Canadian COMPETITION LAW

January 23, 2014

Steve Szentesi
Kevin Wright (Davis LLP)

Extract from a chapter to be published in CLEBC
Annual Review of Law & Practice – 2014

The following are several of the key competition law private action cases in Canada in 2013 from our forthcoming chapter in CLEBC’s Annual Review of Law & Practice – 2014.  For the first three posts (misleading advertising, mergers and Investment Canada Act, and civil and criminal matters) see: here, here and here.  Tomorrow I’ll post our final update of key competition law developments from last year: trade and professional associations, new Competition Bureau guidelines and other developments.

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Joint Procurement of Oilfield Services

On June 14, 2013, the Alberta Court of Appeal unanimously reversed a controversial trial judgment holding that two competing oil and gas producers had illegally conspired contrary to the pre-2010 version of section 45 of the Act (i.e., the criminal conspiracy provision) by agreeing to use one supplier of certain oil field services to the exclusion of the plaintiff: 321665 Alberta Ltd. v. Husky Oil Operations Ltd., 2013 ABCA 221.  On January 16, 2014, the Supreme Court of Canada dismissed the plaintiff’s application for leave to appeal.

At issue was the correct approach to determining when competitor collaborations in the purchase of a product would lessen competition “unduly”, the legal standard under the former section 45.  The Court of Appeal concluded that Parliament’s intent was to distinguish artificial (unlawful) lessening of competition from the (lawful) lessening of competition “that arises naturally from the ordinary vicissitudes of the free market economy”.  Having lost the contract to supply fluid hauling services to the defendants, the plaintiff shut down its business.  The Court of Appeal found that the trial judge erred by focusing on the consequences for the plaintiff and losing sight of the true character of the defendants’ objective and how they pursued it.  The Court of Appeal rejected the defendants’ argument that they were a single economic entity immune from the conspiracy provision and held that joint operators in the oil and gas industry are not insulated from the conspiracy or other anti-competitive behaviour contrary to the Act.  However, the Act did not prohibit the defendants from acting together to rationalize their operations for the purposes of increasing efficiencies and reducing unnecessary costs.  Here, the defendants decided their needs at their respective plants in Rainbow Lake Alberta would be best served by a single provider.  They provided a fair opportunity to the plaintiff to participate in an extensive and genuine evaluation process.

Although strictly unnecessary in view of the finding on liability, the Court of Appeal went on to address questions of compensation, which may be instructive for other private actions.  First, the appellate judges were critical of the trial judge’s $5 million compensatory damages given “at large” which appeared to entail both the loss of investment value and loss of future profit, which are mutually exclusive concepts, and caused the trial judge to speculate too far into the future.  The preferable approach in the circumstances would have been to assess the value of the business as a going concern.  The Court of Appeal also disagreed with the trial judge’s imposition of punitive damages, finding that the defendants’ conduct was neither reprehensible nor malicious.  Finally, the Court of Appeal would have also set aside the trial judge’s award of $75,000 in investigation costs under section 36 of the Act since it was based on an estimate and was not specifically proven.

Indirect Purchaser Actions Allowed

On October 31, 2013, the Supreme Court of Canada released a long anticipated trilogy of decisions settling various issues that frequently arise in class actions based on alleged violations of the criminal conspiracy provisions of the Act:  Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57; Sun-Rype Products Ltd. v. Archer Daniels Midland Company, 2013 SCC 58; and Infineon Technologies AG v. Option consommateurs, 2013 SCC 59 (the first two cases were from BC; the latter decision concerned authorization of class proceedings under Quebec law).

In cases of alleged price fixing, plaintiffs typically allege that the collusion enabled the defendants to charge more than they would have but for the conspiracy.  The damages comprise this “overcharge” – the difference between the actual price under the conspiracy and the more competitive price that would have otherwise prevailed.  The Supreme Court held that “indirect” purchasers – persons who do not buy the product directly from the defendants but who instead buy it (or things derived from the product) from others who ultimately bought the product from a defendant – have standing to sue for damages under section 36 of the Act and at common law, and thereby reversed the holdings of majorities of the BC Court of Appeal in Pro-Sys and Sun-Rype.  In so doing, the Supreme Court rejected the passing on defence, i.e. the argument that a direct purchaser suffered little or no loss because they passed on the increased costs caused by the defendants’ misconduct to indirect purchasers.  The result is that both direct and indirect purchasers can sue to recover losses.  The Supreme Court reasoned that courts are equipped to manage competing claims, including those brought in separate actions, to avoid double or multiple recovery of losses in excess of the actual overcharge.

The Supreme Court also held that the plaintiffs did not have to prove most of the required elements for certification on a balance of probabilities but only had to establish the lower standard of “some basis in fact”.  The exception is the requirement that there be a reasonable cause of action.  That test is determined using the standard on applications to strike pleadings, i.e. assuming the pleaded facts are true, asking if it is “plain and obvious” the action would fail.

In the Pro-Sys decision, the Supreme Court confirmed it was not “plain and obvious” that certain causes of action would not succeed, including waiver of tort, and the predominant purpose conspiracy claim as it applied to an alleged conspiracy between a parent corporation and its subsidiaries.  However, the Supreme Court rejected the plea of a substantive constructive trust as an independent cause of action.

Whereas in Pro-Sys the Supreme Court unanimously restored certification, in Sun-Rype, a 7-2 majority of the Court dismissed the certification application because the representative plaintiff was not part of an identifiable class.  In that case, the proposed class consisted of indirect purchasers of high fructose corn syrup supplied by the defendants.  Since this sweetener was used interchangeably with sugar (which was not subject to an alleged conspiracy) during the proposed class period, it was impossible for the named plaintiff or other putative class members to say whether they were part of a class that acquired products containing such corn syrup.

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