Umbrella damages case going to the Supreme Court

The Supreme Court of Canada has granted leave in Pioneer v. Godfrey, a class action case that deals with “umbrella damages” in competition law, where the case law between British Columbia and Ontario differs.

Umbrella damages case going to the Supreme Court
Michael Osborne says an upcoming case will hopefully rectify a ‘misinterpretation of the Supreme Court’s decision in the indirect purchaser trilogy.’

The Supreme Court of Canada has granted leave in Pioneer v. Godfrey, a class action case that deals with “umbrella damages” in competition law, where the case law between British Columbia and Ontario differs. Lawyers say the case could have implications for class action lawsuits based on anti-competitive behaviour.

At the British Columbia Court of Appeal, Godfrey v. Sony Corporation, 2017 BCCA 302, as it was known then, the court dismissed an appeal that allowed purchasers of computers containing optical disc drives to certify a class action proceeding that included “umbrella” purchasers — those that purchased devices from companies that  were not part of an alleged criminal price-fixing conspiracy but that nevertheless raised their prices to similar levels and benefited from the overcharge.

According to Michael Osborne, partner at Cassels Brock & Blackwell LLP in Toronto, who is acting for Pioneer in the case, the case is important for the Supreme Court to consider and hopefully rectify a “misinterpretation of the Supreme Court’s decision in the indirect purchaser trilogy.”

One of the issues before the court relates to the standard of commonality and the fact that lower courts have begun using a standard of whether damages can reach a certain level and, therefore, this adds a quasi-legal personality to the class, says Osborne.

“It is a different theory about what the nature of a class action is,” he says. “That’s what is at stake.”

Osborne says there are also limitation period issues in the case, as well as discoverability issues. He says the lower courts adopted a different test than one that had previously been established.

“Fundamentally, the issue here is about respect for Parliament,” says Osborne. “It’s about the court not overstepping its role and the court interpreting the statute and not legislating.”

Reidar Mogerman, partner at Camp Fiorante Matthews Mogerman LLP in Vancouver, who is acting for Godfrey, says the issue matters for lawyers because they are important actors in the way the law and the economy work together.

“Price fixing has been described as the pure evil of anti-trust,” says Mogerman.

“It doesn’t have the countervailing public good associated with it, so courts have grappled with how you structure remedies to fulfil those important policy goals that underpin price-fixing legislation.”

Mogerman says the case tests the boundaries of the remedies that flow from a breach of this provision of the Competition Act. He adds that Ontario, B.C. and Quebec have taken different approaches to umbrella damages and that, while B.C. and Quebec courts have ruled that umbrella purchasers could state a cause of action, the Ontario divisional court ruled in Shah v. LG Chem Ltd, 2017 ONSC 2586 that umbrella damages would expose the respondents to indeterminate liability. Shah involves an alleged price conspiracy with regard to rechargeable lithium ion batteries.

The Ontario Court of Appeal had heard the appeal and reserved the decision in Shah when the Supreme Court of Canada granted leave in Godfrey, which leaves the possibility that the Ontario court may hold its decision until the Supreme Court has ruled, or it may offer its ruling regardless, and an appeal to the Supreme Court of Canada may be expedited in order to be heard with Godfrey.

“Whether an umbrella purchaser suffers harm from price fixing is a question of fact,” says Mogerman. “The answer is maybe yes or maybe no, depending on the market structure and what decisions are made within the market.”

As for the question of law, the Supreme Court has previously allowed indirect purchasers to sue even though they didn’t have a direct relationship with parties who violated the Competition Act. Mogerman says that the umbrella purchaser question is treated in a similar way, which led to a concern from the Ontario court that it could create large and indeterminate classes of people attempting to sue.

“The answers that the British Columbia Court of Appeal gave were: one, that it’s a question of fact; [and] two, when you price fix, you know and intend for the entire market to move,” says Mogerman.

“You need the entire market to move or the non-cartel members will start stealing your market share by undercutting your cartel prices.”

This premise underlying umbrella purchasers’ claims is echoed by Jean-Marc Leclerc, a partner at Sotos LLP in Toronto, who represented Khurram Shah in Shah.

Leclerc says that, in most anti-trust cases, you have economists who testify on either side in order to assess the impact resulting from the alleged conspiracy by analyzing the market, the market share and component pricing.

“They’re putting that information into a regression analysis in order to determine the price that would have existed if there was not a conspiracy in place,” says Leclerc.

“In the course of doing all of this analysis, the expert is looking at the market and the market share that the defendants are holding.”

Leclerc says that, in the course of the analysis, the experts are examining the whole market including the portions held by the defendants as well as non-defendants.

To Mogerman, the remedies available to those harmed by price fixing need to be flexible enough to make a difference.

“If complexity defeats justice, then we are rewarding defendants for their larger crimes and that just can’t be right,” says Mogerman.

Leclerc agrees that the number of facets to the Godfrey case, including discoverability, means that umbrella purchasers may not be where the Supreme Court will focus.

“It would surprise me if the Supreme Court of Canada intends to address that in its decision, because the analysis really isn’t too different from the analysis that the Supreme Court took on in the 2013 Pro-Sys decision,” says Leclerc, regarding the decision around indirect purchasers in Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57.

Michael Brown, a partner with Norton Rose Fulbright Canada LLP in Toronto, who is not involved in either case, says umbrella damages haven’t been used until recently because of the state of the legislation.

After the revisions to s. 45 of the act in 2010, the law changed so that a lawsuit could be brought so long as two or more competitors in a marketplace colluded to fix prices, and they didn’t have to control the marketplace.

“A plaintiff’s counsel in class actions can now bring cases where they alleged that only a small portion of the competitors in the market were actually participating in the conspiracy,” says Brown.

“With expanded potential for liability under s. 45, that is the reason why these umbrella purchaser claims have come to the forefront and why we’ve started to see disputed claims about the viability of those claims,” says Brown.

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