Since the Supreme Court of Canada’s 2013 trilogy of decisions in Pro-Sys, Sun-Rype and Infineon, and its 2019 decision in Godfrey, plaintiffs have had considerable success certifying private antitrust/competition class actions in Canada. It is thus noteworthy that a number of recent decisions suggest a growing judicial willingness to limit or dismiss proposed competition class actions at the certification stage or before certification through preliminary motions.
Set out below is an analysis of key 2021 decisions and their collective takeaways, together with trends we can expect for 2022 and beyond.
(a) The Cases
i. Jensen / Hazan – conscious parallelism will not suffice
In Jensen and Hazan, the Federal Court of Canada and the Quebec Superior Court each denied certification and authorization, respectively, of class actions alleging a conspiracy in respect of Dynamic Random Access Memory (“DRAM”) chips. The plaintiffs alleged that three manufacturers of DRAM chips conspired to limit supply and thereby artificially drive-up prices through unspecified communications and public statements that could amount to “signalling” among competitors. There were neither convictions (guilty pleas or otherwise) nor any investigations by the Competition Bureau or any foreign antitrust authority underpinning the alleged conspiracy.
Both courts concluded that the criteria for certification/authorization (as applicable) were not met due to the claims’ vague, imprecise and general allegations and the absence of evidence establishing the existence of the alleged unlawful agreement. In particular, the Federal Court in lengthy reasons concluded that there was no basis in fact for the proposed common issues, noting that the plaintiffs’ claim was “doomed to fail”, that the “pleadings cannot boil down to mere speculation or a fishing expedition” and that a pleading alleging a conspiracy must detail the “who, when, where, how, and what” of the alleged agreement.
The Federal Court also discussed in detail the distinction between unlawful agreements between competitors under s. 45 of the Competition Act, which represents a per se violation of the Competition Act, and ‘conscious parallelism’, which refers to situations where competitors unilaterally adopt similar or identical business practices or pricing, due to rational and profit-maximizing strategies based on observations of market trends and the activities of competitors. The Federal Court was explicit in its reminder that Canadian law has long recognized that ’conscious parallelism’, even if it involved parallel conduct in alleged oligopoly markets, falls short of conduct captured by s. 45 of the Act.
ii. Mohr – must be competitors and cannot be buyers
In Mohr, the Federal Court of Canada granted a preliminary motion to strike out the claim without leave to amend. The Federal Court was prepared to and did hear the motion in advance of the certification motion. In Mohr, the plaintiff alleged a conspiracy among all the major hockey leagues in North America and Hockey Canada to deny junior hockey players career opportunities and compensation. In granting the motion, the Federal Court concluded, among other things, that s. 45, the general conspiracy offence in the Competition Act, did not apply to the alleged conduct because the defendants were not “competitors” for the product or service at issue and, further, s. 45 does not apply to agreements among competing “buyers” for the purchase of a product or service (as s. 45 is restricted to the agreements among competing suppliers). The Federal Court also concluded that s. 48 of the Competition Act (the conspiracy provision focused on professional sports) did not apply to the alleged inter-league conspiracy because the provisions apply only to agreements between teams and clubs within the same league.
iii. Latifi – no to ‘no poach’
Latifi involved allegations that the defendant’s franchise agreement, which allegedly required franchisees not to ‘poach’ employees from brand restaurant locations, violated s. 45 of the Competition Act. The British Columbia Supreme Court dismissed the plaintiff’s claim on the basis that s. 45 of the Competition Act does not prohibit “buy-side” agreements and, in turn, the pleadings did not disclose a cause of action. The Court’s finding is also consistent with guidance from the Competition Bureau, which has confirmed that so-called no-poaching, wage-fixing and other buy-side agreements fall outside the scope of s. 45 of the Competition Act.
iv. Maginnis – need evidence of compensable harm
Maginnis was the most recent in a series of proposed class actions filed against automotive manufacturers relating to diesel fuel emissions systems. The plaintiffs sought to certify a class proceeding based on an allegation that class members purchased certain vehicles that were not as environmentally friendly as had been represented, amounting to an alleged violation of the Competition Act among other alleged causes of action.
Certification was denied on the basis that the plaintiffs had failed to adduce any evidence of harm or loss, and that without any such evidence, the action was not suitable for certification as a class action. In dismissing the plaintiffs’ appeal of the certification decision, the Divisional Court of Ontario reaffirmed jurisprudence holding that plaintiffs seeking certification must do more than merely plead class-wide injury, but must support such an assertion with some evidence at the certification stage.
v. David – narrowing scope of umbrella purchaser claims
David involved allegations of a conspiracy among competitors in the packaged bread market. While the bread action was certified, the proposed umbrella common issues were not certified.
In “umbrella purchaser” claims, plaintiffs generally allege that the behaviour of the alleged participants in the conspiracy set a threshold, leading others in the market to artificially increase prices and causing so-called umbrella purchasers to suffer a loss. In its 2019 decision in Godfrey, the Supreme Court of Canada concluded that it was not “plain and obvious” (referring to the cause of action element of the certification stage) that the claims of umbrella purchasers cannot succeed. In doing so, the Supreme Court noted that “it cannot be ruled out that a competing undertaking, outside the cartel in question, might choose to set the price of its offer at an amount higher than it would have chosen under normal conditions of competition, that is, in the absence of that cartel.” Relying on the Supreme Court’s reference to a “competing undertaking”, the defendants argued that the plaintiffs’ umbrella allegations with respect to fresh bread (as substitutable for packaged bread) are significantly distinct from the types of umbrella effects that the Supreme Court discussed in Godfrey.
In its decision, the Ontario Superior Court discussed the economic theory of umbrella effects, which is premised on the notion of product substitutability. Following a product market analysis of bread (fresh v. packaged), and finding a lack of substitutability, the certification judge found no basis in fact to support the proposed umbrella common issues. Importantly, with respect to the Godfrey decision, the certification judge made clear that the scope of potential umbrella claims does not extend beyond competing undertakings, noting that “(t)he Supreme Court’s point in allowing umbrella claims to proceed is not to allow litigation over theoretically connected but practically unprovable increases in all products everywhere. Rather, it is to ensure that all damages provably caused by a price fixing cartel – i.e. the increased prices for the product and its direct competitors whose price was manipulated – are accounted for.”
(b) The Collective Takeaways
Collectively, the above-mentioned decisions suggest a growing judicial willingness to limit or dismiss proposed competition class actions at and before the certification stage. The decisions also provide important guidance for proposed competition class actions and trends to expect in the future:
- Evidence of an unlawful agreement and harm: When assessing whether the criteria for certification has been met, courts will require plaintiffs to provide evidence of the alleged unlawful agreements and compensable harm. In particular, evidence of ‘conscious parallelism’ is not sufficient to support the “some basis in fact” requirement for proof of the existence of an alleged unlawful agreement. Further, parties should expect courts to look beyond general allegations and to conduct a careful analysis of the evidentiary record at the certification stage.
- More pre-certification defence motions to narrow or dispose of proceedings: Historically, courts were reluctant to hear defence motions to narrow or dispose of proceedings in advance of the certification motions. This trend has seen a dramatic shift. The Federal Court of Canada in Mohr and the British Columbia Supreme Court in Latifi were both prepared to hear defence motions to dispose of the proceedings before the hearing of the certification motions. Further, amendments to Ontario’s class proceedings legislation now encourage dispositive motions in advance of the certification motion. In the first decision interpreting these particular amendments, Dufault, the Ontario Superior Court concluded that defendants now have a presumptive right to have certain motions heard and decided before plaintiffs’ motions for certification, which plaintiffs can displace by persuading the court that there is nonetheless an overarching and good reason for the preliminary and certification motions to be heard together.
- Courts will assess whether claims fit the parameters of the Competition Act: As was observed in the Federal Court of Canada’s decision in Mohr and the British Columbia Supreme Court’s decision in Latifi, Courts will examine closely whether claims fit within the statutory framework of the Competition Act, which is informed by Competition Bureau enforcement guidelines. The decisions in Latifi and Mohr reflected the treatment of buy-side agreements under the Competition Act, namely that they are not caught by the criminal conspiracy provisions of the Competition Act. Mohr is also a reminder that the criminal conspiracy provision applies to alleged agreements, as to a product or service, among competitors with respect to that product or service.
- Umbrella purchaser claims will be met with increased scrutiny: Although the Supreme Court in Godfrey concluded that it was not “plain and obvious” that the claims of umbrella purchasers cannot succeed, the Supreme Court noted that proving statutory claims under Canada’s Competition Act for umbrella purchasers may well be complex and difficult for plaintiffs to demonstrate. The Ontario Superior Court’s decision in David, which declined to certify the proposed umbrella purchaser common issues, is the latest example of increased scrutiny that umbrella purchaser claims will face.