The Lower Court Decisions

The plaintiffs' case against the pigment manufacturers was premised in large part on section 36(1) of the Competition Act (Canada), which permits "[a]ny person who has suffered damages" as a result of, among other things, conduct that is criminal under the Act to recover "an amount equal to the loss or damage proved to have been suffered by him," as well as an additional amount up to his costs in respect of the proceeding.

The motion judge certified the action as a class proceeding. In so doing, he held that liability was a common issue that could be proved on a class-wide basis. He defined the class as, inter alia:

All homeowners or other end users in Canada who have suffered loss or damage as a result of the Defendants' agreement to wrongfully increase or maintain the price of iron oxide and black pigment and otherwise unduly lessen competition.

Of the three goals of the Class Proceedings Act (access to justice, behaviour modification and judicial economy), the motion judge found that behaviour modification was the most important goal to be met in this case and that a class action was the preferable procedure to meet that goal. The judge refused to follow the Illinois Brick line of cases emanating from the United States, which limits class actions in anti-trust conspiracy cases to direct purchasers of products.

The majority of the Divisional Court rejected the class as formulated for a number of reasons. First, it concluded that an action under s. 36(1) of the Act (as well as the common law torts of conspiracy and infliction of economic injury by unlawful means) requires that the plaintiffs establish that they each suffered actual loss. To establish such loss, the plaintiffs must prove that any overcharge to the direct purchasers was passed on to the plaintiffs. Based on the pleadings and affidavit evidenced adduced, the Divisional Court held that such a loss could not be proved on a class-wide basis and, consequently, liability could not be characterized as a common issue.

The Divisional Court also concluded that a class action to determine whether there had been a price-fixing conspiracy would not advance the overall litigation because a series of individual trials would have to be held subsequently to determine the extent to which the extra costs had been passed on by the direct purchasers. As such, the Divisional Court found that a class proceeding was not the preferable procedure for the resolution of the issues. The Divisional Court expressed the view that the Competition Bureau was better suited to address the goal of behaviour modification (and noted that no criminal proceedings had been instituted in this case). While the Divisional Court overturned certification, it refused to rule specifically on the issue of whether indirect purchasers could maintain a class proceeding for price-fixing, and stated instead that the plaintiffs in this case had failed to meet the requisite standards.

Court of Appeal Refuses Certification

In upholding the Divisional Court's rejection of certification in this case, the Court of Appeal made three findings that are critical to defendants in class proceedings. First, the Court of Appeal endorsed the "presumed impact" approach developed in the United States, which requires that the plaintiff provide sufficient statistical or economic evidence to support a finding that the improper price increment from price-fixing was passed through to the proposed class of indirect purchasers. Second, the Court of Appeal refused to find that no class proceeding by indirect purchasers could ever succeed, even though it accepted that establishing the evidentiary basis for such claims is extremely difficult (and that the threshold had not been met in the instant case).

Finally, the Court of Appeal upheld the Divisional Court's rejection of the "gain to conspirators" model of damages, which suggests that the loss of the class may be equated to the improperly derived net gain of the price-fixing conspirators.

In this latter regard, the plaintiff sought to rely on section 24(1) of the Class Proceedings Act (Ontario) to argue that liability could be a class-wide issue because the plaintiffs could simply divide up the "gain to the conspirators". Section 24(1) provides:

24(1) The court may determine the aggregate or a part of a defendant's liability to class members and give judgment accordingly where,

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. 1992, c. 6, s. 24 (1).

The Court of Appeal agreed with the Divisional Court that s. 24(1) could not be used by plaintiffs to avoid having to establish that there was an element of loss for all the members of the class as a prerequisite of liability. The Court of Appeal refused to assume that the "gain of the conspirators" came solely at the expense of the proposed class because such an allocation would be based upon the unsupported presumption that the entire price increment caused by the alleged conspiracy had been passed along to the indirect purchasers.