Viability of umbrella purchaser claims in question

Competition lawyers are calling on the Supreme Court of Canada to settle the intensifying debate over the viability of umbrella purchaser claims.

Viability of umbrella purchaser claims in question
Paul-Erik Veel would like to see umbrella claims blocked, but he would also appreciate a Supreme Court ruling on the issue.

Competition lawyers are calling on the Supreme Court of Canada to settle the intensifying debate over the viability of umbrella purchaser claims. 

 A number of class actions launched across the country under s. 36 of the federal Competition Act, which provides for civil claims by consumers who paid inflated prices as a result of conspiracies between competitors, include umbrella purchasers among their proposed class members. These are individuals who bought products from non-conspirators, but who allege they were still overcharged as an indirect result of price fixing in the broader marketplace for the goods or services. 

Last summer, in Godfrey v. Sony Corporation, the B.C. Court of Appeal confirmed the judgment of a lower court judge who ruled that umbrella claims are available under s. 36, putting jurisprudence from the province in direct opposition to the line emerging in Ontario. 

Just months before the decision from B.C.’s top court, in Shah v LG Chem, Ltd., a unanimous three-judge panel of Ontario’s Divisional Court ruled that Superior Court Justice Paul Perell was right to deny certification to the claims of umbrella purchasers in an action concerning alleged global price fixing of lithium ion batteries. 

Ontario’s Court of Appeal is scheduled to hear arguments in the same case on May 7, but Nikiforos Iatrou, head of the competition law practice group at Weir Foulds LLP, says he’s already seen enough to justify a full hearing at the Supreme Court of Canada. 

“There are two divergent approaches right now on what is an acceptable theory of damages,” says Iatrou, a partner in the firm’s Toronto office. “At this point, it seems clear that these cases need to head up so that we know definitively whether, for the purposes of certification, umbrella damages claims can proceed.

“Without some direction from the Supreme Court and a unified set of ground rules, it makes bringing and defending these class actions far too complicated,” he adds. 

But Iatrou says he’s hoping for a more comprehensive judgment from the nation’s top court than it delivered last time a competition class action issue came before it — a trilogy of decisions in late 2013 that related to the certification of indirect purchaser claims. 

“The Supreme Court essentially allowed the indirect purchaser claims to go forward at certification and left it up to the trial judges to sort out which ones can be proven. My concern is that it will do the same with umbrella purchasers,” he says. “I suspect that if one was litigated all the way through, plaintiffs would not actually be able to prove all of these various types of damages, but the difficulty is that, from a practical point of view, we have never had a fully contested competition class action.” 

In the meantime, Iatrou says, the status quo favours plaintiffs, because without certainty over the viability of umbrella purchaser claims, it’s in their interests to tag them on and hope for the best at certification.

“By creating a real thicket of theoretical damages claims, all we’re doing is giving plaintiff-side firms more leverage to negotiate bigger settlements,” he says. 

But Bridget Moran, a lawyer with Siskinds LLP in London, Ont., says it would be unfair to exclude umbrella purchasers in cases of alleged price fixing. 

“The theory is that if the conspiring defendants had enough control of the market to fix prices, then it allowed their competitors to raise prices as well. In those circumstances, class members who bought goods from non-defendant manufacturers should also be able to recover the amounts they were overcharged,” she explains.

Moran’s firm is part of the consortium representing the plaintiffs in Shah, the lithium ion battery case, and is hoping Ontario’s Court of Appeal follows the example of its B.C. counterpart once it has heard arguments in the case next month. 

In his original 2015 decision in the case, Perell certified the class action, but he excluded the claims of umbrella purchasers. The Divisional Court upheld the decision, agreeing that they had no reasonable cause of action due to the “indeterminate and uncircumscribed” lability to which their inclusion would expose the defendants.  

“Adding in the Umbrella Purchasers greatly expands the members of the class, and does so by adding persons with whom the respondents had no dealings,” wrote Ontario Superior Court Justice Ian Nordheimer on behalf of his Divisional Court colleagues. “Indeed, if the Umbrella Purchasers are included in the class, it is not clear how the respondents would even know how many such purchasers they might be found liable to.” 

In Godfrey, B.C.’s appeal court considered an alleged conspiracy among the manufacturers of optical disc drives and products containing them that resulted in higher prices between 2004 and 2010. Writing for himself and two colleagues on the bench, B.C. Appeal Court Justice John Savage said that he was convinced the language of s. 36 of the Competition Act is capable of allowing umbrella claims. 

“I acknowledge there is a tension between, on the one hand, concerns over what some may view as a very broad scope of liability resulting in unfairness to defendants accused of price-fixing and, on the other hand, the need to give effect to the objectives sought by the Competition Act such as compensation, deterrence, and behaviour modification,” Savage added. “To the extent that such a tension arises in the present context, however, I am convinced it must be resolved in favour of the latter policy objective.” 

From an international point of view, Paul-Erik Veel, a partner at Toronto litigation boutique Lenczner Slaght Royce Smith Griffin LLP, says the B.C. line of jurisprudence fits with the European approach to umbrella purchasers, while Ontario’s more restrictive view is reflected in the U.S., where similar claims are increasingly failing at trial.

He says he would rather see umbrella claims blocked, but he adds he would appreciate a Supreme Court ruling on the issue. 

“It’s unusual with these types of cases to see such a stark and clear divergence between courts of different provinces,” Veel says. “Although I’m sympathetic to the very valid policy goals of the Competition Act, in my view, umbrella purchasers are a bridge too far.

“Competition class actions are already unwieldy and cumbersome enough and will become substantially more so with the addition of umbrella purchasers without much benefit to consumers ultimately,” he adds.

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