Pro‑Sys Consultants Ltd. v. Microsoft Corporation

Pro‑Sys Consultants Ltd. v. Microsoft Corporation
Collection
Supreme Court Judgments
Date
2013-10-31
Neutral citation
2013 SCC 57
Report
[2013] 3 SCR 477
Case number
34282
Judges
McLachlin, Beverley; LeBel, Louis; Fish, Morris J.; Abella, Rosalie Silberman; Rothstein, Marshall; Cromwell, Thomas Albert; Moldaver, Michael J.; Karakatsanis, Andromache; Wagner, Richard
On appeal from
British Columbia
Subjects
Civil procedure
Notes
SCC Case Information: 34282
Decision Content
SUPREME COURT OF CANADA
Citation: Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, [2013] 3 S.C.R. 477
Date: 20131031
Docket: 34282
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),