SUPREME
COURT OF CANADA
Between:
Pro-Sys
Consultants Ltd. and Neil Godfrey
Appellants
and
Microsoft
Corporation and Microsoft Canada Co./Microsoft Canada CIE
Respondents
-
and -
Attorney
General of Canada
Intervener
Coram: McLachlin C.J. and LeBel, Fish, Abella, Rothstein, Cromwell,
Moldaver, Karakatsanis and Wagner JJ.
Reasons
for Judgment:
(paras. 1 to 143)
|
Rothstein J. (McLachlin C.J. and LeBel,
Fish, Abella, Cromwell, Moldaver, Karakatsanis and Wagner JJ. concurring)
|
Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC
57, [2013] 3 S.C.R. 477
Pro‑Sys Consultants Ltd. and
Neil Godfrey Appellants
v.
Microsoft Corporation and
Microsoft Canada Co./Microsoft
Canada CIE Respondents
and
Attorney General of Canada Intervener
Indexed as: Pro‑Sys Consultants Ltd. v. Microsoft
Corporation
2013 SCC 57
File No.: 34282.
2012: October 17; 2013: October 31.
Present: McLachlin C.J. and LeBel, Fish, Abella, Rothstein,
Cromwell, Moldaver, Karakatsanis and Wagner JJ.
on appeal from the court of appeal for british columbia
Civil
procedure — Class actions — Certification — Indirect purchasers — Plaintiffs
suing defendants for unlawful conduct in overcharging for its PC operating
systems and PC applications software — Plaintiffs seeking certification of
action as class proceeding under provincial class action legislation — Whether
indirect purchaser actions are available as a matter of law in Canada — Whether
certification requirements are met — Class Proceedings Act, R.S.B.C. 1996,
c. 50, s. 4(1).
P brought a class
action against M, alleging that beginning in 1988, M engaged in unlawful
conduct by overcharging for its Intel‑compatible PC operating systems and
Intel‑compatible PC applications software. P sought certification of the
action as a class proceeding under the Class Proceedings Act, R.S.B.C.
1996, c. 50 (“CPA”). The proposed class is made up of ultimate
consumers, known as “indirect purchasers”, who acquired M’s products from re‑sellers.
The
British Columbia Supreme Court found that the certification requirements set
out in s. 4(1) of the CPA were met and certified the action. The
majority of the Court of Appeal allowed M’s appeal, set aside the certification
order and dismissed the action, determining that indirect purchaser actions
were not available as a matter of law in Canada and therefore that the class
members had no cause of action under s. 4(1)(a) of the CPA.
Held:
The appeal should be allowed.
Indirect
purchasers have a cause of action against the party who has effectuated the
overcharge at the top of the distribution chain that has allegedly injured the
indirect purchasers as a result of the overcharge being “passed on” to them
through the chain of distribution. The argument that indirect purchasers
should have no cause of action because passing on has been rejected as a
defence in Canada should fail.
The
passing‑on defence, which was typically advanced by an overcharger at the
top of a distribution chain, was invoked under the proposition that if the
direct purchaser who sustained the original overcharge then passed that
overcharge on to its own customers, the gain conferred on the overcharger was
not at the expense of the direct purchaser because the direct purchaser
suffered no loss. As such, the fact that the overcharge was “passed on” was
argued to be a defence to actions brought by the direct purchaser against the
party responsible for the overcharge. This defence has been rejected by this
Court in Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007
SCC 1, [2007] 1 S.C.R. 3, and that rejection is not limited to the context of
the imposition of ultra vires taxes; the passing‑on defence is
rejected throughout the whole of restitutionary law.
However,
the rejection of the passing‑on defence does not lead to a corresponding
rejection of the offensive use of passing on. Therefore, indirect purchasers
should not be foreclosed from claiming losses passed on to them. The risk of
double or multiple recovery where actions by direct and indirect purchasers are
pending at the same time or where parallel suits are pending in other
jurisdictions can be managed by the court. Furthermore, indirect purchaser
actions should not be barred altogether solely because of the likely complexity
associated with proof of damages. In bringing their action, the indirect
purchasers willingly assume the burden of establishing that they have suffered
loss, and whether they have met their burden of proof is a factual question to
be decided on a case‑by‑case basis. In addition, allowing the
offensive use of passing on will not frustrate the deterrence objectives of Canadian
competition laws. Indirect purchaser actions may, in some circumstances, be
the only means by which overcharges are claimed and deterrence is promoted.
Finally, allowing indirect purchaser actions is consistent with the remediation
objective of restitution law because it allows for compensating the parties who
have actually suffered the harm rather than reserving these actions for direct
purchasers who may have in fact passed on the overcharge.
The
first requirement for certification at s. 4(1) of the CPA requires
that the pleadings disclose a cause of action. A plaintiff satisfies this
requirement unless, assuming all facts pleaded to be true, it is plain and
obvious that the plaintiff’s claim cannot succeed. In the case at bar, the
pleadings disclose causes of action that should not be struck out at this stage
of the proceedings.
First,
it cannot be said that the pleadings do not disclose a cause of action under
s. 36 of the Competition Act . The contention that the s. 36
cause of action is not properly pleaded because it was not included in the
statement of claim and that any attempt to add it now would be barred by the
two‑year limitation period contained in s. 36(4) of the Act is
purely technical and should be rejected. The argument that the Competition
Tribunal should have jurisdiction over the enforcement of the competition law
should also be rejected, since s. 36 expressly confers jurisdiction on the
court to entertain the claims of any person who suffered loss by virtue of a
breach of Part VI of the Act.
Next,
it is not plain and obvious that the claim in tort for predominant purpose
conspiracy cannot succeed. The contention that the tort of predominant purpose
conspiracy is not made out because the statement of claim fails to identify one
true predominant purpose and instead lists overlapping purposes should fail at
this stage of the proceedings. Similarly, the argument that the predominant
purpose conspiracy claim should be struck as it applies to an alleged
conspiracy between a parent corporation and its subsidiaries should fail
because it is not plain and obvious that the law considers parent and wholly‑owned
subsidiary corporations to always act in combination.
Similarly,
at this point, it is not plain and obvious that there is no cause of action in
tort for unlawful means conspiracy or intentional interference with economic
interests. These alleged causes of action must be dealt with summarily as the
proper approach to the unlawful means requirement common to both torts is
presently under reserve in this Court in Bram Enterprises Ltd. v. A.I.
Enterprises Ltd., 2012 NBCA 33, 387 N.B.R. (2d) 215, leave to appeal
granted, [2012] 3 S.C.R. v. Depending on the decision of this Court in Bram,
it will be open to M to raise the matter at trial should it consider it
advisable to do so.
With
respect to the restitutionary claim in unjust enrichment, it is not plain and
obvious that it cannot succeed. With respect to the argument that any
enrichment received by M came from the direct purchasers and not from the class
members, and that this lack of a direct connection between it and the class
members forecloses the claim of unjust enrichment, it is not plain and obvious
that a claim in unjust enrichment will be made out only where the relationship
between the plaintiff and the defendant is direct. The question of whether the
contracts between M and the direct purchasers and the contracts between the
direct purchasers and the indirect purchasers, which could constitute a
juristic reason for the enrichment, are illegal and void should not be resolved
at this stage of the proceedings and must be left to the trial judge.
The
pleadings based on constructive trust must be struck. In order to find that a
constructive trust is made out, the plaintiff must be able to point to a link
or causal connection between his or her contribution and the acquisition of
specific property. In the present case, there is no referential property. P
makes a purely monetary claim. As the claim neither explains why a monetary
award is inappropriate or insufficient nor shows a link to specific property,
the claim does not satisfy the conditions necessary to ground a constructive
trust. On the pleadings, it is plain and obvious that this claim cannot
succeed.
Finally,
it is not plain and obvious that a cause of action in waiver of tort would not
succeed. There is contradictory law as to the question of whether the
underlying tort needs to be established in order to sustain an action in waiver
of tort. This appeal is not the proper place to resolve the details of the law
of waiver of tort, nor the particular circumstances in which it can be pleaded.
The
starting point in determining the standard of proof to be applied to the
remaining certification requirements is the standard articulated in this
Court’s decision in Hollick v. Toronto (City), 2001 SCC 68, [2001] 3
S.C.R. 158: the class representative must show some basis in fact for each of
the certification requirements set out in the provincial class action
legislation, other than the requirement that the pleadings disclose a cause of
action. The certification stage is not meant to be a test of the merits of the
action, rather, this stage is concerned with form and with whether the action
can properly proceed as a class action. The standard of proof asks not whether
there is some basis in fact for the claim itself, but rather whether there is
some basis in fact which establishes each of the individual certification
requirements. Although evidence has a role to play in the certification
process, the standard of proof does not require evidence on a balance of
probabilities. The certification stage does not involve an assessment of the
merits of the claim and is not intended to be a pronouncement on the viability
or strength of the action, rather, it focuses on the form of the action in
order to determine whether the action can appropriately go forward as a class
proceeding. Each case must be decided on its own facts. There must be
sufficient facts to satisfy the applications judge that the conditions for
certification have been met to a degree that should allow the matter to proceed
on a class basis without foundering at the merits stage by reason of the
requirements not having been met.
In
the case at bar, the applications judge’s finding that the claims raised common
issues is entitled to deference. In order to establish commonality, evidence
that the acts alleged actually occurred is not required, rather, the factual
evidence required at this stage goes only to establishing whether these
questions are common to all the class members. With respect to the common
issues that ask whether loss to the class members can be established on a class‑wide
basis, they require the use of expert evidence in order for commonality to be
established. The expert methodology must be sufficiently credible or plausible
to establish some basis in fact for the commonality requirement — it must offer
a realistic prospect of establishing loss on a class‑wide basis so that,
if the overcharge is eventually established at the trial of the common issues,
there is a means by which to demonstrate that it is common to the class. The
methodology cannot be purely theoretical or hypothetical, but must be grounded
in the facts of the particular case in question, and there must be some
evidence of the availability of the data to which the methodology is to be
applied. Resolving conflicts between the experts is an issue for the trial
judge and not one that should be engaged in at certification.
The
applications judge’s decision to certify as common issues whether damages can
be determined on an aggregate basis and if so, in what amount, should not be
disturbed. The question of whether damages assessed in the aggregate are an
appropriate remedy can be certified as a common issue. However, this common
issue should only be determined at the common issues trial after a finding of
liability has been made. The ultimate decision as to whether the aggregate
damages provisions of the CPA should be available is one that should be
left to the common issues trial judge. The failure to propose or certify
aggregate damages, or another remedy, as a common issue does not preclude a
trial judge from invoking the provisions if considered appropriate.
The
applications judge’s finding that the class action is the preferable procedure
should not be interfered with. In the present case, there are common issues
related to the existence of the causes of action and there are also common
issues related to loss to the class members. The loss‑related issues can
be said to be common because there is an expert methodology that has been found
to have a realistic prospect of establishing loss on a class‑wide basis.
If the common issues were to be resolved, they would be determinative of M’s
liability and of whether passing on of the overcharge to the indirect purchasers
has occurred. Because such determinations will be essential in order for the
class members to recover in this case, a resolution of the common issues would
significantly advance the action.
Cases Cited
Referred
to: Sun‑Rype Products Ltd. v. Archer Daniels Midland Co.,
2011 BCCA 187, 305 B.C.A.C. 55, aff’d 2013 SCC 58, [2013] 3 S.C.R. 545; Infineon
Technologies AG v. Option consommateurs, 2013 SCC 59, [2013] 3 S.C.R. 600; Hanover
Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968); Kingstreet
Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1, [2007] 1 S.C.R. 3;
Commissioner of State Revenue (Victoria) v. Royal Insurance Australia Ltd.
(1994), 182 C.L.R. 51; British Columbia v. Canadian Forest Products Ltd.,
2004 SCC 38, [2004] 2 S.C.R. 74; Southern Pacific Co. v. Darnell‑Taenzer
Lumber Co., 245 U.S. 531 (1918); Illinois Brick Co. v. Illinois, 431
U.S. 720 (1977); Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R.
161; Chadha v. Bayer Inc. (2003), 63 O.R. (3d) 22; California v. ARC
America Corp., 490 U.S. 93 (1989); Alberta v. Elder Advocates of Alberta
Society, 2011 SCC 24, [2011] 2 S.C.R. 261; Hunt v. Carey Canada Inc.,
[1990] 2 S.C.R. 959; Hollick v. Toronto (City), 2001 SCC 68, [2001] 3
S.C.R. 158; Mulcahy v. The Queen (1868), L.R. 3 H.L. 306; Golden
Capital Securities Ltd. v. Holmes, 2004 BCCA 565, 205 B.C.A.C. 54; Canada
Cement LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., [1983]
1 S.C.R. 452; Smith v. National Money Mart Co. (2006), 80 O.R. (3d) 81,
leave to appeal refused, [2006] 1 S.C.R. xii; Correia v. Canac Kitchens,
2008 ONCA 506, 91 O.R. (3d) 353; OBG Ltd. v. Allan, [2007] UKHL 21,
[2008] 1 A.C. 1; Bram Enterprises Ltd. v. A.I. Enterprises Ltd., 2012
NBCA 33, 387 N.B.R. (2d) 215, leave to appeal granted, [2012] 3 S.C.R. v; Garland
v. Consumers’ Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629; Rathwell v.
Rathwell, [1978] 2 S.C.R. 436; Pettkus v. Becker, [1980] 2 S.C.R.
834; Peel (Regional Municipality) v. Canada, [1992] 3 S.C.R. 762; Kerr
v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269; United Australia, Ltd. v.
Barclays Bank, Ltd., [1941] A.C. 1; Serhan (Trustee of) v. Johnson &
Johnson (2006), 85 O.R. (3d) 665; National Trust Co. v. Gleason, 77
N.Y. 400 (1879); Federal Sugar Refining Co. v. United States Sugar Equalization
Board, Inc., 268 F. 575 (1920); Mahesan v. Malaysia Government Officers’
Co‑operative Housing Society Ltd., [1979] A.C. 374; Universe
Tankships Inc. of Monrovia v. International Transport Workers Federation,
[1983] A.C. 366; Zidaric v. Toshiba of Canada Ltd. (2000), 5 C.C.L.T.
(3d) 61; Reid v. Ford Motor Co., 2006 BCSC 712 (CanLII); Pro‑Sys
Consultants Ltd. v. Infineon Technologies AG, 2009 BCCA 503, 98 B.C.L.R.
(4th) 272, rev’g 2008 BCSC 575 (CanLII); Cloud v. Canada (Attorney General)
(2004), 73 O.R. (3d) 401; In re: Hydrogen Peroxide Antitrust Litigation,
552 F.3d 305 (2008); Irving Paper Ltd. v. Atofina Chemicals Inc. (2009),
99 O.R. (3d) 358; Hague v. Liberty Mutual Insurance Co. (2004), 13
C.P.C. (6th) 1; Western Canadian Shopping Centres Inc. v. Dutton, 2001
SCC 46, [2001] 2 S.C.R. 534; In Re: Linerboard Antitrust Litigation, 305
F.3d 145 (2002); Wal‑Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541
(2011); Steele v. Toyota Canada Inc., 2011 BCCA 98, 329 D.L.R. (4th)
389; 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corp., 2010 ONCA
466, 100 O.R. (3d) 721.
Statutes and Regulations Cited
Class Proceedings Act, R.S.B.C. 1996,
c. 50, ss. 1 “common issues”, 4(1), (2), 5(4), (7), 10(1), 29(1),
(2).
Competition Act, R.S.C. 1985, c. C‑34,
ss. 36 , Part VI, 45(1), 52(1).
Authors Cited
Antitrust Modernization Commission. Antitrust Modernization
Commission: Report and Recommendations. Washington, D.C.: The
Commission, 2007 (online:
http://govinfo.library.unt.edu/amc/report_recommendation/toc.htm).
Beatson, J. The Use and Abuse of Unjust Enrichment: Essays on
the Law of Restitution. Oxford: Clarendon Press, 1991.
British Columbia. Official Report of Debates of the
Legislative Assembly (Hansard), vol. 20, No. 20, 4th Sess., 35th
Parl., June 6, 1995, p. 15078.
Cullity, Maurice. “Certification in Class Proceedings — The Curious
Requirement of ‘Some Basis in Fact’” (2011), 51 Can. Bus. L.J. 407.
Eizenga, Michael A., et al. Class
Actions Law and Practice, 2nd ed. Markham, Ont.:
LexisNexis, 2009 (loose‑leaf updated March 2013, release 21).
Friedmann, Daniel. “Restitution for Wrongs: The Basis of
Liability”, in W. R. Cornish, et al., eds., Restitution: Past, Present
and Future: Essays in Honour of Gareth Jones. Oxford: Hart Publishing,
1998, 133.
Gavil, Andrew I. “Thinking Outside the Illinois Brick
Box: A Proposal for Reform” (2009), 76 Antitrust L.J. 167.
Glover, J. Maria. “The Structural Role of Private Enforcement
Mechanisms in Public Law” (2012), 53 Wm. & Mary L. Rev. 1137.
Harris, Robert G., and Lawrence A. Sullivan. “Passing On
the Monopoly Overcharge: A Comprehensive Policy Analysis” (1979), 128 U.
Pa. L. Rev. 269.
Landes, William M., and Richard A. Posner. “Should
Indirect Purchasers Have Standing To Sue Under the Antitrust Laws? An Economic
Analysis of the Rule of Illinois Brick” (1979), 46 U. Chi. L. Rev.
602.
Landes, William M., and Richard A. Posner. “The Economics
of Passing On: A Reply to Harris and Sullivan” (1980), 128 U. Pa. L. Rev.
1274.
Maddaugh, Peter D., and John D. McCamus. The Law of
Restitution. Aurora, Ont.: Canada Law Book, 2004 (loose‑leaf
updated September 2005).
Maddaugh, Peter D., and John D. McCamus. The Law of
Restitution. Toronto: Canada Law Book, 2013 (loose‑leaf updated May
2013, release 10).
O’Connor, Kevin J. “Is the Illinois Brick Wall
Crumbling?” (2001), 15:3 Antitrust 34.
Osborne, Philip H. The Law of Torts, 4th ed. Toronto:
Irwin Law, 2011.
Thimmesch, Adam. “Beyond Treble Damages: Hanover Shoe and
Direct Purchaser Suits After Comes v. Microsoft Corp.” (2005), 90 Iowa
L. Rev. 1649.
Van Cott, Charles C. “Standing at the Fringe: Antitrust
Damages and the Fringe Producer” (1983), 35 Stan. L. Rev. 763.
Werden, Gregory J., and Marius Schwartz. “Illinois Brick
and the Deterrence of Antitrust Violations — An Economic Analysis” (1984), 35 Hastings
L.J. 629.
APPEAL
from a judgment of the British Columbia Court of Appeal (Donald, Lowry and
Frankel JJ.A.), 2011 BCCA 186, 304 B.C.A.C. 90, 513 W.A.C. 90, 331 D.L.R.
(4th) 671, [2011] B.C.J. No. 688 (QL), 2011 CarswellBC 930, setting aside
a decision of Myers J., 2010 BCSC 285, [2010] B.C.J. No. 380 (QL),
2010 CarswellBC 508, and decisions of Tysoe J., 2006 BCSC 1738, 59
B.C.L.R. (4th) 111, [2007] 1 W.W.R. 541, 44 C.C.L.T. (3d) 146, [2006] B.C.J.
No. 3035 (QL), 2006 CarswellBC 2892, and 2006 BCSC 1047, 57 B.C.L.R. (4th)
323, [2006] 11 W.W.R. 688, 40 C.C.L.T. (3d) 45, [2006] B.C.J. No. 1564
(QL), 2006 CarswellBC 1691. Appeal allowed.
J. J. Camp, Q.C.,
Reidar Mogerman, Melina Buckley and Michael Sobkin, for
the appellants.
Neil Finkelstein, James
Sullivan, Catherine Beagan Flood and Brandon Kain, for
the respondents.
John S. Tyhurst,
for the intervener.
The
judgment of the Court was delivered by
Rothstein J. —
TABLE
OF CONTENTS
Paragraph
I.......... Introduction.................................................................................................... 1
II........ Background.................................................................................................... 3
III....... The
Proceedings Below.................................................................................. 6
A........ Certification
Proceedings in the British Columbia Supreme Court................ 6
B......... Appeal
of the Certification to the British Columbia Court of Appeal......... 10
IV....... Analysis........................................................................................................ 14
A........ Indirect
Purchaser Actions (the “Passing-On” Issue)................................... 15
(1) Rejection
of Passing On as a Defence.................................................. 18
(2) Significance
of the Passing-On Defence in This Appeal...................... 30
(3) Analysis
of the “Necessary Corollary” Argument................................ 34
(a) Double or Multiple Recovery....................................................... 35
(b) Remoteness and Complexity........................................................ 42
(c) Deterrence..................................................................................... 46
(d) Restitutionary Principles............................................................... 50
(e) Departure From the Rule in Illinois Brick in the United States.... 51
(f) Doctrinal Commentary................................................................. 52
(4) Conclusion
on the Offensive Use of Passing On................................. 60
B......... Certification
of the Class Action.................................................................. 61
(1) The
Requirements for Certification Under the British Columbia
Class Proceedings Act.......................................................................... 62
(2) Do
the Pleadings Disclose a Cause of Action?.................................... 63
(a) Section
36 of the Competition Act .................................................... 65
(b) Tort................................................................................................... 72
(i) Predominant Purpose Conspiracy................................................. 74
(ii) Unlawful Means Conspiracy and Intentional
Interference
With Economic Interests.............................................................. 80
(c) Restitution........................................................................................ 84
(i) Unjust Enrichment........................................................................ 85
(ii) Constructive Trust........................................................................ 90
(iii) Waiver of Tort.............................................................................. 93
(3) The
Remaining Certification Requirements.......................................... 98
(a) Standard
of Proof............................................................................. 99
(b) Do
the Claims of the Class Members Raise Common Issues?....... 106
(i) Expert Evidence in Indirect Purchaser Class Actions................ 114
(ii) Aggregate Assessment of Damages........................................... 127
(c) Is
a Class Action the Preferable Procedure?................................... 136
(4) Conclusion
on the Certification of the Action................................... 142
V........ Conclusion.................................................................................................. 143
APPENDIX: Common Issues Certified by Myers J.
I. Introduction
[1]
It is no simple task to assess liability and
apportion damages in situations where the wrongdoer and the harmed parties are
separated by a long and complex chain of distribution, involving many parties,
purchasers, resellers and intermediaries. Such is the problem presented by
indirect purchaser actions in which downstream individual purchasers seek
recovery for alleged unlawful overcharges that were passed on to them through
the successive links in the chain.
[2]
The complexities inherent in indirect purchaser
actions are magnified when such actions are brought as a class proceeding. When
that happens, the courts are required to grapple with not only the difficulties
associated with indirect purchaser actions, but are also then asked to decide
whether the requirements for certification of a class action are met. These
are the questions the Court is faced with in this appeal.
II. Background
[3]
The representative plaintiffs in this action, Pro-Sys
Consultants Ltd. and Neil Godfrey (collectively “Pro-Sys”), brought a class
action against Microsoft Corporation and Microsoft Canada Co./Microsoft Canada
CIE (collectively “Microsoft”) alleging that beginning in 1988, Microsoft
engaged in unlawful conduct by overcharging for its Intel-compatible PC
operating systems and Intel-compatible PC applications software. Pro-Sys
claims that as a direct consequence of Microsoft’s unlawful conduct, it and all
the class members paid and continue to pay higher prices for Microsoft operating
systems and applications software than they would have paid absent the unlawful
conduct.
[4]
Pro-Sys sought certification of the action as a
class proceeding under the Class Proceedings Act, R.S.B.C. 1996, c. 50 (“CPA”).
[5]
The proposed class is made up of ultimate
consumers who acquired Microsoft products from re-sellers, re-sellers who
themselves purchased the products either directly from Microsoft or from other
re-sellers higher up the chain of distribution. These consumers are known as
the “indirect purchasers”. The proposed class was defined in the statement of
claim as
all persons resident in
British Columbia who, on or after January 1, 1994, indirectly acquired a
license for Microsoft Operating Systems and/or Microsoft Applications Software
for their own use, and not for purposes of further selling or leasing.
(2010
BCSC 285 (CanLII), at para. 16)
III. The Proceedings Below
A. Certification
Proceedings in the British Columbia Supreme Court
[6]
Pro-Sys filed its original statement of claim in
the British Columbia Supreme Court (“B.C.S.C.”) in December 2004. Thereafter
numerous amendments to the Statement of Claim were made with the approval of
Tysoe J., ultimately resulting in the Third Further Amended Statement of Claim.
A Fourth Further Amended Statement of Claim has not officially been filed.
[7]
In 2006, Microsoft sought an order striking out
the claim altogether and an order dismissing the action. In the alternative, it
sought to strike out only portions of the claim. The parties agreed that the
outcome of the application to strike would be determinative of the
certification requirement under s. 4(1)(a) of the CPA that the pleadings
disclose a cause of action.
[8]
Tysoe J. found causes of action under s. 36 of
the Competition Act, R.S.C. 1985, c. C-34 , in tort for conspiracy and
intentional interference with economic interests and in restitution for waiver
of tort (2006 BCSC 1047, 57 B.C.L.R. (4th) 323). He ordered that the portions
of the pleadings dealing with unjust enrichment and constructive trust should
be struck out as they were not sufficient to support such claims, unless they
were amended by Pro-Sys. Upon further motion to amend the claims (2006 BCSC
1738, 59 B.C.L.R. (4th) 111), Tysoe J. allowed amendments to support the claims
of unjust enrichment and constructive trust.
[9]
Following his rulings on the applications to
strike and to amend, Tysoe J. was appointed to the British Columbia Court of
Appeal (“B.C.C.A.”), and Myers J. assumed management of the case. Myers J. assessed
the remaining certification requirements set out in s. 4(1) of the CPA,
namely (i) whether there was an identifiable class (s. 4(1)(b)); (ii) whether the
claims of the class members raised common issues (s. 4(1)(c)); (iii) whether
the class action was the preferable procedure (s. 4(1)(d)); and (iv) whether
Pro-Sys and Neil Godfrey could adequately represent the class (s. 4(1)(e)).
Myers J. certified the action, finding that all four of the remaining
requirements for certification were met (2010 BCSC 285 (CanLII)). The common
issues certified by Myers J. are listed in the appendix to these reasons.
B. Appeal
of the Certification to the British Columbia Court of Appeal, 2011 BCCA 186, 304 B.C.A.C. 90
[10]
Microsoft appealed from the decisions of Tysoe
and Myers JJ. The majority of the B.C.C.A., per Lowry J.A. (Frankel
J.A. concurring), allowed the appeal, set aside the certification order and
dismissed the action, finding it plain and obvious that the class members had
no cause of action under s. 4(1)(a) of the CPA. The majority reached
this conclusion after determining that indirect purchaser actions were not
available as a matter of law in Canada. As such, it did not consider the other
certification requirements.
[11]
Donald J.A., dissenting, would have dismissed
the appeal and certified the action, finding indirect purchaser actions to be
permitted in Canada, and finding sufficient grounds for the action.
[12]
In the B.C.C.A., the present case was heard
together with another case dealing with substantially similar issues (Sun-Rype
Products Ltd. v. Archer
Daniels Midland Co., 2011 BCCA 187, 305 B.C.A.C. 55). Counsel
for the plaintiffs was the same in both appeals and the appeals were heard by
the same panel of judges. As in the present appeal, in Sun-Rype, the issue
of whether indirect purchaser actions are available in Canada was
determinative. In reasons released simultaneously with the reasons in this
appeal, the majority of the B.C.C.A. disposed of Sun-Rype in the same
manner, decertifying and dismissing the indirect purchasers’ class action on
the basis that indirect purchaser actions were not available under Canadian
law. Donald J.A. dissented, finding, as in this appeal, that indirect purchaser
actions were permitted.
[13]
Leave to appeal was
granted in both cases by this Court. They were heard with another indirect
purchaser class action originating in Quebec, Infineon
Technologies AG v. Option consommateurs, 2013 SCC 59, [2013] 3 S.C.R. 600, which this Court has
addressed in separate reasons, per LeBel and Wagner JJ. Reasons in Sun-Rype
can be found at 2013 SCC 58, [2013] 3 S.C.R. 545.
IV. Analysis
[14]
The issues are addressed in the following order:
(1)
Did the majority of the B.C.C.A. err in finding
that indirect purchaser actions were not available as a matter of law in
Canada?
(2)
Were the findings of Tysoe J. as to the
requirement that the pleadings disclose a cause of action under s. 4(1)(a) of
the CPA correct?
(3)
Were the findings of Myers J. as to the balance
of the certification requirements under s. 4(1) of the CPA correct?
A. Indirect
Purchaser Actions (the “Passing-On” Issue)
[15]
In this appeal, the parties have introduced
numerous issues. The one occupying the largest portion of the factums and the
oral argument was the question of whether indirect purchasers have the right to
bring an action to recover losses that were passed on to them. Some sources
have treated this issue as one of standing. I think it more appropriate to
treat it as a threshold issue to be determined before moving into the specific
causes of action alleged in the certification application.
[16]
As I have described above, indirect purchasers
are consumers who have not purchased a product directly from the alleged overcharger,
but who have purchased it either from one of the overcharger’s direct
purchasers, or from some other intermediary in the chain of distribution. The
issue is whether indirect purchasers have a cause of action against the party
who has effectuated the overcharge at the top of the distribution chain that
has allegedly injured them indirectly as the result of the overcharge being
“passed on” down the chain to them.
[17]
Microsoft argues that indirect purchasers should
have no such cause of action. Its submits that permitting indirect purchasers
to bring an action against the alleged overcharger to recover loss that has
been “passed on” would be inconsistent with this Court’s jurisprudence, which
it says rejected passing on as a defence. Microsoft says that the rejection of
the “passing-on” defence necessarily entails a rejection of the offensive
use of passing on by indirect purchasers to recover overcharges that were
passed on to them. I begin with a description of the passing-on defence and
then deal with its impact on indirect purchaser actions.
(1) Rejection of Passing On as a Defence
[18]
The passing-on defence was typically advanced by
an overcharger at the top of a distribution chain. It was invoked under the
proposition that if the direct purchaser who sustained the original overcharge
then passed that overcharge on to its own customers, the gain conferred on the
overcharger was not at the expense of the direct purchaser because the direct
purchaser suffered no loss. As such, the fact that the overcharge was “passed
on” was argued to be a defence to actions brought by the direct purchaser
against the party responsible for the overcharge.
[19]
The passing-on defence has been rejected in both
Canadian and U.S. jurisprudence. It was first addressed by the Supreme Court of
the United States in 1968 in Hanover Shoe, Inc. v. United Shoe Machinery
Corp., 392 U.S. 481 (1968). In that case, Hanover sued United for damages
under U.S. antitrust laws because United would only lease, not sell, its shoe machinery,
which Hanover claimed resulted in an overcharge to it. United argued
that Hanover had passed on the overcharge to its own customers and had
therefore suffered no harm. The U.S. Supreme Court (per White J.,
Stewart J. dissenting) rejected the passing-on defence to overcharging. It
cited difficulties in ascertaining the nature and extent of the passing on of
the overcharge as the reason for rejecting the defence:
Even if it could be shown that the
buyer raised his price in response to, and in the amount of, the overcharge and
that his margin of profit and total sales had not thereafter declined, there
would remain the nearly insuperable difficulty of demonstrating that the
particular plaintiff could not or would not have raised his prices absent the
overcharge or maintained the higher price had the overcharge been discontinued.
Since establishing the applicability of the passing-on defense would require a
convincing showing of each of these virtually unascertainable figures, the task
would normally prove insurmountable. [p. 493]
[20]
The court added that to leave the only
actionable causes in the hands of the indirect purchasers who “have only a tiny
stake in a lawsuit and little interest in attempting a class action”, would
mean that “those who violate the antitrust laws by price fixing or monopolizing
would retain the fruits of their illegality” (Hanover Shoe, at p. 494).
The court thus rejected the passing-on defence. Since Hanover Shoe, defendants
who effectuate illegal overcharges have been precluded from employing the passing-on
defence as a means of absolving themselves of liability to their direct
purchasers.
[21]
The passing-on defence was rejected in Canada in
Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1,
[2007] 1 S.C.R. 3, in the context of a claim for the recovery of taxes paid
pursuant to ultra vires legislation. The dispute in that case arose out
of a claim for the recovery of ultra vires user charges on liquor levied
by the province of New Brunswick against Kingstreet Investments, whose
business, among other things, involved the operation of night clubs.
Bastarache J., writing for a unanimous Court, held that a public authority who
had illegally overcharged a taxpayer could not reduce its liability for the
overcharge simply by establishing that some or all of the overcharge was passed
on to the taxpayer’s customers.
[22]
Bastarache J. found the passing-on defence to be
inconsistent with the basic premise of restitution law. Basic restitutionary
principles “provide for restoration of ‘what has been taken or received from
the plaintiff without justification’ . . . . Restitution law is
not concerned by the possibility of the plaintiff obtaining a windfall
precisely because it is not founded on the concept of compensation for loss” (Kingstreet,
at para. 47, quoting Commissioner of State Revenue (Victoria) v. Royal
Insurance Australia Ltd. (1994), 182 C.L.R. 51 (H.C.A.), at p. 71). Accordingly,
“[a]s between the taxpayer and the Crown, the question of whether the taxpayer
has been able to recoup its loss from some other source is simply irrelevant” (Kingstreet,
at para. 45, quoting P. D. Maddaugh and J. D. McCamus, The Law of
Restitution (loose-leaf 2005), at p. 11-45).
[23]
Bastarache J. also found the passing-on defence
to be “economically misconceived” (Kingstreet, at para. 48). By this he
accepted that the task of determining the ultimate location of the harm of the
overcharge is “exceedingly difficult and constitutes an inappropriate basis for
denying relief” (para. 44). Echoing the misgivings expressed in Hanover Shoe,
he cited the inherent difficulty in accounting for the effects of market
elasticities on the prices charged by direct purchasers as the basis for this
conclusion. He found these complexities made it impossible to tell what part,
if any, of the overcharge was actually passed on (Kingstreet, at
para. 48).
[24]
Pro-Sys says that Kingstreet stands only
for the rejection of the defence in the context of ultra vires taxes. In
my view, however, there are three reasons that lead to the conclusion that
Bastarache J.’s rejection of the passing-on defence in Kingstreet was
not limited to that context.
[25]
First, this Court’s jurisprudence supports the
broader rejection of the passing-on defence. In British Columbia v. Canadian
Forest Products Ltd., 2004 SCC 38, [2004] 2 S.C.R. 74 (“Canfor”), the
Crown claimed “diminution of the value of the timber” that it sold, following a
forest fire caused largely by Canfor. Though the Court ultimately held in that
case that the Crown had not in fact suffered loss because it was able to
recover its damages through the regulatory scheme it had instituted, Binnie J.
stated (albeit in obiter) that “[i]t is not generally open to a
wrongdoer to dispute the existence of a loss on the basis it has been ‘passed
on’ by the plaintiff” because this would burden courts with “the endlessness
and futility of the effort to follow every transaction to its ultimate result”
(para. 111, quoting Southern Pacific Co. v. Darnell-Taenzer Lumber Co.,
245 U.S. 531 (1918), at p. 534). Likewise, in the same decision LeBel J.,
dissenting, though not on this point, said that “the passing-on defence, on the facts of this case and
generally, must not be allowed to take hold in Canadian jurisprudence” (para. 197).
To allow otherwise, LeBel J. indicated, would force a
difficult burden of proof on the plaintiff to demonstrate not only that it had
suffered a loss, but that it did not engage in any other transactions that
would have offset the loss (para. 203).
[26]
In Kingstreet,
Bastarache J. endorsed the reasons for rejecting the passing-on defence
advanced by LeBel J. in the tort law context in Canfor, saying such
rejection was of equal if not greater consequence in
restitution law (para. 49).
[27]
Second, in Kingstreet,
Bastarache J. found that the rejection of the
passing-on defence was consistent with basic restitutionary law principles.
Specifically, the rejection of the defence accords with the principle against
unjust enrichment or nullus commodum capere potest de injuria sua propria (barring
wrongdoers from benefiting from their unlawful actions). Preventing defendants
from invoking passing on as a defence helps to ensure that wrongdoers are not
permitted to retain their ill-gotten gains simply because it would be difficult
to ascertain the precise extent of the harm. Likewise, it is important as a
matter of restitutionary law to ensure that wrongdoers who overcharge their
purchasers do not operate with impunity, on the grounds that complexities in
tracing the overcharge through the chain of distribution will serve to shield
them from liability.
[28]
Finally, there is support in the academic
commentary for the broader rejection of the passing-on defence. Maddaugh and
McCamus have stated that Kingstreet was an “authoritative and apparently
comprehensive rejection” of the passing-on defence in Canada, and that “[i]n
reaching this conclusion, the Supreme Court reflected a broad international
consensus with respect to the unsuitability of this defence” ((loose-leaf
2013), at p. 11-46).
[29]
For these reasons, I conclude that the
rejection of the passing-on defence in Kingstreet is not limited to the
context of the imposition of ultra vires taxes. There is no principled
reason to reject the defence in one context but not another; the passing-on
defence is rejected throughout the whole of restitutionary law.
(2) Significance of the Passing-On Defence in This Appeal
[30]
As described above, the offensive use of passing
on would provide the basis for indirect purchaser actions. Microsoft argues
that this Court’s rejection of the passing-on defence carries, as a necessary
corollary, a corresponding rejection of the offensive use of passing on. The
rationale is that the rejection should apply equally so that if overchargers
are not permitted to rely on passing on in their own defence, indirect
purchasers should also not be able to invoke passed on overcharges as a basis
for their cause of action.
[31]
Microsoft relies on the 1977 decision of the
U.S. Supreme Court in Illinois Brick Co. v. Illinois, 431 U.S.
720 (1977). Illinois Brick manufactured concrete block and sold it to masonry
contractors who in turn provided their services to general contractors. The
general contractors incorporated the concrete block into buildings and sold the
buildings to customers such as the State of Illinois. The State was therefore
an indirect purchaser of the products of Illinois Brick (p. 726). The State
alleged that Illinois Brick had engaged in a conspiracy to fix the prices of
concrete block, contrary to U.S. antitrust legislation, and brought an indirect
purchaser action against the company (p. 727).
[32]
The U.S. Supreme Court found against the State
of Illinois. It held that since, according to Hanover Shoe, passing on
may not be used defensively, it should not be available to indirect purchasers
to use offensively by bringing an action alleging that an overcharge was passed
down to them. The court explained that “whatever rule
[was] to be adopted regarding pass-on in antitrust damages actions, it must
apply equally to plaintiffs and defendants” (Illinois Brick, at p. 728).
[33]
Microsoft argues that, just as the prohibition
on the offensive use of passing on in Illinois Brick was considered a necessary
corollary to the rejection of the passing-on defence in Hanover Shoe,
the same result should flow in Canada from the rejection of the passing-on
defence in Kingstreet. The passing-on issue was not raised before
either of the applications judges because those decisions were released prior
to Kingstreet. However, the majority of the B.C.C.A. accepted this
argument in dismissing the Pro-Sys claim.
(3) Analysis of the “Necessary Corollary” Argument
[34]
As I will explain, despite the rejection of the
passing-on defence, the arguments advanced by Microsoft as to why there should
be a corresponding rejection of the offensive use of passing on are not
persuasive. Symmetry for its own sake without adequate justification cannot
support the “necessary corollary” argument. In my view, the arguments advanced
by Microsoft do not provide such justification.
(a) Double or Multiple Recovery
[35]
Microsoft submits that the offensive use of
passing on through indirect purchaser actions leaves it exposed to liability
from all purchasers in the chain of distribution. It says that its inability to
employ the passing-on defence means that direct purchasers would be able to
seek recovery for the entire amount of the overcharge. If, at the same time,
indirect purchasers bring actions, this would result in both direct and
indirect purchasers seeking recovery of the same amount. Microsoft argues that
this potential for double or even multiple recovery should be a sufficient
reason to reject the offensive use of passing on.
[36]
In Illinois Brick, the U.S. Supreme
Court considered multiple recovery to be a “serious risk” and said that it was
“unwilling to ‘open the door to duplicative recoveries’” (pp. 730-31, per White
J.):
A one-sided application of Hanover
Shoe substantially increases the possibility of inconsistent adjudications — and therefore of unwarranted multiple liability for the defendant — by
presuming that one plaintiff (the direct purchaser) is entitled to full
recovery while preventing the defendant from using that presumption against the
other plaintiff . . . . [Emphasis deleted; p. 730.]
[37]
This concern cannot be lightly dismissed.
However, in my view, there are countervailing arguments to be considered.
Practically, the risk of duplicate or multiple recoveries can be managed by the
courts. Brennan J., dissenting in Illinois Brick, indicated that the
risk of overlapping recovery exists only where additional suits are filed after
an award for damages has been made or where actions by direct and indirect
purchasers are pending at the same time. In both cases, he said, the risk is
remote (pp. 762-64).
[38]
In the first situation, Brennan J. stated that
the complex and protracted
nature of antitrust actions, coupled with the short four-year statute of
limitations, “make it
impractical for potential plaintiffs to sit on their rights until after entry
of judgment in the earlier suit” (Illinois Brick, at p. 764). With
respect to actions under the Competition Act , the same reasoning would
apply in Canada where our competition actions are similarly complex and where
legislation restricts individual recovery for damages for violations to just
two years (see Competition Act , at s. 36(4) (a)).
[39]
As for the risk of
double recovery where actions by direct and indirect purchasers are pending at
the same time, it will be open to the defendant to bring evidence of this risk
before the trial judge and ask the trial judge to modify any award of damages
accordingly. In Multiple Access Ltd. v. McCutcheon,
[1982] 2 S.C.R. 161, in discussing the risk of a plaintiff seeking double
recovery under separate legal provisions, Dickson J. (as he then was), writing
for the majority, held that
[t]he courts are well able to prevent
double recovery in the theoretical and unlikely event of plaintiffs trying to
obtain relief under both sets of provisions. . . . [T]he Court at the final
stage of finding and quantifying liability could prevent double recovery if in
fact compensation and an accounting had already been made by a defendant. No
court would permit double recovery. [p. 191]
If the defendant is able
to satisfy the judge that the risk is beyond the court’s control, the judge
retains the discretion to deny the claim.
[40]
Likewise, if the
defendant presents evidence of parallel suits pending in other jurisdictions
that would have the potential to result in multiple recovery, the judge may
deny the claim or modify the damage award in accordance with an award sought or
granted in the other jurisdiction in order to prevent overlapping recovery.
[41]
In view of these
practical tools at the courts’ disposal, I would agree with Donald J.A. of the B.C.C.A., dissenting in Sun-Rype, that
“the double recovery rule should not in the abstract bar a claim in real life
cases where double recovery can be avoided” (para. 30). At this stage of the
proceeding, Microsoft has not produced evidence to demonstrate that the courts
in B.C. could not preclude double or multiple recovery. I would thus not reject indirect purchaser actions because
of the risk of multiple recovery.
(b) Remoteness and Complexity
[42]
Microsoft’s second argument is that the
remoteness of the overcharge and the complexities associated with tracing the
loss constitute “‘serious’ and ‘inherent’ difficulties of proof associated with
pass-on” (R.F., at para. 20). These difficulties are said to give rise to
confusion and uncertainty and place a burden on the institutional capacities of
the courts tasked with following each overcharge to its ultimate result.
[43]
Microsoft relies on the
reasoning of the Ontario Court of Appeal in Chadha v. Bayer Inc. (2003),
63 O.R. (3d) 22. In Chadha, that court denied certification of an
indirect purchaser action citing “the many problems of
proof facing the appellants . . . , including the number of parties in the
chain of distribution and the ‘multitude of variables’ which would affect the
end-purchase price” (para. 45 (adopting the findings of the Divisional Court)).
Microsoft argues that if any part of the overcharge was absorbed by any party
in the chain, “the chain would be broken” and the extent of the overcharge
would become increasingly difficult to trace (R.F., at para. 22, quoting Chadha,
at para. 45). The reasons on this point in Illinois Brick, on
which Microsoft relies heavily, point out that there are significant “uncertainties and difficulties in analyzing price and output decisions
‘in the real economic world rather than an economist’s hypothetical model’”
(pp. 731-32). The court lamented the “costs to the judicial system and the
efficient enforcement of the antitrust laws of attempting to reconstruct those
decisions in the courtroom” (p. 732).
[44]
Indirect purchaser actions, especially in the
antitrust context, will often involve large amounts of evidence, complex
economic theories and multiple parties in a chain of distribution, making the
tracing of the overcharges to their ultimate end an unenviable task. However,
Brennan J., dissenting in Illinois Brick, observed that these same
concerns can be raised in most antitrust cases, and should not stand in the way
of allowing indirect purchasers an opportunity to make their case:
Admittedly, there will be many cases in
which the plaintiff will be unable to prove that the overcharge was passed on. In
others, the portion of the overcharge passed on may be
only approximately determinable. But again, this problem hardly distinguishes
this case from other antitrust cases. Reasoned estimation is required in all
antitrust cases, but “while the damages [in such cases] may not be determined
by mere speculation or guess, it will be enough if the evidence show the extent
of the damages as a matter of just and reasonable inference, although the
result be only approximate.” . . . Lack of precision in apportioning damages
between direct and indirect purchasers is thus plainly not a convincing reason
for denying indirect purchasers an opportunity to prove their injuries and
damages. [Text in brackets in original; pp. 759-60.]
[45]
In bringing their action, the indirect purchasers
willingly assume the burden of establishing that they have suffered loss. This
task may well require expert testimony and complex economic evidence. Whether
these tools will be sufficient to meet the burden of proof, in my view, is a
factual question to be decided on a case-by-case basis. Indirect purchaser
actions should not be barred altogether solely because of the likely complexity
associated with proof of damages.
(c) Deterrence
[46]
A third argument, which was not raised by
Microsoft, but which was discussed in Illinois Brick and is particularly
relevant to competition actions, is that allowing the offensive use of passing
on frustrates the enforcement of competition laws, thus reducing deterrence.
While enforcement of competition laws is generally a question for the
government, private individuals are engaged in the enforcement by way of s. 36
which gives them a right of recovery for breaches of Part VI of the Competition
Act .
[47]
The majority in Illinois Brick understood
Hanover Shoe to stand for the proposition that “antitrust
laws will be more effectively enforced by concentrating the full recovery for
the overcharge in the direct purchasers rather than by allowing every plaintiff
potentially affected by the overcharge to sue only for the amount it could show
was absorbed by it” (p. 735). The majority in Illinois Brick agreed,
finding that direct purchasers would be in the best position to bring an action
because the “massive evidence and complicated theories” that are characteristic
of indirect purchaser actions impose an unacceptable burden on those
plaintiffs, making success of such actions unlikely and thereby defeating the
deterrence objectives of antitrust laws (p. 741).
[48]
In my opinion, allowing the offensive use of
passing on should not frustrate the deterrence objectives of Canadian
competition laws. I agree with Brennan J., dissenting in Illinois Brick,
that the offensive use of passing on, unlike the passing-on defence,
creates little danger that the overcharger will escape liability and frustrate
deterrence objectives but, “[r]ather, the same policies of insuring the continued effectiveness of the
[antitrust] action and preventing wrongdoers from retaining the spoils of their
misdeeds favor allowing indirect purchasers to prove that overcharges were
passed on to them” (p. 753). The rationale for rejecting the passing-on defence
because it frustrates enforcement is not a reason for denying an action to
those who have a valid claim against the overcharger.
[49]
Further, despite evidence advanced by the
respondents in the Sun-Rype appeal that direct purchasers are often the
parties most likely to take action against the overchargers, there may be some
situations where direct purchasers will have been overcharged but will be
reticent to bring an action against the offending party for fear of
jeopardizing a valuable business relationship. In this case, it is alleged that
Microsoft’s direct purchasers are parties to the overcharging arrangements and
would themselves not be likely plaintiffs. Indirect purchaser actions may, in
such circumstances, be the only means by which overcharges are claimed and
deterrence is promoted. The rejection of indirect purchaser actions in such
cases would increase the possibility that the overcharge would remain in the
hands of the wrongdoer. For these reasons, I would be of the view that an
absolute bar on indirect purchaser actions, thus leaving any potential action
exclusively to direct purchasers, would not necessarily result in more
effective deterrence than exclusively direct purchaser actions.
(d) Restitutionary Principles
[50]
Restitution law is remedial in nature and is
concerned with the recovery of gains from wrongdoing (see Maddaugh and McCamus
(2013), at pp. 3-1 to 3-3). In my view, allowing indirect purchaser actions is
consistent with the remediation objective of restitution law because it allows
for compensating the parties who have actually suffered the harm rather than
merely reserving these actions for direct purchasers who may have in fact
passed on the overcharge.
(e) Departure From the Rule in Illinois
Brick in the United States
[51]
Although Illinois Brick remains the law
at the federal level, it has been made inapplicable at the state level in many
states through so-called “repealer statutes” or by judicial decisions. In 2007,
the Antitrust Modernization Commission issued a report to Congress indicating
that “more than thirty-five states permit indirect, as well as direct,
purchasers to sue for damages under state law” (Antitrust Modernization
Commission: Report and Recommendations (2007) (online), at p. 269). It
recommended to Congress that the rule in Illinois Brick be statutorily
repealed at the federal level (p. 270). The validity of the “repealer statutes”
came before the U.S. Supreme Court in California v. ARC America Corp.,
490 U.S. 93 (1989). That court held that Illinois Brick did not
preempt the enactment of state antitrust laws, even if they had the effect of
repealing the rule in Illinois Brick. These developments cast doubt on
the “necessary corollary” approach in Illinois Brick.
(f) Doctrinal Commentary
[52]
Doctrinal discussions of indirect purchaser
actions are still shaped by the initial exchange that occurred directly
following the release of Illinois Brick. Shortly after the judgment was
issued, American scholars William M. Landes and Richard A. Posner (now a judge
of the U.S. Court of Appeals for the Seventh Circuit) published an article
defending the rule barring indirect purchaser actions (see “Should Indirect
Purchasers Have Standing To Sue Under the Antitrust Laws? An Economic Analysis
of the Rule of Illinois Brick” (1979), 46 U. Chi. L. Rev. 602, at
pp. 634-35). They argued that reserving the right to bring an action against
overchargers to the direct purchasers alone would best promote the antitrust
laws. They wrote that allowing indirect purchasers to bring actions would have
little to no effect on the objectives of compensation and deterrence because
direct purchasers would be more likely to discover the overcharges in the first
place and would be more likely to have the information and resources required
to bring a successful antitrust action. They called the direct purchaser a more
“efficient enforcer” of antitrust laws, and opined that with indirect
purchasers, apportionment of the damages is so costly that it becomes a
disincentive to sue and that sharing the right to sue among multiple parties
has the effect of making the claims small and of weakening the deterrence
effect (pp. 608-9). As to compensation, they argued that even if indirect
purchasers had no independent right of action, they were nonetheless
compensated by the ability of direct purchasers to bring an action because the
benefit accruing to the direct purchaser as a result of an anticipated
successful antitrust action against the overcharger would be reflected in the
prices charged by the direct purchasers to the indirect purchasers (p. 605).
[53]
Shortly after the publication of Landes and Posner’s
article, two other antitrust authorities, Robert G. Harris and Lawrence A. Sullivan,
expressed an opposing viewpoint (see “Passing On the Monopoly Overcharge: A
Comprehensive Policy Analysis” (1979), 128 U. Pa. L. Rev. 269, at pp.
351-52). Harris and Sullivan argued that direct purchasers would be reluctant
to disrupt valued supplier relationships and would thus be more likely to pass
on the overcharge to their own customers. They would not therefore serve as efficient
enforcers of the antitrust laws and, rather, it would be more suitable to vest
standing in the indirect purchasers in order to best achieve deterrence.
[54]
Landes and Posner published a direct response to
Harris and Sullivan the next year (see “The Economics of Passing On: A Reply to
Harris and Sullivan” (1980), 128 U. Pa. L. Rev. 1274). In response to
Harris and Sullivan’s argument that direct purchasers would be reticent to sue
so as not to compromise valuable commercial relationships, they stated that
“any forbearance by the direct purchaser to sue will be compensated. The
supplier must pay something to bind the direct purchaser to him and this
payment is, functionally, a form of antitrust damages” (p. 1278). In other
words, the direct purchaser is receiving a financial inducement to be a part of
the conspiracy and this benefit could be passed along to the indirect
purchasers.
[55]
In the years since the exchange between Landes
and Posner and Harris and Sullivan, the literature has reflected an ongoing
debate on the issue of indirect purchaser actions and specifically the rule in Illinois
Brick. A survey of the literature reveals that most recently, however,
there is a significant body of academic authority in favour of repealing the
decision in Illinois Brick in order to best serve the objectives of the
antitrust laws.
[56]
Some authors, including Gregory J. Werden and
Marius Schwartz, joined Harris and Sullivan in their critique of Landes and Posner,
stating specifically that the notion that indirect purchasers would see any of
the benefits accruing to a direct purchaser as the result of an anticipated
recovery was “quite implausible” (“Illinois Brick and the Deterrence of
Antitrust Violations — An Economic Analysis” (1984), 35 Hastings L.J.
629, at p. 638-39).
[57]
The theory that direct purchasers may be
unwilling to sue for fear of disrupting an important supplier relationship has
also found favour among academics (see e.g. K. J. O’Connor, “Is the Illinois
Brick Wall Crumbling?” (2001), 15:3 Antitrust 34, at p. 38 (noting
that indirect purchasers are perhaps more likely to sue than are direct
purchasers because they do not risk severing a “direct business relationship
with the alleged violator”); A. Thimmesch, “Beyond Treble Damages: Hanover
Shoe and Direct Purchaser Suits After Comes v. Microsoft Corp.”
(2005), 90 Iowa L. Rev. 1649, at p. 1668 and fn. 127 (stating that in
many situations the direct purchaser is in fact dependent upon the supplier and
as such would be reticent to sue)). As recently as 2012, the same opinion has
been expressed: “This is especially true if direct purchasers
are able to pass on any overcharges that result from antitrust violations to
consumers. . . . [T]he Supreme Court [of the United States]’s all-or-nothing ‘Indirect
Purchaser Rule’ sweeps too broadly” (J. M. Glover, “The Structural Role of Private Enforcement Mechanisms in
Public Law” (2012), 53 Wm. & Mary L. Rev.
1137, at p. 1187).
[58]
As to the objective of compensation, several
authors have commented that the rule in Illinois Brick in fact runs
contrary to the goal of compensation, with one author calling it “[t]he most
far-reaching deviation from the compensatory rationale” (C. C. Van Cott, “Standing
at the Fringe: Antitrust Damages and the Fringe Producer” (1983), 35 Stan.
L. Rev. 763, at p. 775). Likewise, Andrew I. Gavil, an antitrust scholar,
has stated that “providing compensation to all victims of unlawful conduct for
the harms inflicted by the wrongdoer is a secondary but also essential goal of
a comprehensive remedial system, one that Illinois Brick disserves in
many common circumstances” (“Thinking Outside the Illinois Brick Box: A
Proposal for Reform” (2009), 76 Antitrust L.J. 167, at p. 170).
[59]
As can be seen from this overview, despite
initial support from well-reputed antitrust scholars, it cannot be said that
the rule in Illinois Brick still finds favour in the academic
literature.
(4) Conclusion on the Offensive Use of Passing On
[60]
Although the passing-on defence is
unavailable as a matter of restitution law, it does not follow that indirect
purchasers should be foreclosed from claiming losses passed on to them. In
summary:
(1) The risks of multiple
recovery and the concerns of complexity and remoteness are insufficient bases
for precluding indirect purchasers from bringing actions against the defendants
responsible for overcharges that may have been passed on to them.
(2) The deterrence function of
the competition law in Canada is not likely to be impaired by indirect
purchaser actions.
(3) While the passing-on
defence is contrary to basic restitutionary principles, those same principles
are promoted by allowing passing on to be used offensively.
(4) Although the rule in Illinois
Brick remains good law at the federal level in the United States, its
subsequent repeal at the state level in many jurisdictions and the report to
Congress recommending its reversal demonstrate that its rationale is under
question.
(5) Despite some initial
support, the recent doctrinal commentary favours overturning the rule in Illinois
Brick.
For these reasons, I would not agree with Microsoft’s argument that
this Court’s rejection of the passing-on defence in previous cases and affirmed
here precludes indirect purchaser actions.
B. Certification
of the Class Action
[61]
Having answered the threshold question and
determined that indirect purchasers may use passing on offensively to bring an
action, I turn to the question of whether the present action should be
certified as a class action. Because the majority of the B.C.C.A. disposed of
the appeal based on its finding that indirect purchaser actions were not
available in Canada, it did not consider the certification requirements dealt
with by Tysoe J. (causes of action under s. 4(1)(a) of the CPA) and
Myers J. (balance of the certification requirements under s. 4(1)(b) to (e) of
the CPA). It therefore remains for this Court to review the
certification analysis carried out by the two applications judges. Microsoft
contests their findings as to only three of the certification requirements: (1)
whether the pleadings disclose a cause of action; (2) whether the claims raise
common issues; and (3) whether a class action is the preferable procedure.
(1) The Requirements for Certification Under the British Columbia Class
Proceedings Act
[62]
Section 4(1) of the CPA provides:
4 (1) The court must certify a
proceeding as a class proceeding on an application under section 2 or 3 if all
of the following requirements are met:
(a) the pleadings disclose a cause of
action;
(b) there is an identifiable class of
2 or more persons;
(c) the claims of the class members
raise common issues, whether or not those common issues predominate over issues
affecting only individual members;
(d) a class proceeding would be the
preferable procedure for the fair and efficient resolution of the common
issues;
(e) there is a representative
plaintiff who
(i) would fairly and
adequately represent the interests of the class,
(ii) has produced a plan for
the proceeding that sets out a workable method of advancing the proceeding on
behalf of the class and of notifying class members of the proceeding, and
(iii) does not have, on the
common issues, an interest that is in conflict with the interests of other
class members.
(2) Do the Pleadings Disclose a Cause of Action?
[63]
The first certification requirement requires
that the pleadings disclose a cause of action. In Alberta v. Elder Advocates
of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261 (“Alberta Elders”),
this Court explained that this requirement is assessed on the same standard of
proof that applies to a motion to dismiss, as set out in Hunt v. Carey
Canada Inc., [1990] 2 S.C.R. 959, at p. 980. That is, a plaintiff satisfies
this requirement unless, assuming all facts pleaded to be true, it is plain and
obvious that the plaintiff’s claim cannot succeed (Alberta Elders, at
para. 20; Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158,
at para. 25).
[64]
Pro-Sys has alleged causes of action (1) under s. 36 of the Competition Act , (2) in tort for
conspiracy and intentional interference with economic interests, and (3) in
restitution for unjust enrichment, constructive trust and waiver of tort. For the reasons that follow, I would agree with Tysoe J. that the
pleadings disclose causes of action that should not be struck out at this stage
of the proceedings.
(a) Section 36 of the Competition Act
[65]
Under s. 36 of the Competition Act , any
person who has suffered loss or damage as a result of conduct engaged in by any
person contrary to Part VI of the Act may sue for and recover that loss or
damage. Section 36 provides:
36. (1) Any person who has suffered loss
or damage as a result of
(a)
conduct that is contrary to any provision of Part VI . . .
. . .
may
in any court of competent jurisdiction, sue for and recover from the person who
engaged in the conduct or failed to comply with the order an amount equal to
the loss or damage proved to have been suffered by him, together with any
additional amount that the court may allow not exceeding the full cost to him
of any investigation in connection with the matter and of proceedings under
this section.
[66]
Part VI of the Competition Act is
entitled “Offences in Relation to Competition”. The Part VI offences alleged in
this appeal are (1) conspiracy, contrary to s. 45(1) ,
and (2) false or misleading representations, contrary to s. 52(1) . At the time
of the hearing before Tysoe J., those provisions read as follows:
45. (1) [Conspiracy] Every one who conspires,
combines, agrees or arranges with another person
(a) to
limit unduly the facilities for transporting, producing, manufacturing,
supplying, storing or dealing in any product,
(b)
to prevent, limit or lessen, unduly, the manufacture or production of a
product or to enhance unreasonably the price thereof,
(c) to
prevent or lessen, unduly, competition in the production, manufacture,
purchase, barter, sale, storage, rental, transportation or supply of a product,
or in the price of insurance on persons or property, or
(d) to
otherwise restrain or injure competition unduly,
is
guilty of an indictable offence and liable to imprisonment for a term not
exceeding five years or to a fine not exceeding ten million dollars or to both.
52. (1) [False or misleading
representations] No person shall, for the purpose of promoting, directly or
indirectly, the supply or use of a product or for the purpose of promoting,
directly or indirectly, any business interest, by any means whatever, knowingly
or recklessly make a representation to the public that is false or misleading
in a material respect.
[67]
The bulk of Microsoft’s objections to the cause
of action under s. 36 of the Competition Act are tied to the theory that
offensive passing on is not permitted. In view of my earlier finding that
indirect purchaser actions are permitted, those arguments are no longer of
consequence in this appeal.
[68]
However, Microsoft also argues that the s. 36
cause of action is not properly pleaded before this Court because it was not
included in Pro-Sys’s statement of claim. It argues that any attempt to add it
now would be barred by the two-year limitation period contained in s. 36(4) of
the Act. However, Donald J.A., dissenting in the B.C.C.A., found Microsoft’s
contention to be a purely technical objection, and not one that would form a
basis to dismiss the claim. I would agree. The Third Further Amended Statement
of Claim alleges that the unlawful conduct was continuing, a fact that must be
accepted as being true for the purposes of this appeal. As a result, it cannot
be said that the action was not filed in a timely manner.
[69]
Moreover, the Third Further Amended Statement of
Claim states specifically that “[t]he plaintiffs plead and rely upon . . . . Part
VI of the Competition Act ” (para. 109, A.R., vol. II, at p. 48) and seeks
damages accordingly. Although the Third Further Amended Statement of Claim does
not expressly refer to s. 36 , recovery for breaches under Part VI of the Competition
Act may only be sought by private individuals through a claim under s. 36 .
I agree with Donald J.A. that “the
parties put their minds to s. 36 at the certification hearing and so no
surprise or prejudice can be complained of” (B.C.C.A., at para. 59). For these reasons, I would not accede to Microsoft’s argument that
the claim should be barred by the limitation provision of the Competition
Act .
[70]
Microsoft made other brief arguments objecting
to the cause of action under s. 36 . Before Tysoe J., it argued that the
Competition Tribunal should have jurisdiction over the enforcement of the
competition law. I agree that a number of provisions of the Competition Act assign
jurisdiction to the Competition Tribunal rather than the courts. However, that
is not the case with s. 36 , which expressly provides that any person who
suffered loss by virtue of a breach of Part VI of the Act may seek to recover
that loss. The section expressly confers jurisdiction on the court to entertain
such claims.
[71]
For all these reasons, it is not plain and
obvious that a claim under s. 36 of the Competition Act would be
unsuccessful. For the purposes of s. 4(1)(a) of the CPA, it cannot be
said that the pleadings do not disclose a cause of action under s. 36 of the Competition
Act .
(b) Tort
[72]
Pro-Sys alleges that Microsoft combined with
various parties to commit the economic torts of conspiracy (both predominant
purpose conspiracy and unlawful means conspiracy) and unlawful interference
with economic interests. A conspiracy arises when two or more parties
agree “to do an unlawful act, or to do a lawful act by
unlawful means” (Mulcahy v. The Queen (1868), L.R. 3 H.L. 306, at p. 317). Despite the fact that the tort of
conspiracy traces its origins “to the Middle Ages, [it] is not now a well-settled
tort in terms of its current utility or the scope of the remedy it affords” (Golden
Capital Securities Ltd. v. Holmes, 2004 BCCA 565, 205 B.C.A.C. 54, at para.
42).
[73]
Nonetheless, in Canada, two types of actionable conspiracy remain
available under tort law: predominant purpose conspiracy and unlawful means
conspiracy. I first address the arguments related to
predominant purpose conspiracy. I then turn to unlawful means conspiracy and
unlawful interference with economic interests and deal with them together, as
the arguments against these causes of action relate to the “unlawful means”
requirement common to both torts.
(i) Predominant Purpose Conspiracy
[74]
Predominant purpose conspiracy is made out where the predominant
purpose of the defendant’s conduct is to cause injury to the plaintiff using
either lawful or unlawful means, and the plaintiff does in fact suffer loss
caused by the defendant’s conduct. Where lawful means are used, if their object
is to injure the plaintiff, the lawful acts become unlawful (Canada Cement
LaFarge Ltd. v. British Columbia Lightweight Aggregate Ltd., [1983] 1
S.C.R. 452, at pp. 471-72).
[75]
It is worth noting that
in Cement LaFarge, Estey J. wrote that predominant purpose conspiracy is
a “commercial anachronism” and that the approach to this tort should be to
restrict its application:
The tort of
conspiracy to injure, even without the extension to include a conspiracy to
perform unlawful acts where there is a constructive intent to injure, has been
the target of much criticism throughout the common law world. It is indeed a
commercial anachronism as so aptly illustrated by Lord Diplock in Lonrho,
supra, at pp. 188-89. In fact, the action may have lost much of its
usefulness in our commercial world, and survives in our law as an anomaly.
Whether that be so or not, it is now too late in the day to uproot the tort of
conspiracy to injure from the common law. No doubt the reaction of the courts
in the future will be to restrict its application for the very reasons that
some now advocate its demise. [p. 473]
Notwithstanding these
observations, whether predominant purpose conspiracy should be restricted so as
not to apply to the facts of this case is not a matter that should be
determined on an application to strike pleadings.
[76]
At para. 91 of its Third Further Amended
Statement of Claim, in a section discussing both predominant purpose and
unlawful means conspiracy, Pro-Sys states that “[t]he defendants were motivated
to conspire” and then lists the defendants’ three “predominant purposes and
predominant concerns”: (1) to harm the plaintiffs by requiring them to purchase
Microsoft products rather than competitors’ products; (2) to harm the
plaintiffs by requiring them to pay artificially high prices; and (3) to
unlawfully increase their profits (A.R., vol. II, at p. 43).
[77]
Microsoft argues that the tort of predominant
purpose conspiracy is not made out because Pro-Sys’s statement of claim fails
to identify one true predominant purpose and instead lists several “overlapping
purpose[s]” (R.F., at para. 93). Microsoft submits that by pleading that it was
“motivated solely by economic considerations” (para. 94), Pro-Sys in effect
concedes that the predominant purpose of Microsoft’s alleged conduct could not
have been to cause injury to the plaintiff as required under the law.
[78]
There is disagreement between the parties as to
what the pleadings mean. Microsoft says that Pro-Sys failed to identify injury
to the plaintiffs as the one true predominant purpose. Pro-Sys argues that its
pleadings state that Microsoft acted with the predominant purpose of injuring
the class members which resulted in, among other things, increased profits.
While the pleadings could have been drafted with a more precise focus, I would
hesitate on a pleadings application to rule definitively that the predominant
purpose conspiracy pleading is so flawed that no cause of action is disclosed.
At this stage, I cannot rule out Pro-Sys’s explanation that Microsoft’s primary
intent was to injure the plaintiffs and that unlawfully increasing its profits
was a result of that intention. For this reason, I cannot say it is plain and
obvious that Pro-Sys’s claim in predominant purpose conspiracy cannot succeed.
[79]
Microsoft also argues that this claim should be struck to the extent it
applies as between corporate affiliates because “[p]arent and wholly-owned
subsidiary corporations always act in combination” (R.F., at para. 95). Pro-Sys
says that “[t]his is not true as a matter of law” (appellants’ response factum,
at para. 55). Both parties cite, among other cases, para. 19 of Smith v.
National Money Mart Co. (2006), 80 O.R. (3d) 81 (C.A.), leave to appeal
refused, [2006] 1 S.C.R. xii, which says that “there
can be a conspiracy between a parent and a subsidiary corporation”. In my view, this statement appears to leave
open a cause of action in predominant purpose conspiracy even when the
conspiracy is between affiliated corporations. Again, it would not be
appropriate on a pleadings application to make a definitive ruling on this
issue. In the circumstances, I cannot say it is plain and obvious that the
predominant purpose conspiracy claim as it applies to an alleged conspiracy
between a parent corporation and its subsidiaries should be struck at this
phase of the proceedings.
(ii) Unlawful Means Conspiracy and Intentional Interference With Economic
Interests
[80]
The second type of conspiracy, called “unlawful means conspiracy”,
requires no predominant purpose but requires that the unlawful conduct in
question be directed toward the plaintiff, that the defendant should know that
injury to the plaintiff is likely to result, and that the injury to the
plaintiff does in fact occur (Cement LaFarge, at pp. 471-72).
[81]
The tort of intentional interference with
economic interests aims to provide a remedy to victims of intentional
commercial wrongdoing (Correia v. Canac Kitchens, 2008 ONCA 506, 91 O.R.
(3d) 353, at para. 98; OBG Ltd. v. Allan, [2007] UKHL 21, [2008] 1 A.C.
1). The three essential elements of this tort are (1) the defendant intended to
injure the plaintiff’s economic interests; (2) the interference was by illegal
or unlawful means; and (3) the plaintiff suffered economic loss or harm as a
result (see P. H. Osborne, The Law of Torts (4th ed. 2011),
at p. 336).
[82]
Microsoft argues that the claims for unlawful
means conspiracy and intentional interference with economic interests should be
struck because their common element requiring the use of “unlawful means”
cannot be established.
[83]
These alleged causes of action must be dealt
with summarily as the proper approach to the unlawful means requirement common
to both torts is presently under reserve in this Court in Bram Enterprises Ltd. v. A.I. Enterprises
Ltd., 2012 NBCA 33, 387
N.B.R. (2d) 215, leave to appeal granted, [2012] 3 S.C.R. v. Suffice it to say that at this point it is not plain and obvious
that there is no cause of action in unlawful means conspiracy or in intentional
interference with economic interests. I would therefore not strike these
claims. Depending on the decision of this Court in Bram, it will be open
to Microsoft to raise the matter in the B.C.S.C. should it consider it
advisable to do so.
(c) Restitution
[84]
Pro-Sys makes restitutionary claims alleging causes of action in unjust
enrichment, constructive trust and waiver of tort.
(i) Unjust Enrichment
[85]
The well-known elements required to establish an
unjust enrichment are (1) an enrichment of the defendant; (2) a corresponding
deprivation of the plaintiff; and (3) an absence of juristic reason (such as a
contract) for the enrichment (see Alberta Elders, at para. 82; Garland
v. Consumers’ Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629, at para. 30; Rathwell
v. Rathwell, [1978] 2 S.C.R. 436, at p. 455; Pettkus v. Becker,
[1980] 2 S.C.R. 834). Pro-Sys says that Microsoft was unjustly enriched by the overcharge
to its direct purchasers that was passed through the chain of distribution to
the class members.
[86]
Microsoft argues that any enrichment it received
came from the direct purchasers, and not from the class members, and that this
lack of a direct connection between it and the class members forecloses the
claim of unjust enrichment. Additionally, it says that the contracts between
Microsoft and the direct purchasers and the contracts between the direct
purchasers and the indirect purchasers (the existence of which are undisputed)
constitute a juristic reason for the enrichment.
[87]
In support of its first argument, Microsoft
cites Peel (Regional Municipality) v. Canada, [1992] 3 S.C.R.
762. In Peel, McLachlin J. (as she then was) held, at p. 797, that “[t]he
cases in which claims for unjust enrichment have been made out generally deal
with benefits conferred directly and specifically on the defendant”. A claim in unjust enrichment must be
based on “more than an incidental blow-by. A secondary collateral benefit will
not suffice. To permit recovery for incidental collateral benefits would be to
admit of the possibility that a plaintiff could recover twice — once from the
person who is the immediate beneficiary of the payment or benefit . . . , and
again from the person who reaped an incidental benefit” (Peel, at
p. 797). The words of Peel themselves would appear to foreclose the
possibility of an indirect relationship between plaintiff and defendant.
However, this does not resolve the issue. First, it is not apparent that the
benefit to Microsoft is an “incidental blow-by” or “collateral benefit”.
Second, Pro-Sys relies on Alberta Elders, which it says stands for the
proposition that an unjust enrichment may be possible where the benefit was
indirect and was passed on by a third party. At this stage, I cannot conclude
that it is plain and obvious that a claim in unjust enrichment will be made out
only where the relationship between the plaintiff and the defendant is
direct.
[88]
With regard to
Microsoft’s juristic reason justification, Pro-Sys pleads that these contracts
are “illegal and void” because they constitute a restraint of trade at common
law, they violate U.S. antitrust law, they are prohibited by Microsoft’s own corporate
policies and they violate Part VI of the Competition Act . It submits
that the contracts cannot therefore constitute a juristic reason for the
enrichment. The question of whether the contracts are illegal and void should
not be resolved at this stage of the proceedings. These are questions that must
be left to the trial judge.
[89]
I am thus unable to
find that it is plain and obvious that the claim in unjust enrichment cannot
succeed.
(ii) Constructive Trust
[90]
As a remedy for the
alleged unjust enrichment, Pro-Sys submits that an amount equal to the
overcharge from the sales of Microsoft operating systems and Microsoft
applications software in British Columbia should be held by Microsoft in trust
for the class members. In other words, Pro-Sys is asking that Microsoft be
constituted a constructive trustee in favour of Pro-Sys.
[91]
Kerr v. Baranow, 2011
SCC 10, [2011] 1 S.C.R. 269, is the relevant controlling authority on
constructive trusts. In Kerr, Justice Cromwell explains that in order to
find that a constructive trust is made out, the plaintiff must be able to point
to a link or causal connection between his or her contribution and the
acquisition of specific property:
. . . the constructive trust is a broad
and flexible equitable tool used to determine beneficial entitlement to
property (Pettkus, at pp. 843-44 and 847-48). Where the plaintiff can
demonstrate a link or causal connection between his or her contributions and
the acquisition, preservation, maintenance or improvement of the disputed
property, a share of the property proportionate to the unjust enrichment can be
impressed with a constructive trust in his or her favour (Pettkus, at
pp. 852-53; Sorochan, at p. 50). [para. 50]
[92]
In the present case, there is no referential property;
Pro-Sys makes a purely monetary claim. Constructive trusts are designed to
“determine beneficial entitlement to property” when “a monetary award is
inappropriate or insufficient” (Kerr, at para. 50). As Pro-Sys’s claim
neither explains why a monetary award is inappropriate or insufficient nor
shows a link to specific property, the claim does not satisfy the conditions
necessary to ground a constructive trust. On the pleadings, it is plain and
obvious that Pro-Sys’s claim
that an amount equal to the overcharge from the sale of Microsoft operating systems
and Microsoft applications software in British Columbia should be held by
Microsoft in trust for the class members cannot succeed.
The pleadings based on constructive trust must be struck.
(iii) Waiver of Tort
[93]
As an alternative to
the causes of action in tort, Pro-Sys waives the tort and seeks to recover the
unjust enrichment accruing to Microsoft. Waiver of tort
occurs when the plaintiff gives up the right to sue in tort and elects instead
to base its claim in restitution, “thereby seeking to recoup the benefits that
the defendant has derived from the tortious conduct” (Maddaugh and
McCamus (2013), at p. 24-1). Causes of action in tort and restitution are not
mutually exclusive, but rather provide alternative remedies that may be pursued
concurrently (United Australia, Ltd. v. Barclays Bank, Ltd., [1941] A.C.
1 (H.L.), at p. 18). Waiver of tort is based on the theory that “in certain
situations, where a tort has been committed, it may be to the plaintiff’s advantage to seek recovery
of an unjust enrichment accruing to the defendant
rather than normal tort damages” (Maddaugh and McCamus, at pp. 24-1 and
24-2). An action in waiver of tort is considered by some to offer the plaintiff
an advantage in that it may relieve them of the need to prove loss in tort, or
in fact at all (Maddaugh and McCamus, at p. 24-4).
[94]
Microsoft advances two arguments as to why this
claim should be struck. First, it states that Pro-Sys has pleaded waiver of
tort as a remedy and not a cause of action, and therefore proof of loss is an essential element. Second, if indeed
waiver of tort is pleaded as a cause of action, the underlying tort must
therefore be established, including the element of loss. In my view, neither
argument provides a sufficient basis upon which to find that a claim in waiver
of tort would plainly and obviously be unsuccessful.
[95]
In Serhan (Trustee of) v. Johnson
& Johnson (2006), 85 O.R. (3d) 665 (S.C.J. (Div. Ct.)), Epstein J. (as
she then was) performed an extensive review of the doctrine of waiver of tort.
Her analysis found numerous authorities accepting the viability of waiver of
tort as its own cause of action intended to disgorge a defendant’s unjust enrichment gained through
wrongdoing, as opposed to merely a remedy for unjust enrichment. These
authorities differed, however, as to the question of whether the underlying
tort needed to be established in order to sustain the action in waiver of tort.
[96]
The U.S. and U.K. jurisprudence as well as the
academic texts on the subject have largely rejected the requirement that the
underlying tort must be established in order for a claim in waiver of tort to
succeed (see Serhan, at
paras. 51-68, citing Maddaugh and McCamus (2005), at p. 24-20; J. Beatson, The
Use and Abuse of Unjust Enrichment: Essays on the Law of Restitution (1991);
D. Friedmann, “Restitution for Wrongs: The Basis of Liability”, in W. R. Cornish
et al., eds., Restitution: Past, Present and Future: Essays in Honour of
Gareth Jones (1998), 133; National Trust Co. v. Gleason, 77 N.Y.
400 (1879); Federal Sugar Refining Co. v. United States Sugar Equalization
Board, Inc., 268 F. 575 (S.D.N.Y. 1920); Mahesan v. Malaysia
Government Officers’ Co-operative Housing Society Ltd., [1979] A.C.
374 (P.C.); Universe Tankships Inc. of Monrovia v. International Transport
Workers Federation, [1983] A.C. 366 (H.L.)). Another line of cases
would find a cause of action in waiver of tort to be unavailable unless it can
be established that the defendant has committed the underlying tort giving rise
to the cause of action (see United Australia, at p. 18; Zidaric
v. Toshiba of Canada Ltd. (2000), 5 C.C.L.T. (3d) 61 (Ont. S.C.J.), at
para. 14; Reid v. Ford Motor Co., 2006 BCSC 712 (CanLII)). At least one
of these cases (Reid) suggests that a reluctance to eliminate the
requirement of proving loss as an element of the cause of action is part of the
reason for requiring the establishment of the underlying tort (para. 17).
[97]
Epstein J. ultimately
concluded that, given this contradictory law, “[c]learly, it cannot be said
that an action based on waiver of tort is sure to fail” and that the questions
“about the consequences of identifying waiver of tort as an independent cause
of action in circumstances such as exist here, involv[e] matters of policy that
should not be determined at the pleadings stage” (Serhan, at para. 68). I agree. In my view, this appeal is not the proper place to resolve
the details of the law of waiver of tort, nor the particular circumstances in
which it can be pleaded. I cannot say that it is plain and obvious that a
cause of action in waiver of tort would not succeed.
(3) The Remaining Certification Requirements
[98]
The causes of action under s. 36 of the Competition
Act , in tort and in restitution (except for constructive trust) have met
the first certification requirement that the pleadings disclose a cause of
action. I now turn to Microsoft’s argument that the claims should nevertheless
be rejected because they do not meet two of the remaining certification
requirements: that the claims of the class members raise common issues and that
a class action is the preferable procedure in this case.
(a) Standard
of Proof
[99]
The starting point in determining the standard
of proof to be applied to the remaining certification requirements is the
standard articulated in this Court’s seminal decision in Hollick. In
that case, McLachlin C.J. succinctly set out the standard: “. . . the class
representative must show some basis in fact for each of the certification
requirements set out in . . . the Act, other than the requirement that the
pleadings disclose a cause of action” (para. 25 (emphasis added)). She noted,
however, that “the certification
stage is decidedly not meant to be a test of the merits of the action” (para.
16). Rather, this stage is concerned with form and with whether the action can
properly proceed as a class action (see Hollick, at para. 16; Pro-Sys
Consultants Ltd. v. Infineon Technologies AG, 2009 BCCA 503, 98 B.C.L.R.
(4th) 272 (“Infineon”), at para. 65; Cloud v. Canada (Attorney General)
(2004), 73 O.R. (3d) 401 (C.A.), at para. 50).
[100]
The Hollick standard
of proof asks not whether there is some basis in fact
for the claim itself, but rather whether there is some basis in fact which
establishes each of the individual certification requirements. McLachlin C.J.
did, however, note in Hollick that evidence has a role to play in the
certification process. She observed that “the Report of the Attorney
General’s Advisory Committee on Class Action Reform clearly contemplates
that the class representative will have to establish an evidentiary basis for certification”
(para. 25).
[101]
Microsoft, while accepting the “some basis in
fact” standard, argues that “in order for the Plaintiffs to meet the standard
of proof, the evidence must establish that the proposed class action raises
common issues and is the preferable procedure on a balance of probabilities”
(R.F., at para. 41 (emphasis in original)). Microsoft relies on the academic
writings of Justice Cullity of the Ontario Superior Court of Justice. Cullity
J. expressed the view that “[t]o the extent that some basis in fact reflects a
concern that certification motions are procedural and should not be concerned
with the merits of the claims asserted, there seems no justification for
applying the lesser standard to essential preconditions for certification that
will not be within the jurisdiction of the court at trial” (“Certification in
Class Proceedings — The Curious Requirement of ‘Some Basis in Fact’” (2011), 51 Can.
Bus. L.J. 407, at p. 422). In other words, Cullity J. suggests that because
certification requirements are procedural, they will not be revisited at a
trial of the common issues. As such, there is no reason to assess them on a
standard lower than the traditional civil standard of “balance of
probabilities”. Microsoft further submits that this Court should endorse the
American approach of making factual determinations at the certification stage
on a preponderance of the evidence and should require certification judges to
weigh the evidence so as to resolve all factual or legal disputes at
certification, even if those disputes overlap with the merits (see R.F., at
para. 42, citing In re: Hydrogen Peroxide Antitrust Litigation, 552
F.3d 305 (3rd Cir. 2008), at p. 307, and R.F., at para. 43).
[102]
I cannot agree with Microsoft’s submissions on
this issue. Had McLachlin C.J. intended that the standard of proof to meet the
certification requirements was a “balance of probabilities”, that is what she
would have stated. There is nothing obscure here. The Hollick standard
has never been judicially interpreted to require evidence on a balance of
probabilities. Further, Microsoft’s reliance on U.S. law is novel and departs
from the Hollick standard. The “some basis in fact” standard does
not require that the court resolve conflicting facts and evidence at the
certification stage. Rather, it reflects the fact that at the certification
stage “the court is ill-equipped to resolve conflicts in the evidence or to
engage in the finely calibrated assessments of evidentiary weight” (Cloud,
at para. 50; Irving Paper Ltd. v. Atofina Chemicals Inc. (2009), 99
O.R. (3d) 358 (S.C.J.), at para. 119, citing Hague v. Liberty Mutual
Insurance Co. (2004), 13 C.P.C. (6th) 1 (Ont. S.C.J.)). The certification
stage does not involve an assessment of the merits of the claim and is not
intended to be a pronouncement on the viability or strength of the action;
“rather, it focuses on the form of the action in order to determine whether the
action can appropriately go forward as a class proceeding” (Infineon,
at para. 65).
[103]
Nevertheless, it has been well over a decade
since Hollick was decided, and it is worth reaffirming the importance of
certification as a meaningful screening device. The standard for assessing
evidence at certification does not give rise to “a determination of the merits
of the proceeding” (CPA, s. 5(7)); nor does it involve such a
superficial level of analysis into the sufficiency of the evidence that it
would amount to nothing more than symbolic scrutiny.
[104]
In any event, in my respectful opinion, there is
limited utility in attempting to define “some basis in fact” in the abstract.
Each case must be decided on its own facts. There must be sufficient facts to
satisfy the applications judge that the conditions for certification have been
met to a degree that should allow the matter to proceed on a class basis
without foundering at the merits stage by reason of the requirements of s. 4(1)
of the CPA not having been met.
[105]
Finally, I would note
that Canadian courts have resisted the U.S. approach of engaging in a
robust analysis of the merits at the certification
stage. Consequently, the outcome of a certification application will not be
predictive of the success of the action at the trial of the common issues. I
think it important to emphasize that the Canadian approach at the certification
stage does not allow for an extensive assessment of the complexities and
challenges that a plaintiff may face in establishing its case at trial. After
an action has been certified, additional information may come to light calling
into question whether the requirements of s. 4(1) continue to be met. It is for
this reason that enshrined in the CPA is the power of the court to
decertify the action if at any time it is found that the conditions for
certification are no longer met (s. 10(1)).
(b) Do the Claims
of the Class Members Raise Common Issues?
[106]
The commonality requirement has been described
as “[t]he central notion of a class proceeding” (M. A. Eizenga et al., Class
Actions Law and Practice (loose-leaf), at p. 3-34.6). It is based on the
notion that “individuals who have litigation concerns ‘in common’ ought to be
able to resolve those common concerns in one central proceeding rather than
through an inefficient multitude of repetitive proceedings” (ibid.).
[107]
Section 4(1)(c) of the CPA states that
the court must certify an action as a class proceeding if, among other
requirements, “the claims of the class members raise common issues, whether or
not those common issues predominate over issues affecting only individual
members”. Section 1 of the CPA defines “common issues” as “(a) common
but not necessarily identical issues of fact, or (b) common but not
necessarily identical issues of law that arise from common but not necessarily
identical facts”.
[108]
In Western Canadian Shopping Centres Inc. v. Dutton,
2001 SCC 46, [2001] 2 S.C.R. 534, this Court addressed the commonality
question, stating that “[t]he underlying question is whether allowing the suit
to proceed as a [class action] will avoid duplication of fact-finding or legal
analysis” (para. 39). I list the balance of McLachlin C.J.’s instructions,
found at paras. 39-40 of that decision:
(1)
The commonality question should be approached
purposively.
(2)
An issue will be “common” only where its
resolution is necessary to the resolution of each class member’s claim.
(3)
It is not essential that the class members be
identically situated vis-à-vis the opposing party.
(4)
It not necessary that common issues predominate
over non-common issues. However, the class members’ claims must share a
substantial common ingredient to justify a class action. The court will examine
the significance of the common issues in relation to individual issues.
(5)
Success for one class member must mean success
for all. All members of the class must benefit from the successful prosecution
of the action, although not necessarily to the same extent.
[109]
Microsoft argues that the differences among the
proposed class members are too great to satisfy the common issues requirement.
It argues that the plaintiffs allege they were injured by multiple separate
instances of wrongdoing, that these acts occurred over a period of 24 years and
had to do with 19 different products, and that various co-conspirators and
countless licences are implicated. Microsoft also argues that the fact that the
overcharge has been passed on to the class members through the chain of
distribution makes it unfeasible to prove loss to each of the class members for
the purposes of establishing common issues.
[110]
The multitude of variables involved in indirect
purchaser actions may well present a significant challenge at the merits stage.
However, there would appear to be a number of common issues that are
identifiable. In order to establish commonality, evidence that the acts alleged
actually occurred is not required. Rather, the factual evidence required at
this stage goes only to establishing whether these questions are common to all
the class members.
[111]
Myers J. concluded that the claims raised
common issues. I agree that their resolution is indeed necessary to the resolution
of the claims of each class member. Their resolution would appear to advance
the claims of the entire class and to answer them commonly will avoid
duplication in legal and factual analysis. Those findings are entitled to
deference from an appellate court.
[112]
The differences cited by Microsoft are, in my
view, insufficient to defeat a finding of commonality. Dutton confirms
that even a significant level of difference among the class members does not
preclude a finding of commonality. In any event, as McLachlin C.J. stated,
“[i]f material differences emerge, the court can deal with them when the time
comes” (Dutton, at para. 54).
[113]
In addition to the common issues relating to
scope and existence of the causes of action pleaded, the remaining common issues
certified by Myers J. relate to the alleged loss suffered by the class members
and as to whether damages can be calculated on an aggregate basis. The
loss-related common issues, that is to say the proposed common issues that ask
whether loss to the class members can be established on a class-wide basis,
require the use of expert evidence in order for commonality to be established.
The standard upon which that evidence should be assessed is contested and I
turn to it first below. A question was also raised regarding whether the
aggregate damages provision can be used to establish liability. I also address
this below.
(i) Expert Evidence in Indirect Purchaser Class Actions
[114]
One area in which difficulty is encountered in
indirect purchaser actions is in assessing the commonality of the harm or
loss-related issues. In order to determine if the loss-related issues meet the
“some basis in fact” standard, some assurance is required that the questions
are capable of resolution on a common basis. In indirect purchaser actions,
plaintiffs generally seek to satisfy this requirement through the use of expert
evidence in the form of economic models and methodologies.
[115]
The role of the expert methodology is to
establish that the overcharge was passed on to the indirect purchasers, making
the issue common to the class as a whole (see Chadha, at para. 31).
The requirement at the certification stage is not that the methodology quantify
the damages in question; rather, the critical element that the methodology must
establish is the ability to
prove “common impact”, as described in the U.S. antitrust case of In Re:
Linerboard Antitrust Litigation, 305 F.3d 145 (3rd Cir. 2002). That is, plaintiffs
must demonstrate that “sufficient proof [is] available, for use at trial, to
prove antitrust impact common to all the members of the class” (ibid.,
at p. 155). It is not necessary at the certification stage that the
methodology establish the actual loss to the class, as long as the plaintiff
has demonstrated that there is a methodology capable of
doing so. In indirect purchaser actions, this means that the methodology must
be able to establish that the overcharges have been passed on to the indirect-purchaser
level in the distribution chain.
[116]
The most contentious question involving
the use of expert evidence is how strong the evidence must be at the
certification stage to satisfy the court that there is a method by which impact
can be proved on a class-wide basis. The B.C.C.A. in Infineon called for
the plaintiff to show “only a credible or plausible methodology” and held that
“[i]t was common ground that
statistical regression analysis is in theory capable of providing reasonable
estimates of gain or aggregate harm and the extent of pass-through in
price-fixing cases” (para. 68). This was the standard adopted by Myers J. in
the present case. Under this standard, he found the
plaintiffs’ methodologies to be adequate to satisfy the commonality requirement.
[117]
Microsoft submits that the “credible or plausible
methodology” standard adopted by Myers J. was too permissive and allowed for a
claim to be founded on insufficient evidence. It argues that under s. 5(4) of
the CPA, the parties are required to file affidavits containing all
material facts upon which they intend to rely, and as such Myers J. was under
an obligation to weigh the evidence of both parties where a conflict arises.
Microsoft alleges that despite this requirement, Myers J. failed to weigh Pro-Sys’s
expert evidence against Microsoft’s expert evidence, merely concluding that
Pro-Sys’s expert evidence was “not implausible” and that assessing competing
evidence was “not something that can and should be done in a certification
application” (R.F., at para. 43, citing reasons of Myers J., at para. 144).
Microsoft argues that this approach was in error and is inconsistent with the
standard required at certification. Once again relying on U.S. case law,
Microsoft urges this Court to weigh conflicting expert testimony at
certification and to perform this review in a “robust” and “rigorous” manner (R.F.,
at paras. 45-48, citing Hydrogen Peroxide, at p. 323, and Wal-Mart
Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011), at p. 2551).
[118]
In my view, the expert methodology must be
sufficiently credible or plausible to establish some basis in fact for the
commonality requirement. This means that the methodology must offer a realistic
prospect of establishing loss on a class-wide basis so that, if the overcharge
is eventually established at the trial of the common issues, there is a means
by which to demonstrate that it is common to the class (i.e. that passing on
has occurred). The methodology cannot be purely theoretical or hypothetical,
but must be grounded in the facts of the particular case in question. There
must be some evidence of the availability of the data to which the methodology
is to be applied.
[119]
To hold the methodology to the robust or
rigorous standard suggested by Microsoft, for instance to require the plaintiff
to demonstrate actual harm, would be inappropriate at the certification stage. In Canada, unlike the U.S.,
pre-certification discovery does not occur as a matter of right. Although
document production may be ordered at the discretion of the applications judge,
Microsoft objected and Myers J. acceded to Microsoft’s position and refused to
order it in this case (2007 BCSC 1663, 76 B.C.L.R. (4th) 171). Microsoft can
hardly argue for rigorous and robust scrutiny when it objected to
pre-certification discovery and was successful before the applications judge.
[120]
Here, the Pro-Sys expert evidence consists of
methodologies proposed by two economists, Professor James Brander and Dr. Janet
Netz. Professor Brander’s affidavit identified him as the Asia-Pacific
Professor of International Business in the Sauder School of Business at the
University of British Columbia and senior consultant in the Delta Economics
Group. Dr. Netz’s affidavit described her as an economist, a founding partner
of ApplEcon LLC, an economics consulting firm based in Ann Arbor, Michigan, a
tenured Associate Professor of Economics at Purdue University and a Visiting
Associate Professor at the University of Michigan. Dr. Netz acted as expert
witness in several similar cases brought against Microsoft in the United
States. Dr. Netz’s testimony drew heavily from the evidence she had prepared in
her role as expert in those U.S. cases.
[121]
It is Dr. Netz’s evidence that the same
methodology that applied in the U.S. would apply equally to the case at bar.
She testified that the methodologies can demonstrate the initial overcharges by
Microsoft to its direct purchasers as well as the pass-through to the indirect
purchasers. Dr. Netz outlines three alternative methods by which harm and
damages can be calculated. The first two methods, called the “rate of return
method” and the “profit margin method”, identify the overcharge at the first level
of the distribution chain — that is, the overcharge in the sales made directly by Microsoft to
its own customers. The first two models do not on their own establish that the
overcharge was passed on but are intended to prove the total amount received by
Microsoft as a result of the overcharge. The third methodology, the “price
premium method”, begins the analysis at the other end of the distribution
chain, at the ultimate-purchaser level.
[122]
Dr. Netz describes the price premium method as
follows:
Under this method, one
calculates the retail price premium that Microsoft products have
relative to competing products for the products at issue and for a set of
benchmark products where there have not been allegations of anticompetitive
conduct. The overcharge equals the percentage decrease in the retail
price of the products at issue such that Microsoft would still realize the same
retail price premium as it does on the benchmark products (i.e.,
products in markets not affected by Microsoft’s unlawful conduct). [Emphasis in
original; 2010 BCSC 285, at para. 26.]
[123]
Once the retail price overcharge is calculated,
the total class member expenditure on the products should then be multiplied by
the overcharge percentage in order to arrive at the quantum of damages.
[124]
Dr. Netz testified that regression analysis
could be employed to ascertain the extent of passing on in order to establish
loss at the indirect-purchaser level. Relying on the successful application of
the methods in the U.S., Dr. Netz testified that “[t]here is no theoretical
reason, in my opinion, why the methods described above cannot be applied to the
sales of Microsoft software in Canada” (Netz affidavit, at para. 49 (A.R., vol.
II, at p. 177)). Implicit in this evidence is that the data necessary to apply
the methodologies in Canada is available.
[125]
Myers J. dealt with Microsoft’s criticisms of
Dr. Netz’s testimony at paras. 131-64 of his reasons. Microsoft’s criticisms
pertained to her alleged failure to take Canadian context into account, the
lack of an evidentiary basis for her findings, alleged flaws in the benchmark
products she selected, and a lack of workability in her proposed methodology.
Myers J. found that despite these criticisms, Dr. Netz had demonstrated a
plausible methodology for proving class-wide loss. He therefore did not proceed
to address Professor Brander’s proposed methods (para. 164).
[126]
It is indeed possible that at trial the expert
evidence presented by Microsoft will prove to be stronger and more credible
than the evidence of Dr. Netz and Professor Brander. However, resolving
conflicts between the experts is an issue for the trial judge and not one that
should be engaged in at certification (see Infineon, at para. 68;
Irving, at para. 143). The trial judge will have the benefit of a full record upon which to
assess the appropriateness of any damages award that may be made pursuant to
the proposed methodology. For the purposes of
certification and having regard to the deference due the applications judge on
this issue, I would not interfere with the findings of Myers J. as to the
commonality of the loss-related issues.
(ii) Aggregate Assessment of Damages
[127]
The issue raised here is whether the question of
aggregate assessment of damages is properly certified as a common issue. The
aggregate damages provisions in the CPA provide for the quantification
of the monetary award on a class-wide basis. Sections 29(1) and 29(2) of the CPA
are relevant:
29 (1) The court
may make an order for an aggregate monetary award in respect of all or any part
of a defendant’s liability to class members and may give judgment accordingly
if
(a) monetary relief is claimed
on behalf of some or all class members,
(b) no questions of fact or law
other than those relating to the assessment of monetary relief remain to be
determined in order to establish the amount of the defendant’s monetary liability,
and
(c) the aggregate or a part of
the defendant’s liability to some or all class members can reasonably be
determined without proof by individual class members.
(2) Before making an order under subsection (1), the court must
provide the defendant with an opportunity to make submissions to the court in
respect of any matter touching on the proposed order including, without
limitation,
(a) submissions that contest the
merits or amount of an award under that subsection, and
(b) submissions that individual
proof of monetary relief is required due to the individual nature of the
relief.
[128]
In this case, the common issues that were certified
are whether damages can be determined on an aggregate basis and if so, in what
amount. For the reasons below, I would not disturb the applications judge’s
decision to certify these common issues. However, while the aggregate damages
common issues certified by Myers J. deal only with the assessment of damages
and not proof of loss, there is some confusion in his reasons about whether the
aggregate damages provisions of the CPA may be relied on to establish
proof of loss where proof of loss is an essential element of proving liability.
That question has been resolved differently by various courts in Ontario and
British Columbia, where the aggregate damages provisions are sufficiently
similar to allow comparison.
[129]
In this case, Myers J. concluded that the
aggregate damages provisions can be used to establish what I interpret to be
the proof of loss element of proving liability. He stated that: “. . . the aggregate damages section of the Class Proceedings Act
allow the harm to be shown in the aggregate to the class as a whole” (para.
126), and also that “the Court of Appeal must be taken
to have accepted that for certification of the damage claims, a method of
showing harm to all class members need not be demonstrated and, further, that
the aggregate damages sections can be used to establish liability” (B.C.S.C.,
at para. 125).
[130]
In finding that the aggregate damages provisions
of the CPA can be used to establish proof of loss to the class as a
whole, Myers J. followed a line of jurisprudence of the British Columbia Court
of Appeal. This reasoning appears in Infineon:
In Knight, this Court affirmed
the certification of an aggregate monetary award under the CPA as a
common issue in a claim for disgorgement of the benefits of the defendants’
wrongful conduct without an antecedent liability finding — rather, the
aggregate assessment would establish concurrently both that the defendant
benefited from its wrongful conduct and the extent of the benefit. [para. 39]
(See also Steele v.
Toyota Canada Inc., 2011 BCCA 98, 329 D.L.R. (4th) 389, at paras. 50-52.)
[131]
With respect, I do not agree with this
reasoning. The aggregate damages provisions of the CPA relate to remedy
and are procedural. They cannot be used to establish liability (2038724
Ontario Ltd. v. Quizno’s Canada Restaurant Corp., 2010 ONCA 466, 100 O.R.
(3d) 721, at para. 55). The language of s. 29(1)(b) specifies that no question
of fact or law, other than the assessment of damages, should remain to be
determined in order for an aggregate monetary award to be made. As I read it,
this means that an antecedent finding of liability is required before resorting
to the aggregate damages provision of the CPA. This includes, where
required by the cause of action such as in a claim under s. 36 of the Competition
Act , a finding of proof of loss. I do not see how a statutory provision
designed to award damages on an aggregate basis can be said to be used to
establish any aspect of liability.
[132]
I agree with Feldman
J.A.’s holding in Chadha that aggregate damages provisions are “applicable
only once liability has been established, and provid[e] a method to assess the
quantum of damages on a global basis, but not the fact of damage” (para. 49). I
also agree with Masuhara J. of the B.C.S.C. in Infineon that “liability
requires that a pass-through reached the Class Members”, and that “[t]hat
question requires an answer before the aggregation provisions, which are only a
tool to assist in the distribution of damages, can be invoked” (2008 BCSC 575
(CanLII), at para. 176). Furthermore, I agree with the Ontario Court of Appeal
in Quizno’s, that “[t]he majority clearly recognized
that s. 24 [of the Ontario Class Proceedings Act, 1992, S.O. 1992, c. 6]
is procedural and cannot be used in proving liability” (para. 55).
[133]
This reasoning reflects the intention of the Attorney
General of British Columbia. When he introduced the CPA in the British
Columbia legislature, he stated that the goal of the legislation was to allow
individuals who have similar claims to come together and pursue those
individual claims collectively: “In simple terms, all
we are doing here is finding a way to enable the access that individuals have
to the court to be an access that individuals combining together can have to
the court” (Hon. C. Gabelmann, Official Report of Debates of the Legislative
Assembly (Hansard), vol. 20, No. 20, 4th Sess., 35th Parl., June 6, 1995, at
p. 15078). The CPA was not intended to allow a
group to prove a claim that no individual could. Rather, an important objective
of the CPA is to allow individuals who have provable individual claims
to band together to make it more feasible to pursue their claims.
[134]
The question of whether damages assessed in the
aggregate are an appropriate remedy can be certified as a common issue.
However, this common issue is only determined at the common issues trial after
a finding of liability has been made. The ultimate decision as to whether the
aggregate damages provisions of the CPA should be available is one that
should be left to the common issues trial judge. Further, the failure to
propose or certify aggregate damages, or another remedy, as a common issue does
not preclude a trial judge from invoking the provisions if considered
appropriate once liability is found.
[135]
However, as stated above, the determination that
the aggregate damages provisions cannot be used to establish proof of loss does
not affect Myers J.’s decision to certify aggregate damages as a common issue.
Despite his erroneous finding that aggregate damages provisions may be invoked
to establish liability, he stated that invoking these provisions for that
purpose was not necessary in this case (see paras. 119-20 and 127). The
aggregate damages questions he certified relate solely to whether damages can
be determined on an aggregate basis and if so in what amount. Having not
actually relied on the proposition that aggregate damages provisions can be
used to determine liability, Myers J.’s decision to certify questions related
to aggregate damages should not be disturbed.
(c) Is a Class
Action the Preferable Procedure?
[136]
The provision of the CPA relevant to the
preferable procedure requirement is s. 4(2). It reads:
(2) In determining whether a class proceeding would be the
preferable procedure for the fair and efficient resolution of the common
issues, the court must consider all relevant matters including the following:
(a) whether
questions of fact or law common to the members of the class predominate over
any questions affecting only individual members;
(b) whether
a significant number of the members of the class have a valid interest in
individually controlling the prosecution of separate actions;
(c) whether
the class proceeding would involve claims that are or have been the subject of
any other proceedings;
(d) whether
other means of resolving the claims are less practical or less efficient;
(e) whether
the administration of the class proceeding would create greater difficulties
than those likely to be experienced if relief were sought by other means.
[137]
In Hollick, this Court said that
preferability must be examined in reference to the three principal aims of the
class action regime: “. . . judicial economy, access to justice, and behaviour
modification” (para. 27).
[138]
Microsoft argues that the lack of commonality
between the class members and the abundance of individual issues signifies that
a class proceeding will not be a “fair, efficient and manageable method of
advancing the claim” as required by Hollick (R.F., at para. 84, citing Hollick,
at para. 28). It argues that the access to justice function of class actions
will not be served by certifying the action because it will inevitably break
down into numerous individual trials, subjecting the class members to delays.
It also argues that the tendency of indirect purchaser action to result in cy-près
awards — made where it would be impractical to distribute the award to the
individual plaintiffs — further frustrates the access to justice aim. As to the objective
of behaviour modification, Microsoft contends that it is more properly a
concern for the Competition Commissioner and that the procedures that can be
initiated by that body are the preferable forum in which to deal with the
wrongs alleged in this case.
[139]
I am unable to accept these arguments. In Hollick,
McLachlin C.J. was of the view that the plaintiff had not satisfied the
certification requirements on the grounds that a class proceeding was not the
preferable procedure. In that case, she found that the question of whether or
not the defendant had unlawfully emitted methane gas and other pollutants was
common to all class members. However, as to whether loss could be established
on a class-wide basis, she found too many differences among the class members
to consider loss a common issue. In other words, while she found that there was
a common issue related to the existence of the cause of action, she did not
consider the loss-related issues to be common to all the class members. She
dismissed the class action on the basis that “[o]nce the common issue is seen in the context of the
entire claim, it becomes difficult to say that the resolution of the common
issue will significantly advance the action” (para. 32).
[140]
In the present case,
there are common issues related to the existence of the causes of action, but
there are also common issues related to loss to the class members. Unlike Hollick,
here the loss-related issues can be said to be common because there is an
expert methodology that has been found to have a realistic prospect of establishing
loss on a class-wide basis. If the common issues were
to be resolved, they would be determinative of Microsoft’s liability and of
whether passing on of the overcharge to the indirect purchasers has occurred.
Because such determinations will be essential in order for the class members to
recover, it can be said, in this case, that a resolution of the common issues
would significantly advance the action. While it is possible that individual
issues may arise at the trial of the common issues, it is implicit in the
reasons of Myers J. that, at the certification stage, he found the common
issues to predominate over issues affecting only individual class members. I
would agree. In the circumstances, I would not interfere with his finding that
the class action is the preferable procedure.
[141]
It is also premature to assume that the award in
this case will result in cy-près distribution or that the objective of
access to justice will be frustrated on this account. Further, while under the Competition
Act the Competition Commissioner is the primary organ responsible for
deterrence and behaviour modification, the Competition Bureau in this case has
said that it will not be pursuing any action against Microsoft. Accordingly, if
the class action does not proceed, the objectives of deterrence and behaviour
modification will not be addressed at all. On this issue, the class action is
not only the preferable procedure but the only procedure available to serve
these objectives.
(4) Conclusion on the Certification of the Action
[142]
I would restore the orders of the applications
judges allowing for certification of this action as a class proceeding with the
exception that the pleadings based on constructive trust be struck.
V. Conclusion
[143]
For the above reasons, I would allow the appeal
with costs in this Court only.
APPENDIX: Common Issues Certified by Myers J.
Breach of Competition Act, R.S.C. 1985, c. C-34
(a) Did the Defendants, or either of them,
engage in conduct which is contrary to s. 45 and or s. 52 of the Competition
Act ?
(b) Are the Class Members entitled to losses or
damages pursuant to section 36 of the Competition Act , and, if so, in
what amount?
(c) Can the amount of damages be determined on
an aggregate basis and if so, in what amount?
Conspiracy
(d) Did the Defendants, or either [of] them,
conspire to harm the Class Members?
(e) Did the Defendants, or either of them, act
in furtherance of the conspiracy?
(f) Was the predominant purpose of the
conspiracy to harm the Class Members?
(g) Did the conspiracy involve unlawful acts?
(h) Did the Defendants, or either of them, know
that the conspiracy would likely cause injury to the Class Members?
(i) Did the Class Members suffer economic loss?
(j) What damages, if any, are payable by the
Defendants, or either of them, to the Class Members?
(k) Can the amount of damages be determined on
an aggregate basis and if so, in what amount?
Tortious Interference with Economic Interests
(l) Did the Defendants, or either of them,
intend to injure the Class Members?
(m) Did the Defendants, or either of them,
interfere with the economic interests of the Class Members by unlawful or
illegal means?
(n) Did the Class Members suffer economic loss
as a result of the Defendants’ interference?
(o) What damages, if any, are payable by the
Defendants, or either of them, to the Class Members?
(p) Can the amount of damages be determined on
an aggregate basis and if so, in what amount?
Unjust Enrichment, Waiver of Tort and Constructive Trust
(q) Have the Defendants, or either of them, been
unjustly enriched by the receipt of an Overcharge? “Overcharge” means the
difference between the prices the Defendants actually charged for Microsoft
Operating Systems and Microsoft Applications Software in the PC market in Canada
and the prices that the Defendants would have been able to charge in the
absence of their wrongdoing.
(r) Have the Class Members suffered a
corresponding deprivation in the amount of the Overcharge?
(s) Is there a juridical reason why the
Defendants, or either of them, should be entitled to retain the Overcharge?
(t) What restitution, if any, is payable by the
Defendants, or either of them, to the Class Members based on unjust enrichment?
(u) Should the Defendants, or either of them, be
constituted as constructive trustees in favour of the Class Members for the
Overcharge?
(v) What is the quantum of the Overcharge, if
any, that the Defendants, or either of them, hold in trust for the Class
Members?
(w) What restitution, if any, is payable by the
Defendants to the Class Members based on the doctrine of waiver of tort?
(x) Are the Defendants, or either of them,
liable to account to the Class Members for the wrongful profits, if any, that
they obtained on the sale of Microsoft Operating Systems or Microsoft
Applications Software to the Class Members based on the doctrine of waiver of
tort?
(y) Can the amount of restitution be determined
on an aggregate basis and if so, in what amount?
Punitive Damages
(z) Are the Defendants, or either of them,
liable to pay punitive or exemplary damages having regard to the nature of
their conduct and if so, in what amount and to whom?
Interest
(aa) What is the liability, if any, of the
Defendants, or either of them, for court order interest?
Distribution of Damages and/or Trust Funds
(bb) What
is the appropriate distribution of damages and/or trust funds and interest to
the Class Members and who should pay for the cost of that distribution? [A.R.,
vol. I, at pp. 167-69]
Appeal
allowed with costs*.
Solicitors
for the appellants: Camp Fiorante Matthews Mogerman, Vancouver;
Michael Sobkin, Ottawa.
Solicitors
for the respondents: McCarthy Tétrault, Toronto; Blake, Cassels
& Graydon, Vancouver and Toronto.
Solicitor for the
intervener: Attorney General of Canada, Ottawa.