’s ruling on Québec’s territorial jurisdiction over the proceedings suggests an expansive view of the extraterritorial application of Canadian antitrust laws upon foreign defendants. While Justice Mongeau had held that Cloutier’s financial loss was connected to Québec only by reason of her domicile being there — a fact which could not by itself establish financial loss suffered in Québec and provide a basis for the exercise of jurisdiction — the Court of Appeal, while agreeing that the question of jurisdiction was one appropriate for decision on an authorization motion, came to the opposite conclusion. Despite the fact that the defendants were not domiciled in Québec and had no place of business there, and the alleged conspiracy was not alleged to have taken place in Québec, the Court concluded that the damage Cloutier claimed to have suffered in Québec arising from her online computer purchase justified the exercise of jurisdiction.

The Court of Appeal went on to find that the class action was authorized pursuant to articles 1002 and 1003 C.C.P. Rejecting the defendants’ position that the motion did not clearly set out an undue restraint of competition resulting from their anti-competitive activities outside of Canada, the Court held that while the plaintiff was “far from having established its case on the merits,” the extent of the conspiracies as set out in the plea agreements were sufficient to support the allegations of undue restraint of trade. Furthermore, while acknowledging the “unhelpful lack of detail” in the allegations relating to the class members’ loss, the Court of Appeal found that there had been alleged sufficient facts to establish the loss and to constitute a prima facie demonstration of loss under article 1003(b) C.C.P.

The Court then addressed the defendants’ argument that the alleged losses suffered by indirect purchasers were not compensable because of the indirect purchasers’ lack of standing. Referring to the British Columbia Court of Appeal’s decisions in Sun-Rype Products Ltd. v. Archer Daniels Midland Company (Sun-Rype) and Pro-Sys Consultants Ltd. v. Microsoft Corporation (Microsoft), which concluded that indirect purchasers of allegedly price-fixed products have no cause of action recognized in law, the Court was not persuaded that double recovery could result from the recognition of indirect purchasers’ claims. Instead, concurring with the reasons of the dissenting justice, Donald J.A., in Sun-Rype, the Court held that the defendants would not face an unfair risk of double recovery because the motion alleged a single, aggregate loss notwithstanding the mix of direct and indirect purchasers in the class. Significantly, the complexity of proving the passing-on of losses to the indirect purchasers was acknowledged by the Court, but deemed merely an evidentiary concern that should be properly addressed as part of the burden of proof resting upon the plaintiffs once the case proceeded to trial.

Conclusion

The rulings in this decision are reminders of the relatively low threshold for authorization of class actions in Québec. The Court of Appeal, even while noting the lack of specificity in the motion pertaining to loss and causation (including the fact that Cloutier had not alleged that the DRAM in her computer was sold to her directly or indirectly by the defendants or any them) and acknowledging the evidentiary challenges awaiting the plaintiff upon trial, ultimately held the allegations sufficient to meet the test for authorization under Québec law.

The timing of the decision is also notable.  The Supreme Court of Canada is expected to rule on the leave applications in Sun-Rype and Microsoft in the near future.

Court of Appeal for British Columbia bars indirect purchaser suits

Katherine L. Kay and Mark Walli

On April 15, 2011, the Court of Appeal for British Columbia released judgments in two competition class actions which concluded for the first time in Canada that indirect purchasers of allegedly price-fixed products “have no cause of action recognized in law.”  Pro-Sys Consultants Ltd. v. Microsoft (Microsoft) and Sun-Rype Products Ltd. v. Archer Daniels Midland Company (Sun-Rype) were appeals heard one after the other by the same panel of three judges. Both cases were decided by a two to one majority and overturned chambers judgments certifying class actions (see  Microsoft and Sun-Rype respectively) .

The majority judgments found that the issue of whether indirect purchasers could sue to recover a price-fixing overcharge passed on to them by the defendants’ customers (or other intermediaries in the product distribution chain) was a “pure question of law” capable of being resolved at the pleadings or class certification stage of the case, and that it was “plain and obvious” that indirect purchasers had no such claims.

The judgments in Microsoft and Sun-Rype depart from a clear recent trend in favour of certifying competition class actions in Canada, exemplified by the B.C. appeal court’s late-2009 decision in Pro-Sys Consultants Ltd. v. Infineon Technologies AG , in which large and diverse classes of direct and indirect purchasers have been certified and courts have generally held that questions of the legal sufficiency of claims should be left for the “laboratory of the trial court” and decided on a full factual record rather than on the certification motion.

The judgments significantly alter the competition class action landscape in British Columbia, and potentially throughout Canada.

The Microsoft and Sun-Rype Cases

Microsoft was brought on behalf of a proposed class of all B.C. residents who on or after January 1, 1994 purchased, indirectly, certain Microsoft applications software or operating systems software as part of their computers. The plaintiffs alleged that Microsoft conspired with original equipment manufacturers (OEMs) (among others) to raise the price of the Microsoft operating systems and applications software installed by the OEMs, and that such overcharges were passed on to the plaintiffs as purchasers of the computers.  The plaintiffs sought to recover damages for breach of the Competition Act and common law tort, or in the alternative sought disgorgement/restitution of Microsoft’s unlawful gains on behalf of the proposed class. The chambers judge granted the plaintiffs’ motion for class certification in March 2010.

Sun-Rype was brought on behalf of a proposed class of all B.C. residents who purchased high fructose corn syrup (HFCS) or products which contained HFCS from January 1, 1988 to June 30, 1995. The proposed class consisted of direct purchasers such as Sun-Rype, which purchased HFCS from defendants for use in soft drinks it manufactured, and of indirect purchasers who bought various food and beverage products containing HFCS as a sweetener. The plaintiffs alleged that the defendant manufacturers had conspired to fix the prices of HFCS during the proposed class period and that direct and indirect purchasers had paid an unlawful overcharge as a result of the alleged conspiracy. The chambers judge granted the plaintiffs’ motion for class certification in June 2010.

The defendants’ appeals from the certification orders in Microsoft and Sun-Rype were heard consecutively by the Court of Appeal for British Columbia in the fall of 2010.

The Majority Judgments

Writing the majority judgments in Microsoft and Sun-Rype, Lowry J.A. found that there was no basis for the certification orders insofar as they related to indirect purchasers of the allegedly price-fixed products, because the indirect purchasers had no cause of action as a matter of law.

The majority began its analysis with the decision of the Supreme Court of Canada in Kingstreet Investment Ltd. v. New Brunswick (Finance). In Kingstreet, a nightclub sought the return of user taxes on alcohol purchases it had paid to the province of New Brunswick, on the grounds that the taxes were constitutionally invalid. The government defended the claim in part on the basis that the nightclub had suffered no loss from the tax, because it had passed on the charges to its own customers. The Supreme Court in Kingstreet rejected “the passing on defence in its entirety”, finding that it was inconsistent with the premise of restitution law, economically misconceived, and that it created serious difficulties of proof of damages.

Turning to the allegations of unlawful price-fixing in Microsoft and Sun-Rype, Lowry J.A. found that Kingstreet made it “clear beyond question” that “[i]n responding to a claim brought by a [direct purchaser] alone, it would be no answer for the defendants to say the [direct purchasers] suffered less than they were overcharged because they passed some of the overcharge on to the [indirect purchasers]. Rather, the direct purchasers’ “loss was complete at the time the overcharge” was paid, and the direct purchasers “are in law entitled to recover the whole of the amount of the overcharge for which they may establish the defendants are liable to them, regardless of how much of it had been passed on”.

With respect to the potential claims of indirect purchasers, the majority reasoned that if there is no recognized defence of passing on, it must “follow that even though an overcharge may in fact have been passed on … the law does not recognize it: as a matter of law the overcharge or the loss for which the wrongdoer is liable is sustained when the overcharge is paid at first instance”.  Accordingly, indirect purchasers “who would seek to recover an overcharge that has been passed on are effectively claiming a loss that in law is not recognized”, and “[f]or that, there can be no cause of action.”

Lowry J.A. noted that if defendants were precluded from raising the passing on defence against direct purchasers, but indirect purchasers were permitted to sue to recover the amount of an overcharge paid by them, the defendants would face the prospect of paying the same loss twice to different plaintiffs. The majority found that “our law will not sanction” such double recovery.  It stated that its position was consistent with “American federal law” after the U.S. Supreme Court decision in Illinois Brick Co. v. Illinois, which held that “passing on cannot be used offensively to recover overcharges in an anti-trust action where it cannot also be relied on as a defence.”

In Microsoft the Court of Appeal set aside the certification order and dismissed the action altogether because the case had been brought only on behalf of indirect purchasers.

In Sun-Rype, the class consisted of both direct and indirect purchasers of HFCS. The Court of Appeal set aside the certification order and remitted the certification application back to the chambers judge for further consideration.

The Dissent

Donald J.A. dissented in Microsoft and Sun-Rype, disagreeing with the majority’s conclusion that it was “plain and obvious” indirect purchasers had no cause of action. The dissent agreed with the majority’s view that “the pass-through defence is dead”. However, Donald J.A. found that the “corollary proposition barring a pass-through claim is by no means a logical or legal necessity.”

While recognizing the validity of the “bedrock principle” against double recovery, the dissenting judge wrote that “the double recovery rule should not in the abstract bar a claim in real life cases where double recovery can be avoided.”  Donald J.A. noted that in Sun-Rype “the remedies sought are either aggregate damages or a constructive trust in restitution – one amount for the entire class” of direct and indirect purchasers, and that there was “no realistic possibility of double recovery with a single all-encompassing assessment.” The dissent also noted that “class proceedings are flexible enough to create ways and means of avoiding overrecovery.”

Donald J.A. found that denying indirect purchasers a cause of action could undermine the goals of class proceedings legislation, which include increasing access to justice and behaviour modification. He reasoned that without the participation of indirect purchasers, the “case may not be economically viable and the alleged wrongdoers will retain most of their ill-gotten gains with the result that the class action goals of deterrence and behaviour modification will be lost”.  The dissent further noted that in Microsoft, the direct purchasers were alleged co-conspirators with the defendants who would be unlikely to sue in their own right.

The dissent found that the U.S. federal rule barring indirect purchaser antitrust suits has been the subject of considerable public policy debate in the U.S. and that many states have enacted “Illinois Brick repealer” statutes which give indirect purchasers the right to bring claims in state courts. Donald J.A. found that courts in the U.S. “repealer” states have expressed the view that the “complexity” of proving damages in indirect purchaser cases, relied upon by the U.S. Supreme Court to bar such suits, was in fact manageable and the damages issues capable of resolution. 

Donald J.A. identified the prior “judicial reluctance in Canada to strike [indirect purchaser] claims prior to a full trial on the issue” as a reason favouring the rejection of “the defendants’ attack on the pleading” at the certification stage of the case.

Implications of the Judgments

The judgments can be expected to have a significant impact on the competition class action landscape in Canada.  For example, it would appear open to defendants in certified class actions involving claims by indirect purchaser plaintiffs to seek summary dismissal of the indirect purchaser claims and modification of the certification order on the basis of the Microsoft and Sun-Rype judgments. (The judgments would not be expected to have much impact on certified cases involving only direct purchaser classes, such as Steele v. Toyota Canada Inc.)

While not binding in Ontario, the judgments may lead to judicial reconsideration of the view that indirect purchasers may plead a cause of action predicated on price-fixing. More than a decade ago, the certification judge in Chadha v. Bayer found that it was not “plain and obvious” that indirect purchasers had no cause of action, and rejected the Illinois Brick rule as inapplicable in Ontario.  Although the order granting certification in Chadha was reversed on appeal, the Ontario appellate courts reversed the decision on the basis that the indirect purchaser plaintiffs had not presented a sufficient evidentiary record to support certification. The Court of Appeal for Ontario expressly left open the possibility that a sufficient showing could be made by indirect purchaser plaintiffs in future cases. However, Chadha predates the Supreme Court’s decision in Kingstreet, and the judgments in Microsoft and Sun-Rype provide a basis on which defendants may renew arguments that indirect purchaser claims are barred as a matter of law.

The exclusion of indirect purchaser plaintiffs could cause fundamental changes to the nature of competition class actions in Canada. The proposed classes in most competition class actions consist largely (if not overwhelmingly) of indirect purchasers. In many price-fixing class actions, the direct sales of defendants into Canada are miniscule in comparison to their sales in foreign jurisdictions, and the vast majority of direct purchasers of the allegedly price-fixed product are located outside of Canada (and thus are not members of the proposed class). The exclusion of indirect purchasers from the proposed class would thereby result in significantly smaller classes and claims in these actions.

On the other hand, one of the principal arguments against class certification raised by defendants in many competition class actions in Canada is that proving proposed class members have paid an overcharge raises individual rather than common issues for class members, and that the need to resolve those “proof of loss” issues to establish the defendants’ liability to the class renders the proposed class proceeding unmanageable. The difficulties proving loss are particularly acute where the proposed class is large and consists primarily of indirect purchasers who may be multiple steps down multiple product distribution chains from the defendants. Removing the “pass-on defence” and indirect purchaser plaintiffs from these cases as a matter of law would eliminate the need to consider the layers of distribution below the direct purchasers, and make proof of loss for the proposed class a less complex inquiry. In a direct-purchaser only regime, class certification might well become easier to achieve.

The plaintiffs have stated that they will seek leave to appeal to the Supreme Court of Canada

Court upholds certification of class action in price-fixing case

Shawn Neylan and Sharon Seung

In a judgment rendered June 8, 2010, the Ontario Superior Court dismissed a motion by FMC Corporation and FMC of Canada, Ltd. (collectively, FMC) for leave to appeal a September 28, 2009 decision certifying a class action. The motion was supported by Arkema Inc., Arkema Canada Inc. and Arkema S.A. (collectively, Arkema). Both FMC and Arkema were among the defendants in the class action proceeding.

The class action was brought on behalf of all persons in Canada who purchased hydrogen peroxide products between 1994 and 2005. The plaintiffs alleged that the defendants, manufacturers and sellers of hydrogen peroxide, conspired to and did fix the prices for hydrogen peroxide. According to the Ontario Superior Court, the main issue on the certification motion was the extent to which the causes of action required proof of individual loss or damage.

In the class action proceeding, the plaintiffs and the defendants had presented expert evidence to address the question of whether damages could be estimated on a class-wide basis. The methodology proposed by the plaintiffs’ expert was heavily criticized by the defendants. In considering the motion for leave to appeal, the Superior Court stated that it was not the certification judge’s obligation to determine the merits of these opinions, but rather to decide whether the evidence demonstrated the existence of a viable methodology for proving loss on a class-wide basis. The Court reiterated that the purpose of the certification stage of a class action was to determine whether the requirements under section 5(1) of the Class Proceedings Act, 1992 were met and if so, to define the issues to be tried.

The Court concluded that the certification judge had properly considered all of the evidence in order to find some basis in fact for each of the class action certification requirements, despite the fact that she had interpreted key case law in a different way, and that there was no reason to doubt the correctness of the certification order. Although the Court accepted that the requirement of public importance was met on the leave motion, it dismissed the motion for leave to appeal.

Supreme Court of Canada declines to hear DRAM certification appeal

On June 3, 2010, the Supreme Court of Canada declined to hear an appeal by DRAM manufacturers of a decision of the British Columbia Court of Appeal that certified a class in a civil action alleging price-fixing with respect to dynamic random access memory. As is customary when leave to appeal is declined, the Supreme Court did not give reasons for its decision.

Certification of competition class actions: The tide turns against defendants

Katherine L. Kay and Danielle Royal

Until recently, Canadian courts were generally reluctant to certify class actions alleging violations of competition law, principally on the basis that plaintiffs failed to put forward a workable class-wide method for determining the existence of harm for each class member.

In 2009, however, two significant decisions in Ontario and British Columbia - Irving Paper Ltd. v. Atofina Chemicals Inc.1 in the Ontario Superior Court of Justice and Pro-Sys Consultants Ltd. v. Infineon Technologies AG et al. in the Court of Appeal for British Columbia - signaled a new openness to such claims.

A third example of this trend is the recent 2010 British Columbia Supreme Court ruling in Pro-Sys Consultants v. Microsoft Corporation et al.,in which the plaintiff alleges that Microsoft engaged in anti-competitive behaviour that allowed it to charge higher prices for all of its operating systems and some of its application software. The plaintiff seeks damages for the tort of intentional interference with economic interests and common law conspiracy and also pursues civil remedies for breach of sections 45 (conspiracy) and 52 (misleading advertising) of the Competition Act, as well as relief for unjust enrichment and waiver of tort.

The proposed class in Microsoft consists of British Columbia residents who, on or after January 1, 1994, indirectly acquired a license for Microsoft Operating Systems and/or Microsoft Applications Software for their own use and not for purposes of further selling or leasing, including those who purchased new computers pre-installed with Microsoft's software. The key issue to be determined on the motion was whether the plaintiffs had put forward "a credible or plausible methodology" for establishing an overcharge and pass-through to this indirect purchaser class.

It is clear from Justice Myers' decision in Microsoft that he felt constrained in his approach by the appellate decision of the B.C. Court of Appeal in Infineon. Justice Myers held that Infineon stands for the following propositions with respect to certification:

  • A plaintiff need only show a "credible or plausible methodology" for proving class-wide issues. Because the threshold is low, conflicting expert evidence is not to be given the level of scrutiny to which it would be subject at trial.
  • Until the issue of waiver of tort has been determined substantively, a waiver of tort claim may be certified on the assumption that it will be sufficient at trial to show wrongful conduct by and resulting gain to the defendant without proof of any loss to the plaintiff.
  • In a claim for damages for tortious economic loss, it is not necessary to propose a methodology that can demonstrate harm to all class members. Instead, it is sufficient if harm can be shown to some of the class members. In addition, the aggregate damages section of the B.C. Class Proceedings Act allows for harm to be shown in the aggregate to the class as a whole.

Given these extremely low thresholds, it is not surprising that the chambers judge in Microsoft was satisfied that the proceeding met the test for certification as a class action.

The plaintiff in Microsoft used economic and econometric analyses employed by plaintiffs' experts in similar U.S. actions against Microsoft to persuade the chambers judge that they did indeed have a "credible or plausible methodology" for establishing that the price overcharge was passed on through each level in the distribution channel to the class members. The fact that one of the economic models was based solely on American data did not detract from its status as a "credible or plausible methodology", in the chambers judge's view. Nor was he persuaded by Microsoft's argument that the plaintiffs had failed to satisfy section 4(2) of the B.C. Class Proceedings Act, which provides that the court must consider as a factor whether "a significant number of the members of the class have a valid interest in individually controlling the prosecution of separate actions." Microsoft argued that volume purchasers of its software would have a valid interest in separate actions, pointing specifically to purchasers with at least 250 desktop computers. Having noted that the possibility that certain class members might opt out does not preclude certification, the chambers judge added that the fact that an entity is a volume user does not automatically support the inference that it would have an interest in pursuing a separate action, particularly considering the costs of doing so. Finally, to the extent that volume purchasers are differently situated, the chambers judge felt that difference could be addressed by the formation of sub-classes.

Given the low level of judicial scrutiny applied in Infineon, Irving and now Microsoft, there appears to be a risk that the certification of price-fixing and other competition class actions (including classes comprised solely of indirect purchasers) will become the "new normal" in Canada. The Infineon case is the subject of a pending application for leave to appeal to the Supreme Court of Canada. If leave is granted, the highest court in Canada will weigh in on these challenging issues. For defendants, the hope is that appellate intervention will reverse the recent turning of the tide.


1 [2009] O.J. No. 4021 (S.C.J.) (QL).

Proof of loss by proof of gain: B.C. Court of Appeal reversal certifies DRAM price-fixing class action

Katherine L. Kay and Kevin Rushton


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 [2003] O.J. 27

 

Ontario Divisional Court overturns refusal to certify franchise class action in Quizno's case

Katherine L. Kay and Mark Walli

In a 2-1 decision released April 27, 2009, the Ontario Divisional Court allowed an appeal from the dismissal of a class certification motion and conditionally certified a class of present and former Canadian franchisees of the Quizno's quick-service restaurant chain.1


The Plaintiffs, two of more than 400 Canadian Quizno's franchisees, alleged that they had been overcharged for food and other supplies they purchased for use in their Quizno's restaurants. They sought class certification of civil claims for damages against their Quizno's franchisors (the "Quizno's Defendants") for breach of contract and for breach of section 61 of the Competition Act (which, until its repeal and replacement with a civil provision on March 12, 2009, made price maintenance a criminal matter - section 36 of the Competition Act permits civil suits for damages incurred as a result of a violation of a criminal provision of the Act, even without a conviction), as well as a "civil conspiracy" claim against the Quizno's Defendants and Gordon Food Service Inc. and its affiliate (GFS), the primary distributor of many supplies to Canadian Quizno's restaurants.

The motions judge had dismissed the certification motion in its entirety, finding that the plaintiffs had shown neither that the existence of common issues would materially advance the litigation, nor that a class proceeding was the preferable procedure for resolving their claims.2 In particular, the court below found that the plaintiffs had not established that injury from the alleged price maintenance (higher food prices) - an element of liability for the Competition Act and civil conspiracy claims - was a common issue for the proposed class. The motions judge found this failure to be "an avalanche that buries the proposed common issues with an absence of commonality and a proliferation of individual issues".  In reaching that conclusion, the motions judge considered the plaintiffs' expert economic evidence on the issue, but found that the expert's opinion was "based on so many assumptions that it becomes speculative and unreliable" and did not provide "feasible" methodologies for establishing injury on a class-wide basis.The motions judge also found that the quality and quantity of the individual issues overwhelmed any common issues and stood "in the way of satisfying the preferable procedure criterion of the prerequisites for certification".

In reversing the decision, the majority of the Divisional Court held that the court below had erred in its approach to the proposed common issues, in its consideration of the expert evidence, and in its analysis of the preferable procedure requirement. Justice Swinton wrote a forceful dissenting opinion, disagreeing with the majority on virtually all issues.

The majority held that failure to establish all elements of liability, including proof of the existence of injury, is not the end of the inquiry into commonality, and that the motions judge had "erred in principle" by focusing on the existence of harm and failing to consider and identify other potential common issues. Finding that "the conduct that could give rise to liability is systemic" and that "[e]very franchisee is subject to the same contract, pricing structure and distribution system", the majority concluded that the alleged "breach" of section 61 of the Competition Act by the Quizno's Defendants and their allegedly "unlawful agreement" with GFS raised common issues for the proposed class, whether or not proof of loss was a common issue.  The majority further held that consideration of "whether one of the proposed common issues is overwhelmed or buried by the individual issues is part of the analysis for the preferable procedure criterion."

The majority of the Divisional Court also found that the court below had erred in principle in its consideration of the expert evidence and in its conclusion that proof of loss from the impugned conduct was not shown to be a common issue.  Finding that conflicting expert economic evidence had been submitted by the parties on the certification motion, the majority wrote:

It is neither necessary nor desirable to engage in a weighing of this conflicting evidence on the certification motion.  The plaintiffs on a certification motion will meet the test of providing some basis in fact for the issue of determination of loss to the extent they present a proposed methodology by a qualified person whose assumptions stand up to the lay reader.

Moreover, the majority also noted that other evidence in the record provided "some basis in fact" for finding that proof of loss was a common issue for the class, based again on the "systemic nature of claims of the Quizno's franchisees. The majority stated that "[i]t is setting the bar too high to require that evidence be led to support the factual foundation of the proposed methodology."

Turning to the preferable procedure requirement, the majority found that "the motions judge erred in principle by concluding his assessment with his finding that the individual issues in this case overwhelm any common issues" and by "failing to consider the objectives of the CPA."3 The majority held that the plaintiffs' submissions that they would not be able to pursue claims individually, and their accusations of "aggressive, divisive, harsh and retaliatory conduct" by the Quizno's Defendants, established that the goals of access to justice and behaviour modification favoured class certification in this case.  Moreover, the majority's identification of common issues, including proof of loss, that would materially advance the claims in the litigation, led it to conclude that "a class proceeding would be an efficient and manageable process."

Justice Swinton wrote a dissenting opinion which would have dismissed the appeal. In so doing, she noted that "with all due respect, the majority is reweighing the evidence and coming to its own findings based on the evidence.  That is not the role of this Court on appeal."

Justice Swinton found that "while there may be elements of the claims of breach of the [Competition Act], conspiracy and breach of contract that are common to the class members, they are not a substantial part of the litigation." Rather, "the real work on this case is on the damages side." Moreover, the dissent noted that the motion judge's consideration of the reliability of the plaintiffs' expert evidence was consistent with the approach taken by the Court of Appeal in Chadha v. Bayer,4 and that the court below was entitled to find that the lay evidence did not provide a basis in fact to show that class-wide harm from the alleged price maintenance was capable of common proof.

With regard to preferable procedure, the dissent found that, even if there were considerations of access to justice and behaviour modification that favoured certification, the motions judge did not err in principle in refusing to certify.In Justice Swinton's words, "just because the franchisees are a vulnerable group does not mean every class action brought by them should be certified." Justice Swinton was of the view that the conclusion of the motions judge that the proposed class proceeding would be unmanageable was entitled to substantial deference. Moreover, in her opinion it was also consistent with the conclusions reached in a number of other cases in which courts have refused to certify price maintenance, price fixing and civil conspiracy claims where they were not satisfied that the existence of harm could be proven on a class-wide basis (Chadha; Harmegnies c. Toyota5; Steele v. Toyota Canada Inc.6; Pro-Sys Consultants v. Infineon Technologies AG7; Price v. Panasonic Canada Inc.8).

Leave to appeal to the Ontario Court of Appeal has been sought by the defendants.


 1 2038724 Ontario Ltd. et al. v. Quizno's Canada Restaurant Corporation, et al., Court File No. DC 149/08. 2 See the March 24, 2008 issue of The Competitor for more detail: "Competition Act class action fails class certification test".  Stikeman Elliott LLP represents a group of defendants in these proceedings.
3 Class Proceedings Act 1992, S.O. 1992, c. 6.
4 (2003) O.R. (3d) 22, leave to appeal to S.C.C. refused, [2003] S.C.C.A. No. 106. 5 [2008] J.Q. No. 1446 (Que. C.A.), leave to appeal to S.C.C. refused, [2008] S.C.C.A. No. 173.
 6 2008 BCSC 1063. 7 2008 BCSC 575. 8 (2002), 22 C.P.C. (5th) 379 (Ont. S.C.J.).

Competition Act class action fails certification test

Katherine Kay and Mark Walli

Stikeman Elliott is counsel to a group of defendants in a very recent proposed class action decision in Ontario in which certification was dismissed, adopting earlier court approaches in applying the test for certification where competition law violations are alleged. The Ontario Superior Court of Justice dismissed the motion for certification in a proposed class proceeding brought by two Ontario franchisees of the Quiznos restaurant chain against their Quiznos franchisors and Gordon Food Service, Inc. and GFS Company Inc. (GFS), the primary food distributors to the Quiznos franchise system.1 The plaintiffs, who sought to represent a class of all Canadian Quiznos franchisees, brought claims for civil conspiracy against GFS and the Quiznos franchisors, together with claims for breach of section 61 of the Competition Act, R.S.C. 1985, c.19 (2nd Supp) (the Act) and breach of contract against Quiznos. Katherine Kay and Mark Walli of our firm represent GFS.

Under the franchise agreements, Quiznos appointed GFS to act as the primary distributor of a wide range of food and other supplies to the Canadian franchisees. GFS distributed these products to franchisees according to geographic region, from distribution centres located in six provinces across the country. Each GFS distribution centre sent monthly product order guides to the franchisees in its territory, and the franchisees paid GFS for the supplies they purchased from it. GFS purchased the majority of the products it distributed to franchisees from Quiznos, or from suppliers designated by Quiznos, at prices negotiated by Quiznos.

In the amended statement of claim, the plaintiffs allege that the Quiznos franchisors, GFS, and unnamed food manufacturers or suppliers entered into "price maintenance agreements" to artificially maintain the prices franchisees paid for supplies at inflated levels. The plaintiffs assert that Quiznos has engaged in unlawful price maintenance, in breach of Section 61 of the Act, by dictating the prices charged by GFS to franchisees. They also assert that, by agreeing to charge the allegedly maintained prices for supplies, GFS aided and abetted the Quiznos price maintenance and unlawfully conspired with it.

On the plaintiffs' motion to certify their action as a class proceeding, Justice Paul Perell recognized "the collective aspiration of the class members to band together to have their day in court to obtain justice for their perceived grievances", but found that the franchisees' claims on the record before it in the case "are a large square peg of law and facts that cannot fit into the large round whole of procedure that is a class proceeding."

Justice Perell held that the plaintiffs had failed to satisfy the criteria required for certification under section 5 of Ontario's Class Proceedings Act 1992, S.O. 1992, c.6. In particular, the court held that the plaintiffs failed to demonstrate they could prove loss (i.e., that they paid higher food prices) from the alleged conduct on a class-wide basis, which they had to do to establish liability as a common issue for the class on the civil conspiracy claim. Justice Perell agreed with the defendants that the expert economic evidence offered by the plaintiffs on this issue was based on a host of unfounded assumptions, which rendered the expert's opinion "speculative" and "unreliable", and his proposed common methodologies for proving harm on a class-wide basis "conceptually unsound" and "not feasible". Absent proof of harm on a class-wide basis, what remains as a proposed class proceeding results in "an avalanche that buries the proposed common issues with an absence of commonality and a proliferation of individual issues." In Justice Perell's view, the resolution of any common issues would not meaningfully advance the litigation and a class proceeding would not be the "preferable procedure" for resolving the franchisees' claims.

In previous cases, Canadian courts have accepted defendants' arguments regarding the difficulties in such a case with seeking to prove the fact of harm on a class-wide basis and have been persuaded that there remains a myriad of individual issues in such cases, even after resolution of any common issues. While the courts have been careful to say that there is no absolute rule against certifying competition law class actions, the decisions to date have made it clear that certifying such cases as class actions does not meet the goals of the class proceedings legislation. Further appellate consideration of this issue is anticipated.


12038724 Ontario Ltd. v. Quizno's Canada Restaurant Corporation et. al, 2008 CarswellOnt 1156 (Ont. S.C.J.)