Canadian price-fixing class actions: the Supreme Court of Canada gives the green light to indirect purchaser claims.

• Author: Rosenhek, Steven F.
• Position: Reprinted from International Committee newsletter, February 2014 - Reprint

This article originally appeared in the February 2014 International Committee newsletter.

ON October 31, 2013, the Supreme Court of Canada released its highly anticipated rulings in Pro-Sys Consultants Ltd. v. Microsoft Corporation, (1) Sun-Rype Products Ltd. v. Archer Daniels Midland Company, (2) and Infineon Technologies AG v. Option consommateurs. (3) In this trilogy of decisions, the Court considered, among other things, whether defendants in price-fixing and other class actions are entitled to invoke the "passing-on" defense, whether indirect purchasers have a cause of action at law, jurisdictional issues, the appropriate standard of proof for certification under provincial class proceedings legislation, and whether aggregate damages provisions in such legislation can be used to establish liability.

1. Rejection of the Passing-On Defense

   Like the Supreme Court of the United States in Hanover Shoe Inc. v. United Shoe Machinery, (4) the Court rejected the passing-on defense, confirming that it is "inconsistent with the basic premise of restitution law", (5) "economically misconceived," (6) and "would force a difficult burden of proof on the plaintiff to demonstrate not only that it had suffered a loss, but that it did not engage in any other transactions that would have offset the loss." (7)

2. Indirect Purchasers Have a Cause of Action

   Unlike the approach taken by the majority of the Supreme Court of the United States in Illinois Brick v. Illinois, (8) the Court concluded that prohibiting the "offensive use of passing on" was not a necessary corollary to its rejection of the passing-on defense, and that indirect purchasers therefore have standing to sue for losses passed on to them. In reaching that conclusion, the Court held that: (a) the risks of multiple recovery and the concerns of complexity and remoteness are insufficient bases for denying indirect purchasers a right of action; (b) the deterrence function of Canadian competition law is not likely to be impaired by indirect purchaser actions; (c) although the passing-on defense is contrary to basic restitutionary principles, allowing passing on to be used offensively promotes those very principles; and (d) there are numerous reasons to question the rationale of the rule in Illinois Brick, namely, the existence of numerous so-called "repealer" statutes at the state level, a report to Congress recommending its reversal at the federal level, and recent doctrinal commentary calling for...