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Competition lawyers across the country will be keeping an eye on two recent British Columbia Court of Appeal cases that say indirect purchasers cannot sue for losses they suffered as a result of a price fixing conspiracy, says Toronto lawyer Michael Osborne.
If the cases, Sun-Rype v Archer Daniels Midland and Pro-Sys v Microsoft move on to the Supreme Court of Canada, the issue will be determined once and for all “as to whether or not we will follow the U.S. federal approach and bar indirect purchaser claims,” says Osborne, who practises competition law as a partner at Affleck Greene McMurtry LLP.
This has been an ongoing issue in Canada for years, and in Osborne’s opinion word from the SCC on it would be an “extremely important” ruling.
“If the Supreme Court upholds this decision it will simplify competition litigation because it will cut out the complexity of the indirect purchasers,” says Osborne. It will “definitely” change the face of how competition law is practised.
“It would have a very big impact on the plaintiff’s class action bar,” adds Osborne, noting the result would be “they wouldn’t be able to find themselves a consumer or consumer group to have a class action anymore, they would have to find a direct purchaser.”
Osborne says the B.C. decisions are “the biggest news in Canadian competition law class actions in a long time.”
Osborne says the bottom line emerging from B. C. is that “when you have a price fixing conspiracy, this raises the price which the producers sell it for, and the, what we call direct purchasers or the people who buy the product directly from the conspirators, pay more money. It’s called an overcharge.
“This case says that only the direct purchasers can sue to recover the overcharge. However, the people who they sold the product to either in its original form or as part of another product – in Sun-Rype’s case, the high fructose corn syrup would have been added to fruit drinks – they would have sold it to distributors, then grocery stores and consumers, all of those people are called indirect purchasers. They didn’t buy it directly from the conspirator, they bought it from an intermediate person in the chain of distribution,” says Osborne.
Sun-Rype says that indirect purchasers cannot sue for the overcharge that they may have suffered as a result of the price fixing conspiracy. So, it limits the liability and the recovery to the first transaction, that is to say the sale from the producer to the direct purchaser and it put the wall there, says Osborne. “That’s it, no more, no recovery below that.”
Osborne says the effect is it will “knock the consumers out of class actions for price fixing conspiracies.”
And here’s a twist: charity contributions, which are typically where the consumers’ awards go, will dry up, he says.
Osborne explains that currently, these class actions are typically configured with everybody in the proposed class, including both direct and indirect purchasers and the consumers. Then, at the end of the day if there’s a settlement, the pie is divided.
But, in Canada, “no consumer has ever been given anything by way of a settlement cheque from one of these Competition Act class actions. Instead they send the money, it’s called cy pres, to charities like universities or consumer groups in lieu of sending it to consumers. So what this really means in practical terms is a fairly nice source of funding for some universities and consumer groups will be cut off. You will not have the forced donation from companies accused of price fixing to the universities and consumer groups.”
However it may not reduce the total liability, or the amount paid by these price fixing conspirators, says Osborne. “What the decision (Sun-Rype) stands for is the working out of a conclusion from a number of fairly well-established points of law. The first is that the Supreme Court has categorically dismissed the pass on defence.”
Osborne described it this way: “Suppose I’m a price fixing conspirator, and someone like Sun-Rype comes to me and says, ‘You made me pay ten cents more a kilo for this sweetener so you’ve got to pay me,’ and I say, ‘No, because you didn’t actually suffer any losses because you passed that overcharge on to your customers.’ That’s the pass on defence.”
The Supreme Court has categorically ruled that out; said there is no such defence. The BC. Court of appeal said it follows that the direct purchaser is entitled to recover on 100 per cent of the overcharge. If that’s true there’s nothing left for the indirect purchasers, says Osborne.
“So, if you can’t use the pass on defence as a shield, you can’t use it as a sword either,” says Osborne. “Because the indirect purchasers’ claim depends on pass on, they only have a claim as to losses passed on to them. This case in B.C. is the Canadian version of a famous U.S. case called Illinois Brick which said the same thing.”
Osborne says that in Canada the B.C. decision, strictly speaking, does not apply anywhere else in the country. “What will happen, however, is I would presume that leave will be sought to appeal to the Supreme Court of Canada. I would be very surprised if the Supreme Court did not agree to hear the case and the court’s decision on this subject will apply and become the law in at least the common law provinces of Canada.”
Meanwhile Osborne says he’s “very excited” by the news coming out of B.C. “I agree with it. I think it’s the right approach. I think it follows from the refusal to recognize the pass on as a defence. That being said, one thing that it does is it basically says that although people may have suffered a loss, this is a loss for which the law will not compensate you. I find that a little bit troubling and that’s going to be the debate.”
Michael Osborne is a partner at Affleck Greene McMurtry LLP. He is a respected and practiced litigator who acts for and advises parties in a wide range of competition matters, a variety of commercial disputes, including contractual disputes, shareholders’ disputes, commercial fraud, and employment matters, and also in administrative law and constitutional issues. He can be reached at 416 360 2800 or email him at MOsborne@agmlawyers.com.
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