Canada: Private Antitrust Litigation

Private antitrust litigation in Canada focuses mainly on two distinct kinds of alleged misconduct and takes place in two very different venues.

Criminal behaviour, including cartels and misleading advertising offences, triggers traditional civil litigation before the courts (usually by way of class action). Certain non-criminal reviewable trade practices, such as refusals to deal, may trigger private administrative proceedings before the Canadian Competition Tribunal (the Tribunal). In either case there is a series of potent but very different remedies available.

What follows is a review of both of these routes to private antitrust enforcement in Canada, together with an indication of some of the key differences between private Canadian and US cartel litigation.

Civil litigation - criminal conduct

The private right of action

The Canadian Competition Act (the Act) ¹ governs competition issues arising from commercial activity throughout Canada. Section 36 provides a private right of action in respect of the criminal offences under the Act. A person may sue anyone who commits a criminal offence under the Act (or who fails to comply with a Tribunal or court order made under the Act). The plaintiff is entitled to recover its actual loss or damage flowing from the offence - Canada does not have a treble damage regime. The plaintiff may also recover its full cost of investigation and legal proceedings. Any such action must be brought within two years of a day on which the conduct was engaged in or the day on which any related criminal proceedings were disposed of, whichever is later.

The criminal offence provisions are found in part VI of the Act. The Canadian government overhauled this part in March 2009. The amendments repealed the criminal provisions of the Act relating to price discrimination, promotional allowances, predatory pricing and resale price maintenance, virtually excluding the scope for private actions for these competitive practices in Canada. The most important amendment, from a private enforcement perspective, was made to section 45 dealing with conspiracy. Previously, section 45 required that the conspiracy prevent or unduly lessen competition. This requirement has been removed, creating a per se offence. Now any agreement between competitors to fix prices, allocate customers or markets, or restrict output violates the conspiracy provisions regardless of the conspiracy's impact on competition.

Evidence of misconduct

There need not be a prior conviction for a plaintiff to bring a private action under section 36 alleging an offence under part VI of the Act. However, from a practical perspective, most private actions arise either after or in anticipation of a conviction. This is because section 36(2) of the Act provides that the judicial record relating to a criminal conviction is proof that the convicted person engaged in conduct contrary to part VI, in the absence of any evidence to the contrary. This provision applies whether the conviction was the result of a negotiated plea or a contested trial. In fact, it has been many years since a Canadian cartel conviction was the product of a trial rather than a negotiated agreement. Accordingly, the judicial record in a criminal proceeding usually consists only of the indictment, an agreed statement of facts, the plea and the finding of guilty and imposition of sentence. Accused who are negotiating guilty pleas know that the agreed statement will become the centrepiece in any follow-on civil litigation, and much of the criminal negotiation centres on the form and content of that statement.

In the past few years class counsel have become more aggressive in starting private competition law cases earlier to pre-empt competing suits. It is now common to see Canadian class actions commenced before there is a plea in Canada and, with increasing frequency, contemporaneous with the initiation of a cartel investigation in the US or (exceptionally) Europe. These cases routinely recite US guilty pleas or, if none, then Canadian or US grants of amnesty (usually disclosed in securities filings) as 'evidence' of anti-competitive activity.

Alternative causes of action

Most plaintiffs in cartel matters rely not only on section 36 of the Act but also on common law conspiracy and a variety of economic torts. The tort claims are unlikely to expand the bases of liability. However, depending on the jurisdiction, they may carry longer limitation periods. They may also support requests for relief such as interlocutory injunctions, punitive damages or equitable disgorgement that are not available under section 36 of the Act. ²

In addition, plaintiffs now routinely plead 'waiver of tort'. This is an equitable remedy designed to require defendants to disgorge illicit gains rather than compensate plaintiffs for proven harm or damages. The parameters of these claims have not yet been determined by the courts but they have thus far survived attack at the pleadings stage.

International cartels

Canadian cartel litigation rarely involves purely domestic conspiracies. Instead, Canadian litigation has focused on North American or global conspiracies affecting Canada as well as other jurisdictions. This reflects both the larger scale of international cartels (and therefore greater potential recoveries for plaintiffs and their counsel) and the fact that Canadian plaintiffs can ride on the coat-tails (or leverage the efficiencies) of the parallel US criminal and civil proceedings that often occur prior to those in Canada.

International cartels affecting Canada are often entered into abroad and merely implemented in Canada. This usually raises jurisdictional questions: can a foreign conspirator be brought before the Canadian courts? Such questions, however, arise principally with respect to criminal prosecutions. Canadian courts have determined (in the context of the Vitamins litigation) that they have personal jurisdiction over foreign defendants who are alleged to have entered into foreign conspiracies affecting Canadian commerce. ³

Class actions - general

Almost all Canadian competition law litigation in recent years has been conducted by way of class actions. Large purchasers have occasionally sued cartel participants in traditional litigation, and direct purchasers were few enough to sue as a group (rather than a class) in respect of the graphite electrodes cartel. But class proceedings have really been the order of the day.

Most Canadian provinces now have formal class action procedural rules. Even those that do not are entitled to handle class actions on an ad hoc basis following general guidelines from the Supreme Court of Canada that roughly mimic the formal rules in place in other provinces. ⁴

Outside Quebec, the test for certifying a proposed class proceeding is more or less the same. It generally requires the plaintiff to satisfy five criteria:

• the pleadings disclose a cause of action;
• there is an identifiable class of two or more people;
• the claims of the class members raise common issues;
• a class proceeding would be the preferable procedure for resolving the common issues; and
• the representative plaintiff would fairly and adequately represent the class, has produced a workable plan of proceeding and has no interests in conflict with other class members on the common issues.

⁵

Unlike US Federal Rule 23, the certification test in most Canadian provinces does not include a formal predomination requirement under which common issues must predominate over individual issues if the class is to be certified. ⁶ Nevertheless, the preferability element of the usual certification test has been held to include a requirement that the resolution of the common issues will 'significantly advance the action'. ⁷ Accordingly, outside Quebec, it is not enough for the plaintiff merely to establish the existence of some common issues. ⁸

Although the need for extensive evidence on certification motions was originally doubted by a number of courts, the Supreme Court of Canada has now confirmed that evidence is required on each of the elements of the certification test except disclosure of a cause of action. ⁹ It has now become common for the parties, and in particular the defendants, to amass large records consisting of lay and expert industrial and economic evidence on the motion.

There have been a number of Canadian cartel class actions certified on consent for settlement purposes. While each of the five criteria for certification must be satisfied even for settlement, the courts do not require satisfaction to the same standard as in contested proceedings. The courts are mainly concerned with whether the settlement is fair and adequate to the class and whether there is an appropriate plan for distributing the settlement proceeds. The courts essentially assume for the purposes of the settlement that there is a cause of action and that a class proceeding is the preferable procedure - preferability in this context has more to do with making and implementing a settlement on behalf of a class than anything else. Certification for settlement has no precedential effect. Canadian courts have dismissed certification motions contested by some defendants even after certifying the same class action for settlement purposes in respect of other defendants. ¹⁰

Competition law class actions

Canadian class action certification jurisprudence for competition cases has seen radical change during the past year, especially in respect of certification. As described in more detail below, Canadian plaintiffs now face a very lenient evidentiary threshold for certification.

The key feature of Canadian cartel class actions, and the most important difference between Canadian and US class action law, lies in the courts' rejection of the US Ilinois Brick doctrine as a universal response to indirect purchaser claims. ¹¹

In Chadha v Bayer, the Ontario courts refused to certify an indirect purchaser case involving a proposed class of homeowners who alleged price-fixing of iron oxide pigments allegedly used to colour the bricks in their houses. The courts held, in part, that a class proceeding would not be preferable because the plaintiffs had failed to demonstrate any common basis for tracing the alleged overcharge from the manufacturers, through a welter of distribution chains, and into the purchase price paid for their houses.

This approach is consistent with the concerns expressed by the US Supreme Court in Illinois Brick. However, the Ontario courts refused to adopt the doctrinaire US approach by making a blanket ruling that consumer cases were incapable of being certified or that indirect purchasers had no status to sue. To the contrary, the courts expressly stated that end consumer or indirect purchaser classes are capable of being certified on appropriate evidence.

As important as what this decision says is what it implies. First, it is open to indirect purchasers to plead and prove that harm from cartel behaviour was passed on to them by direct purchasers. Second, as a corollary, direct purchasers are not deemed to bear all of the price-fixing harm. And finally, if plaintiffs at different stages of the distribution chain can debate the degree of pass-on, so can defendants. Unlike in the US, therefore, defendants have a pass-on defence to raise in direct purchaser litigation.

As a result of Chadha, most Canadian cartel class actions now consist of neither direct nor indirect purchaser classes but rather a combination of both. Plaintiffs' counsel have proposed 'universal' classes consisting of every possible plaintiff, from the initial direct purchasers to the last end consumers. Their theory is that if all direct and indirect purchasers are included, then all of the harm must have been suffered somewhere in the class.

Initially, plaintiffs' counsel found that global class definitions were not the panacea they were hoping for. In Pro-Sys Consultants Ltd v Infineon Technologies ¹² the plaintiffs in British Columbia sought to recover damages arising from the alleged DRAM price-fixing cartel. The proposed class included those who bought DRAM directly from the manufacturers as well as those who bought DRAM or products containing DRAM indirectly.

The motions judge concluded that certification should be denied to classes that include indirect purchaser classes where the plaintiff is unable to propose a viable class-wide method of establishing harm and thus liability. The motions judge stated that, even though the questions surrounding the alleged conspiracy may be easy to answer in a cartel class action, this does not displace the significance of determining whether there is a class-wide method capable of establishing pass-through to all of the market participants caught by the proposed class definition. Indeed the motions judge held that this is the core of the inquiry in a pass-through case. The motions judge's analysis of the competing experts' testimony led him to conclude that the antitrust impact could not be proven on a common basis.

While the appeal in Pro-Sys was pending, the Ontario court came to the opposite conclusion in the Ontario Hydrogen Peroxide ¹³ cartel litigation. The Ontario motions judge certified, deciding that only a threshold showing by the plaintiff on the issue of proving harm on a class wide basis was required. The motions judge declined to resolve the dispute between the experts on certification issues holding:

...at this stage of the proceeding, a court is ill-equipped to resolve competing expert opinions. I understand the defendants' various criticisms of Dr Beyer's report, but it seems to me that I need only be satisfied that a methodology may exist for the calculation of damages. Dr Beyer's report attempts to postulate such a methodology. Whether his evidence will be accepted at trial is a completely different issue. It may well be that Dr Schwindt's various criticisms are well founded. However, at this stage of the proceedings _ I simply am unable to say that Dr Beyer's opinion will not be accepted by a court. _ It is simply not possible at this stage of the proceedings to determine whose opinion is to be preferred. [emphasis added]¹⁴

This lower evidentiary standard also diverges from the 2008 US decision in Hydrogen Peroxide which held that a 'threshold showing' is not enough. Instead, in the US Third Circuit, at least, the court must resolve all factual or legal disputes relevant to class certification, even those that overlap with the merits. ¹⁵

Relying in part on Ontario Hydrogen Peroxide, the British Columbia Court of Appeal then reversed the Pro-Sys decision, holding that the motions judge had applied the wrong evidentiary standard. The court ruled that the motions judge was 'fundamentally unfair' because, among other things, he 'subjected the [plaintiff's] evidence to rigorous scrutiny' and 'weighed [the plaintiff's evidence] against the [defendants'] evidence'. The court then rehabilitated the plaintiffs' evidence by downgrading the standard the plaintiffs must meet, stating that evidence meeting a minimum prima facie threshold of 'a credible or plausible methodology' will suffice. ¹⁶ The court also held that liability need not be demonstrated for each class member but, instead, might be established in the aggregate and that waiver of tort and disgorgement might provide a solution to the problem of establishing each class member's loss.

The Supreme Court of Canada denied leave to appeal Pro-Sys and the Ontario Divisional Court denied leave to appeal Hydrogen Peroxide.

The lower evidentiary standard in Canada significantly changes the dynamics of antitrust class actions. Defendants will have reduced scope to rebut plaintiffs' expert testimony, and will have to look for gaps in the evidence rather than confront the plaintiffs head on. This will tend to turn certification motions into drafting exercises - absent judicial scrutiny, there is a danger that any well-drafted plaintiff's expert affidavit may suffice.

At a procedural level, another key (and frustrating) difference between Canada and the US is the lack of any formal coordination among different courts handling proposed class actions by different counsel respecting the same cartel. The senior superior courts that typically handle cartel class actions are provincial, not federal. There is no Canadian equivalent to the US MDL system. Where overlapping claims or classes in different provinces cannot be resolved or coordinated informally by negotiations among competing class counsel and the various defendants, cumbersome and inadequate motions invoking forum conveniens or similar doctrine must be taken. There is as yet little guidance from the courts on how these issues will be resolved, although proceedings currently pending in a number of cases may shed some light.

More typically, class proceedings are started in a number of provinces at the same time by counsel working with one another on a coordinated basis. These counsel usually identify one jurisdiction as the 'lead' jurisdiction in which certification and, potentially, the merits will be litigated.

Cross-border litigation

Many Canadian cartel cases are 'copycat' cases derived from earlier ongoing US litigation. US class counsel often assist Canadian plaintiffs' counsel in formulating the case and reviewing the facts.

Canadian courts have acknowledged these arrangements by approving counsel fees that expressly include fees payable to US counsel.

The cross-border nature of much Canadian antitrust litigation has raised a number of issues. The first involves cross-border discovery. US cases are usually well into the pre-certification or even merits discovery when parallel Canadian class actions are commenced. US courts have now begun granting intervenor orders in favour of proposed Canadian classes so that Canadian class counsel can be included within US protective orders for the purposes of obtaining the documents and reviewing the transcripts generated in the US discovery process. Accordingly, Canadian class counsel are starting to get extensive discovery in the US before they have sought certification or have any discovery rights in Canada. However, in the US Hydrogen Peroxide litigation, intervenor status was denied to Canadian plaintiffs. The US court found that the intervention application was an effort by the Canadian plaintiffs to circumvent the discovery policy, pre-certification, of their home jurisdiction.

Another issue arising from cross-border antitrust litigation stems from US class action settlements on behalf of classes that include Canadians. Such settlements raise the question of whether those settlements bar Canadians from bringing their own litigation in Canada if they do not expressly opt out.

In the Auction House conspiracy litigation, a settlement was reached in New York on behalf of classes that included non-US purchasers, including Canadians. There was, at that time, an existing Canadian auction house class action. Canadian class counsel worked with US class counsel, satisfied themselves that the US settlement was in the best interest of Canadian class members and, ultimately, had the Canadian class action dismissed so that Canadians could participate in the US deal. However, in the McDonald's contest litigation (not an antitrust case), Canadian class counsel resisted an effort by the defendants to dismiss a proposed Canadian case on the basis that the Canadian class was subsumed within a North American class on behalf of which a settlement had been approved in the US. The Canadian courts refused to dismiss the Canadian case, initially on the basis of inadequate notice in Canada of the US settlement. However, the courts left open the distinct possibility that, if notice were effectively given, a US settlement might bind unwitting Canadian class members and undercut, or terminate, Canadian class proceedings.¹⁷

***

Recent certification jurisprudence has made it easier for plaintiffs to achieve certification for competition claims. Plaintiffs counsel now know, as a result of Pro-Sys and Hydrogen Peroxide, that the mere existence of an alleged conspiracy and use of global classes may be sufficient to make a class action the preferable procedure, provided they meet the minimum evidentiary standard of showing the possible existence of a workable methodology to sort out harm. These decisions will likely lead to an increase in class actions in Canada. Defendants who do not choose to settle will have to change their focus in these actions from vigorously contesting certification to vigorously defending the main action.

Administrative proceedings – reviewable trade practices

Reviewable practices

Part VIII of the Act includes provisions dealing with trade practices that are reviewable by the Tribunal. These include abuse of dominant position, exclusive dealing and tied selling and refusal to deal. While resale price maintenance has been de-criminalised, thereby excluding class actions, it may be still challenged civilly by the commissioner as a component of abuse of dominance. The March 2009 amendments have added a new civil provision that will allow the commissioner of competition to challenge agreements and arrangements between competitors before the Tribunal rather than initiate criminal proceedings.

The Tribunal's remedies are largely behavioural - directing a person found to have engaged in a reviewable practice to take or stop taking certain steps. The Tribunal may also order a person to pay an administrative monetary penalty (AMP ) in certain circumstances. The recent amendments now allow the Tribunal to impose an AMP of up to C$10 million (up to C$15 million for repeat offenders) for abuse of dominance.

Private access to the Tribunal

Until 2002, only the commissioner of competition could initiate a proceeding before the Tribunal to consider an alleged reviewable practice. However, amendments to the Act have granted a limited right to any aggrieved person to initiate Tribunal proceedings. ¹⁸ Any person may now apply to the Tribunal for leave to make an application to the Tribunal for a finding that another person is improperly refusing to deal or is engaged in exclusive dealing or tied selling. Private parties are not currently entitled to seek leave to initiate an abuse of dominance proceeding. Only prospective behavioural remedies are available in private proceedings neither penalties nor damages may be awarded.

Process

There are several hurdles a private applicant must overcome before being granted leave to commence an application. First, the Tribunal may not consider applications respecting matters that are currently the subject of an inquiry by the commissioner or that were the subject of an inquiry discontinued because of a settlement involving the commissioner or, finally, that are subsumed in an application already submitted by the commissioner to the Tribunal. However other matters, including those where the commissioner has discontinued an inquiry other than by way of settlement, are available for consideration. The Tribunal is expressly forbidden from drawing any inferences, one way or the other, from the fact that the commissioner has (or has not) taken any particular step in respect of the matter.

The other preliminary hurdle that a private applicant must overcome involves the test for leave. The Tribunal has been given an important gate-keeping function. Leave is only to be granted if the Tribunal has reason to believe that the applicant is directly and substantially affected in the applicant's business by impugned conduct constituting one of the kinds of reviewable practice amenable to private applications.

There have been a number of leave applications filed since the Act was amended to introduce private access. Some have been granted, but most have been rejected. The jurisprudence remains somewhat mixed in terms of the application of the leave test. However, it is arguable that an applicant must not only demonstrate substantial impact but also provide reasonable grounds for the Tribunal to believe that each of the elements required to be proven to establish the alleged reviewable conduct is capable of being demonstrated.

To date only five applications have been granted leave. Of these only two have been heard on the merits and both were subsequently dismissed by the Tribunal. The potential for private actions at the Tribunal for anticompetitive conduct that does not rise to the criminal standard therefore remains unrealised.

Notes

* McMillan represented defendants in the Vitamins, DRAM, Hydrogen Peroxide, Auction Houses and Gariepy cases discussed in this article.

1

. RSC.1985, cC-34, as amended.

2

. Whether these remedies will, in fact, be granted in cartel cases has not yet been determined by Canadian courts. For example, it is unlikely that punitive damages would be awarded against a defendant that has already been convicted and sanctioned criminally.

3

. Vitapharm Canada Ltd v F Hoffmann-La Roche Ltd (2002), 20 CPC (5th) 351 (Ont SCJ).

4

. See Western Canadian Shopping Centers Inc v Bennett Jones Verchere (2001), 201 DLR (4th) 385 (SCC).

5

. This iteration of the criteria is from Ontario's Class Proceedings Act, 1992, SO 1992 c6, s5(1).

6

. But see British Columbia's Class Proceedings Act, s4 (2)(a).

7

. Hollick v Toronto (City), 2001 SCC 68 at paragraph 32.

8

. The Quebec class action regime is quite different from that in the other provinces. The test for authorising a class action does not include an overt preferability requirement, the procedural steps on an authorisation motion are truncated and class membership is restricted to individuals and companies with fewer than 50 employees.

9

. Hollick v Toronto (City), supra.

10

. Gariepy v Shell Oil Co, et al (2002), 26 CPC (5th) 358 (Ont SCJ).

11

. Illinois Brick v Illinois, 431 US 720 (1977); see also Hanover Shoe Inc v United Shoe Machinery Corp, 392 US 481 1968)

12

. 2008 BCSC 575.

13

. Irving Paper Ltd v Autofina Chemicals, [2009] OJ 4021 (Ont SCJ).

14

. Ibid at paragraph 143.

15

. In re Hydrogen Peroxide Antitrust Litig, 552 F 3d 305 (3d Cir 2008) at 321, 324-25.

16

. Pro-Sys Consultants Ltd v Infineon Technologies AG, 2009 BCCA 503 at paragraphs 67 & 68.

17

. Currie v McDonald's Restaurants of Canada Ltd (2005), 74 OR (3d) 321 (CA).

18

. See, generally, section 103.1 of the Act.