Québec Court of Appeal authorizes price-fixing class action involving indirect purchasers

21 novembre 2011

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On November 16, 2011, the Québec Court of Appeal issued a judgment unanimously reversing the 2008 Québec Superior Court decision in Option Consommateurs v. Infineon Technologies AG dismissing the motion for authorization to institute class action proceedings.

Background and Decision in the Superior Court

The defendants were manufacturers of dynamic random access memory or “DRAM,” a semiconductor memory product used in electronic devices, each of whom had admitted participation in a price-fixing conspiracy between 1999 and 2002 and all but one of whom had pleaded guilty to Sherman Antitrust Act violations arising from that conduct in the United States.

In its motion to institute the proceedings in Québec Superior Court, Option Consommateurs, a consumer advocacy organization, alleged that the defendants failed to respect statutory obligations under the Competition Act, R.S.C. 1985, c. C-34, and breached the general extracontractual duties imposed upon them by the Civil Code of Québec. Claudette Cloutier, a Montreal resident, sought status as the designated representative in the proceedings on behalf of direct and indirect purchasers of DRAM in Québec. In October 2001, Cloutier had purchased a computer containing DRAM online from Dell Computer Corporation’s website, and claimed to have paid an artificially inflated price for the computer as the result of the defendants’ price-fixing activity.

Justice Mongeau of the Superior Court denied the motion to authorize proceedings on two grounds: first, that Québec did not have proper territorial jurisdiction to hear the class action, but that even if it had, the allegations did not meet the test for authorization under Québec class proceedings law. Option Consommateurs and Cloutier appealed the ruling to the Court of Appeal.

The Québec Court of Appeal’s Ruling

In rendering its judgment reversing the decision of the Superior Court, the Court addressed three major issues: (i) the source in law of the claims made by the putative class members; (ii) jurisdiction over the alleged losses of the class members; and (iii) and the authorization of the class action under Québec class proceeding law.

As a threshold matter, the Court held that the direct and indirect purchasers of DRAM within the class both essentially alleged a single extracontractual fault as the basis for their causes of action: the conspiracy to inflate artificially the price of DRAM, a conspiracy that would have if not for the passing of the statute of limitations given rise to a civil remedy pursuant to section 36 of the Competition Act. Accordingly, the Court found that there would be no impediment to the authorization of the class action based on a different source of liability between direct and indirect purchasers.

The Court’s ruling on Québec’s territorial jurisdiction over the proceedings suggests an expansive view of the extraterritorial application of Canadian antitrust laws upon foreign defendants. While Justice Mongeau had held that Cloutier’s financial loss was connected to Québec only by reason of her domicile being there — a fact which could not by itself establish financial loss suffered in Québec and provide a basis for the exercise of jurisdiction — the Court of Appeal, while agreeing that the question of jurisdiction was one appropriate for decision on an authorization motion, came to the opposite conclusion. Despite the fact that the defendants were not domiciled in Québec and had no place of business there, and the alleged conspiracy was not alleged to have taken place in Québec, the Court concluded that the damage Cloutier claimed to have suffered in Québec arising from her online computer purchase justified the exercise of jurisdiction.

The Court of Appeal went on to find that the class action was authorized pursuant to articles 1002 and 1003 C.C.P. Rejecting the defendants’ position that the motion did not clearly set out an undue restraint of competition resulting from their anti-competitive activities outside of Canada, the Court held that while the plaintiff was “far from having established its case on the merits,” the extent of the conspiracies as set out in the plea agreements were sufficient to support the allegations of undue restraint of trade. Furthermore, while acknowledging the “unhelpful lack of detail” in the allegations relating to the class members’ loss, the Court of Appeal found that there had been alleged sufficient facts to establish the loss and to constitute a prima facie demonstration of loss under article 1003(b) C.C.P.

The Court then addressed the defendants’ argument that the alleged losses suffered by indirect purchasers were not compensable because of the indirect purchasers’ lack of standing. Referring to the British Columbia Court of Appeal’s decisions in Sun-Rype Products Ltd. v. Archer Daniels Midland Company (Sun-Rype) and Pro-Sys Consultants Ltd. v. Microsoft Corporation (Microsoft), which concluded that indirect purchasers of allegedly price-fixed products have no cause of action recognized in law, the Court was not persuaded that double recovery could result from the recognition of indirect purchasers’ claims. Instead, concurring with the reasons of the dissenting justice, Donald J.A., in Sun-Rype, the Court held that the defendants would not face an unfair risk of double recovery because the motion alleged a single, aggregate loss notwithstanding the mix of direct and indirect purchasers in the class. Significantly, the complexity of proving the passing-on of losses to the indirect purchasers was acknowledged by the Court, but deemed merely an evidentiary concern that should be properly addressed as part of the burden of proof resting upon the plaintiffs once the case proceeded to trial.

Conclusion

The rulings in this decision are reminders of the relatively low threshold for authorization of class actions in Québec. The Court of Appeal, even while noting the lack of specificity in the motion pertaining to loss and causation (including the fact that Cloutier had not alleged that the DRAM in her computer was sold to her directly or indirectly by the defendants or any them) and acknowledging the evidentiary challenges awaiting the plaintiff upon trial, ultimately held the allegations sufficient to meet the test for authorization under Québec law.

The timing of the decision is also notable.  The Supreme Court of Canada is expected to rule on the leave applications in Sun-Rype and Microsoft in the near future.

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