The Umbrella is Open: The Supreme Court of Canada Approves Certification of an All-Purchaser Class in Godfrey

September 23, 2019

The Supreme Court of Canada extends the right to sue under section 36 of the Competition Act to umbrella purchasers who bought products from manufacturers not alleged to have been involved in any price fixing conspiracy.

On September 20, 2019, the Supreme Court of Canada released its first decision in a price-fixing class action brought under section 36 of the Competition Act since its landmark Microsoft trilogy in 2013. Section 36 of the Act provides a right of action to any “person who has suffered loss or damage as a result of” conduct that is contrary to any provision in Part VI of the Act, which, among other things, prohibits agreements between competitors to fix the prices of products they manufacture and sell. In the last decade, cases brought under section 36 of the Act have been among the largest and most vigorously litigated class actions in Canada, raising a number of significant contested legal issues that the Supreme Court has now addressed in its Godfrey decision.

Context - The Microsoft Trilogy 

For context, in the Microsoft trilogy, the Court had been asked to decide whether section 36 of the Act provides a cause of action to indirect purchasers of a price-fixed product – that is, purchasers who did not buy a defendant’s product directly, but rather bought from a distributor, retailer, or other entity one or more levels down the product distribution chain(s) from the defendant. The Court determined in Microsoft that indirect purchasers do have a cause of action under section 36, but recognized that in suing, “the indirect purchasers willingly assume the burden of establishing that they have suffered loss” from the alleged price-fixing, which puts them to the “unenviable task” of tracing alleged price-fixing overcharges through multiple parties in the chains of distribution by way of complex economic evidence. As to the evidentiary burden on a plaintiff seeking to establish that proof of loss is a common issue for the proposed class, the Supreme Court said in Microsoft that the role of the plaintiffs’ expert on certification was to provide an economic methodology that was “sufficiently credible or plausible” to offer “a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge is eventually established at the trial of common issues, there is a means by which to demonstrate that it is common to the class (i.e., that passing on has occurred).”

Godfrey Decision

The Godfrey case has been brought against manufacturers of optical disc drives (ODDs), which are used to read and/or record data on optical discs and are found in a number of electronics products (ODD products). It has been brought on behalf of a class of all British Columbia residents who purchased ODDs or ODD products between January 1, 2004 and January 1, 2010. On the appeal in Godfrey, the Supreme Court was asked to determine whether the private right of action in section 36 of the Act covers not only direct and indirect purchasers of the defendants’ products, but also extends to so-called “umbrella” purchasers, who bought ODDs or ODD products (directly or indirectly) from manufacturers not alleged to have participated in the price-fixing conspiracy. The theory for extending defendants’ liability to plaintiffs who did not even purchase the defendants’ products is that anti-competitive cartel activity “creates an ‘umbrella’ of supra-competitive prices, causing non-cartel manufacturers to raise their prices” on those products. Or, as the Court put it in its Godfrey decision, “a rising tide lifts all boats.”

Umbrella Purchasers

The Supreme Court ruled in Godfrey that umbrella purchasers do have a cause of action under section 36 of the Act. The Court found that the language of that provision “empowers any claimant who can demonstrate that loss or damage was incurred as a result of the defendant’s conduct to bring a claim”. It also found that extending the right to sue to umbrella purchasers was consistent with two significant objectives of the Act: deterrence of anti-competitive behaviour and compensation for the victims of such behaviour. The Court rejected the defendants’ arguments that allowing umbrella purchasers to sue would impermissibly expose them to indeterminate liability for economic loss. Leaving open the question of whether indeterminate liability could be a consideration relevant to the scope of section 36 of the Act in a different case, the Court found that it would not arise on the facts of Godfrey, because liability is limited by (a) the length of the defined class period, (b) the types of ODD products at issue, and (c) the requirement in section 36 that umbrella purchasers must prove that they suffered loss or damage “as a result of” the defendants’ ODD price-fixing in order to establish liability. This reasoning underscores that proof of loss from the alleged conspiracy remains at the heart of price-fixing cases in Canada.

In Godfrey, the Supreme Court of Canada was also asked to revisit the issue of what plaintiffs must show on certification to establish that the critical proof of loss element of their price-fixing claims is a common issue for the proposed class, which has been the most contentious and vigorously litigated issue in these cases since Microsoft. The plaintiff contended that it was sufficient if the expert on certification offered a credible methodology for showing that there was pass-through to the “indirect purchaser level” of the class, without needing to provide a methodology for showing at trial that all class members were harmed or for identifying which individual class members did or did not suffer loss or damage from the price-fixing. The defendants argued that a methodology capable of identifying which class members were or were not harmed from the price-fixing was exactly what was required under Microsoft, because, as Microsoft recognized, loss or damage is an essential element of liability for claims brought under section 36 of the Act, such that no class member could be allowed to recover from a defendant without first establishing at trial that she suffered actual loss from the alleged price-fixing.

Proof of Harm

In Godfrey, the Court agreed with the defendants as to what the class members will be required to establish at trial but sided with the plaintiff as to the requirements for an economic methodology offered on certification to establish proof of loss as a common issue. The Court said in Godfrey that “Microsoft could not have been clearer that” aggregate damages provisions in class proceedings legislation, which is solely procedural, cannot be used to side-step the substantive requirement that each class member must establish that she suffered harm in order to recover from the defendants. The Supreme Court therefore rejected the position that aggregate damages provisions allow for an award of damages at trial to class members that suffered no loss as being “inconsistent with the Court’s jurisprudence”. The Supreme Court emphasized that, in order for (individual) class members to participate in a damages award, the trial judge must be satisfied that “each has actually suffered a loss”.

The Supreme Court accepted in Godfrey that, at the certification stage, what is required to establish a common issue as to proof of loss is “a plausible methodology to establish that loss reached one or more purchasers – that is, claimants at the ‘purchaser level’”. The Court reasoned that a methodology for showing that loss “reached the requisite purchaser level will advance the claims of all the purchasers at that level”, even if it would not be sufficient to determine the price-fixing claims of all, or any particular, class members. Thus, in upholding the lower courts’ acceptance of the plaintiff’s expert’s methodology on certification in Godfrey, the Court noted that a possible outcome at a common issues trial in the case was that the judge would conclude that “it was impossible to determine on the expert’s methodology which class members suffered a loss”, in which case “individual issues trials would be required to determine the purchasers to whom” the defendants were liable.

Additional Issues Resolved 

In Godfrey, the Supreme Court addressed two additional legal issues of significance to competition class actions in Canada. First, section 36(4)(a)(i) of the Act provides that no action under section 36 may be brought based on conduct that is contrary to any provision of Part VI after two years from “a day on which the conduct was engaged in”. The Court held that this two-year limitation period is subject to the “discoverability rule”, such that the period will only begin to run when the material facts on which the claim is based were discovered by the plaintiff or ought to have been discovered through the exercise of reasonable diligence. The Court further held that it is open to plaintiffs bringing section 36 claims to assert that the statutory limitation period was tolled under the doctrine of “fraudulent concealment”, which tolling was found by the Court not to require the existence of a special relationship between the plaintiff and the defendant, but to depend instead on establishing the “unconscionable” nature of the defendant’s conduct.

The Supreme Court further held in Godfrey that section 36 of the Act is not a complete remedial code that pre-empts the assertion of common law or equitable claims based on price-fixing conduct. Thus, it is open to plaintiffs in competition class actions to assert tort claims such as unlawful act conspiracy (and pursue common law remedies) predicated on alleged price-fixing, in addition to their section 36 claims. 

In Godfrey, the Supreme Court of Canada has provided significant threshold guidance on the scope of price-fixing class actions in Canada, at least at the certification stage. After Godfrey, the legal battlefield is wide and the issues complex, particularly as the cases move beyond the certification stage. Expect more vigorous litigation and questions calling for judicial determination.

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