Law Times

PAGE 12 FOCUS sepTember 7, 2009 • Law Times Main legal battle playing out on the indirect-purchaser front Competition class action law still in flux BY JULIUS MELNITZER For Law Times C ompetition class ac- tions, particularly price- fi xing cases, have been a staple of Canada's litigation scene for some time. But the law sur- rounding them remains in fl ux. "Antitrust claims under the Competition Act are arising in an array of industries where plaintiff s are seeking to piggy- back on settlements or prosecu- tions by government, or are mak- ing their own allegations afresh," says Timothy Pinos of Toronto's Cassels Brock & Blackwell LLP. "We're seeing cases in franchis- ing, retail distribution, and wholesale distribution." Still, it was only in August 2007 that a contested competi- tion class action, Axiom Plastics Inc. v. E.I. Dupont Canada Co., was fi nally certifi ed in a Cana- dian court. Th e case involved allegations of price maintenance and con- spiracy under the Competition Act and common law conspiracy on behalf of approximately 200 companies engaged in the man- ufacture of plastic components for automotive applications. In Axiom, Ontario Superior Court Justice Alexandra Hoy found the alleged scheme was common to all class members and met both the common issues and preferability requirements despite the fact the plaintiff class was not entirely homogeneous and that DuPont had asserted numerous individual issues. Th e class in Axiom, however, consisted entirely of direct pur- chasers. Th e decision, therefore, shed no light on the fate of com- petition class actions involving indirect purchasers. It is on the indirect purchaser front that the main battle in competition class actions is playing out. In Ontario, the Court of Ap- peal's 2003 decision in Chadha v. Bayer Inc. has stood squarely in the way of price-fi xing cases involving indirect purchasers. In Chadha, the plaintiff s al- leged the defendants had en- gaged in a conspiracy to fi x the price of iron oxide, a chemical used to colour building ma- terials such as concrete block. Initially, the court certifi ed the overruled Chadha. In these cases, the appeal court ruled the aggregate damages pro- visions of Ontario's Class Pro- ceedings Act were engaged where "potential" liability could be es- tablished on a class-wide basis but where entitlement to monetary relief might depend on individ- ual assessments. Th e provisions permit courts to determine the aggregate or part of a defendant's liability and give judgment ac- cordingly where these can be reasonably determined without proof of individual claims. "Cassano and Markson have made certifi cation much easier, to certifi cation than Ontario courts," says Katherine Kay of Stikeman Elliott LLP's Toronto offi ce, who acted for the Infi n- eon group of companies. Th e claim alleged that cer- tain international manufactur- ers of dynamic random access memory (DRAM) chips, an es- sential component of virtually all modern electronic products, had engaged in an unlawful conspiracy to fi x prices. "Although there had been some guilty pleas in the U.S., there were none in Canada, and the ones in the U.S. were limited in terms of admissions regarding What their position leaves unresolved is how the damages were suffered and by whom, which experienced defendants' lawyers will argue is the nub of the issue in any case. class consisting of homeowners who were indirect purchasers and end users of the product. But in the end, Chadha did not augur well for plaintiff s. In 2001, the Divisional Court reversed the certifi cation, a rul- ing affi rmed by the Court of Appeal in 2003. Th e court did not outrightly dismiss the pos- sibility of certifi cation for cases involving indirect purchasers; instead, it ruled the supporting evidence in Chadha did not address the complexities in- volved in fi nding price-fi xing eff ects on indirect purchasers. Many plaintiff s' lawyers, how- ever, argue the Ontario Court of Appeal's subsequent decisions in Markson v. MBNA Canada Bank and in Cassano v. Th e Toronto- Dominion Bank have eff ectively because the Court of Appeal signalled that judges should do whatever they can within reason to apply the aggregate damages provisions in the legislation," says Paul Pape of Toronto's Pape Barristers Professional Corp. While the notion that Chad- ha has fallen by the wayside has yet to be tested in Ontario, the B.C. Supreme Court recently turned thumbs down on it in Pro-Sys Consultants Ltd. v. Infi ne- on Technologies AG, a class action that, for the fi rst time, combined direct and indirect price-fi xing conspiracy allegations. "Th e plaintiff s didn't say so, but they brought the cer- tifi cation motion in B.C. be- cause they wanted to be free of Chadha and because the courts in B.C. are even more inclined the victims of the conspiracy," says Paul Morrison of McCa- rthy Tétrault LLP's Toronto of- fi ce, who led the team acting for the Hynix Semiconductor, Inc. group of companies. Notwithstanding the guilty pleas, B.C. Supreme Court Justice David Masuhara denied certifi cation. In a sweeping de- cision, he ruled the plaintiff s were unable to prove harm on a class-wide basis and could not resort to the aggregate pro- visions of the B.C. legislation. Th ese were available, he ruled, only after harm had been es- tablished on a class-wide basis. "[Th e] DRAM [case] runs contrary to the hopes of experi- enced plaintiff s' counsel who be- lieved that including all direct and indirect purchasers would lead the court to certify because all it had to do was frame the common issues of what the defendants did wrong and the global amount of damages," says Kay. "What their position leaves unresolved is how the damages were suff ered and by whom, which experienced de- fendants' lawyers will argue is the nub of the issue in any case." Th e case is currently un- der appeal. But when it is heard, the Ontario Divisional Court's recent split decision in 2038724 Ontario Ltd. v. Quiz- no's Canada Restaurant Corp. will certainly have the B.C. Court of Appeal's attention. In that case, the plaintiff s, represented by Allan Dick and David Sterns of Toronto's Sotos LLP, were Quizno's franchisees. Th e defendants were the fran- chisor, Quizno's, represented by Pinos and colleague Geoff rey Shaw; and Gordon Food Service Inc., represented by Kay and colleague Mark Walli. Gordon Food was the exclusive distribu- tor of supplies to the franchisees pursuant to an arrangement with Quizno's that set the prices. Th e claim, based partly on the Competition Act, alleged that Quizno's and Gordon Food conspired to structure their rela- tionship in order to extract un- reasonable markups on supplies, unlawfully causing harm to the franchisees, all direct purchasers in a captive market. At fi rst instance, Ontario Superior Court Justice Paul Perell declined to certify the ac- tion because the plaintiff s were unable to show liability could be established on a class-wide basis and because the circum- stances demanded an individu- al assessment of damages. 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Prices subject to change without notice, to applicable taxes and shipping & handling. www.lawtimesnews.com Branch_class actions (LT 1-3x4).indd 1 9/2/09 10:51:45 AM LT0907 Cassano and Markson analyses, holding the aggregate damages provisions were meant to assist the court in allocating damages rather than determining their totality. Consequently, the ex- tent to which Axiom had liber- alized certifi cation rules, even for narrowly defi ned competi- tion cases, became a matter of serious controversy. Arguably, the controversy persists despite the Divisional Court's 2-1 reversal of Perell's ruling on various grounds. Most signifi cant for the future of competition-based class ac- tions, perhaps, was the ma- jority's conclusion regarding aggregate damages. "We have found that liability for breach of the Competition Act and liability for breach of contract are common issues," the majority wrote. "Given our con- clusions, s. 23 and 24 of the CPA may be available at the common issues trial to determine damages on an aggregate basis." According to Dick, that's the way it should be. "Damages as an element of a cause of action are not unique to competition class actions, to which special certifi cation principles should not apply," he says. LT H ollick v. Toronto (City) W ard Branch

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