A Tale of Two Countries: 10 Years Later, Part 1 of 2

A decade ago, in “A Tale of Two Countries,” we described how the Canadian and U.S. class action certification regimes were diverging in antitrust cases (see Michael A. Eizenga, Dany H. Assaf & Emrys Davis, “Antitrust Class Actions: A Tale of Two Countries,” Antitrust, Spring 2011). Canadian courts had begun to certify antitrust cases—including cases involving indirect purchasers—using the permissive “some basis in fact” test developed by the Supreme Court of Canada (SCC) in the early 2000s. Meanwhile, the Supreme Court of the United States (SCOTUS) had rejected indirect purchaser actions as a matter of federal law and instructed courts to rigorously scrutinize evidence at certification.

That trend has continued over the past decade. In that period, the SCC first confirmed—and then expanded—the pro-certification approach taken by lower courts as described in our 2010 article. The SCC has now certified classes that have included indirect purchasers, umbrella purchasers, and even potentially uninjured class members. On the other hand, U.S. courts continue to apply more scrutiny to the certification of antitrust cases, including the expert evidence tendered in support of certification, and in considering what it means for issues to be decided “in common.”

While U.S. jurisprudence has continued to emphasize the exceptional nature of the class action, the Canadian approach has been to view the class action as a key facilitator of access to justice. The result is an increasingly permissive and plaintiff-friendly Canadian class certification regime as compared with its U.S. counterpart.

The Canadian and U.S. Statutory Regimes

The current differences between the Canadian and U.S. certification regimes are more striking given that Canadian class action certification legislation adopted many elements of the U.S. Federal Rule of Procedure 23. Canada has no national equivalent to Rule 23, but Ontario’s Class Proceedings Act, 1992 (CPA) is representative of the class action legislation in Canada’s common-law provinces and is therefore a useful comparator. Like Rule 23, the CPA creates a mandatory certification process. The certification tests set out in Rule 23 and the CPA both require the plaintiffs’ claims or defenses to raise common issues and require that the representative plaintiffs fairly and adequately represent the interests of the class. Until recently, there was one significant difference. Unlike Rule 23, the CPA did not require that the common issues predominate over individual issues. This test has changed. In October 2020, the Ontario government amended the CPA to include both a predominance and superiority requirement at the certification stage. Because this new test applies only to class actions started in Ontario after October 2020, we do not yet know whether this amendment will usher in a more stringent class action certification regime in Ontario, if not other Canadian provinces.

Though the lack of a predominance test contributed to Canada’s lower certification threshold, it was not the only determining factor. In the balance of this article, we discuss how Canadian jurisprudence has continued to diverge from the U.S. approach by making class action proceedings increasingly accessible in Canada.

Indirect Purchasers

SCOTUS held that indirect purchasers do not have a cause of action under federal law in a 1977 decision, Illinois Brick Co. v. Illinois. Because SCOTUS had previously rejected the use of “passing on” as a defense in a direct purchaser action in Hanover Shoe, Inc. v. United Shoe Machinery Corp., it found that indirect purchasers should not be able to raise “passing on” offensively to argue that an overcharge was passed on to them. Though SCOTUS recognized that elevating direct purchasers to a preferred position necessarily denies recovery to those indirect purchasers who are injured by antitrust violations, it was satisfied that indirect purchasers’ claims would be small and, in many cases, not worth collecting at all. As we explain below, in concluding that indirect purchasers do have a cause of action in Canada, the SCC has prioritized victim compensation (or at least their opportunity to make the case for it) and rejected much of the reasoning adopted by SCOTUS in Illinois Brick.

When we wrote about the Canadian jurisprudence on indirect purchaser actions 10 years ago, the SCC had not yet addressed whether indirect purchasers had a cause of action in Canada. It first addressed the issue in a 2013 case, Pro-Sys Consultants Ltd. v Microsoft. In Pro-Sys, the proposed class consisted of ultimate consumers who bought Microsoft products from resellers and resellers who themselves had bought products from Microsoft or other resellers higher up the chain of distribution. The plaintiffs’ allegation was that Microsoft had unlawfully overcharged for its operating systems and applications software and that this overcharge had been “passed on” down the chain of distribution.

Before Pro-Sys, Canadian appellate courts had generally held that indirect purchasers had a cause of action under the Competition Act. But when the British Columbia Court of Appeal decided Pro-Sys in 2011, it threw the jurisprudence into disarray. Citing SCOTUS’s decision in Illinois Brick and the risk of permitting double recovery, the majority of the British Columbia Court of Appeal found that it was compelled to hold that indirect purchasers did not have a cause of action because the SCC had already rejected the use of passing on as a defense in a direct purchaser action (see Kingstreet Investments Ltd. v. New Brunswick (Department of Finance)).

Pro-Sys was appealed to the SCC. In its 2013 decision, the SCC reversed the British Columbia Court of Appeal’s judgement and held that indirect purchasers do have a cause of action in Canada. In doing so, it rejected the very same arguments that led SCOTUS to find that indirect purchasers did not have a cause of action in the U.S.

Citing the majority decision in Illinois Brick, Microsoft argued that allowing indirect purchaser actions would result in duplicative recoveries. The SCC disagreed. It held that trial judges could modify any award of damages to avoid this outcome. Microsoft also argued that the costs to the judicial system associated with analyzing price and output decisions justified the outright exclusion of indirect purchaser actions in Canada. The SCC rejected this argument on the basis that these were features of antitrust cases more generally and “should not stand in the way of allowing indirect purchasers an opportunity to make their case.” Finally, the SCC explicitly rejected the notion espoused by the majority in Illinois Brick that allowing indirect purchaser actions would frustrate the deterrence objective of antitrust laws. It found that the rationale for rejecting the passing on defense, because it frustrates enforcement, was no reason to deny an action to those who have a valid claim against an overcharger.

In overcoming the very same concerns that led SCOTUS to refuse certification of indirect purchaser actions in the U.S., the SCC manifested the prevailing Canadian view of the class action as a key facilitator of access to justice. While SCOTUS had refused certification of indirect purchaser actions because of the difficulties and costs associated with adjudicating these actions, the SCC allowed certification so that individuals who suffered a loss as a result of anticompetitive conduct could seek redress. Indeed, in Infineon Technologies AG v. Option consommateurs, one of the two companion cases to Pro-Sys, the SCC stated “the tenor of the jurisprudence clearly favors easier access to the class action as a vehicle for achieving the twin goals of deterrence and victim compensation.” Thus, access to justice and victim compensation were front of mind for the SCC in Pro-Sys.

As we explain further below, the SCC’s approach to indirect purchaser actions is not the only example of how the Canadian class action certification regime has continued to become more plaintiff-friendly than its U.S. counterpart.

Expert Evidence

In Canada, Pro-Sys also settled the standard for assessing whether evidence is capable of proving loss on a class-wide basis. The SCC held that an expert’s methodology need only be sufficiently credible or plausible to establish “some basis in fact” for the proposition that the plaintiffs suffered a class-wide loss. In elaborating the “some basis in fact” standard, the SCC explicitly rejected the U.S. rigorous scrutiny standard and held that the court should not wade into the conflicts between the methodologies of the plaintiffs’ expert and the defendants’ expert at the certification stage. The SCC also held that the certification stage does not involve an assessment of the merits of the plaintiffs’ claim and is not intended to be a pronouncement on the viability or strength of the action. According to the SCC, procedural differences between Canada and the U.S. dictate different evidentiary standards: In Canada, there is no pre-certification discovery as a matter of right, and so it would not be appropriate to decide the probative value of evidence at a certification hearing.

In contrast, the U.S. certification regime continues to impose a more rigorous standard for assessing the expert evidence tendered in support of certification. In Comcast Corp. v. Behrend, released just six months before Pro-Sys, SCOTUS held that for a court to certify loss as a common issue, the plaintiff must tender evidence capable of measuring the damages resulting from the particular antitrust injury on which liability is premised—in other words, it is not enough to provide a method for measuring class-wide loss if that loss cannot be attributed to a particular theory of liability. SCOTUS held that in evaluating whether a claimant has met this burden, courts must conduct a “rigorous analysis” to ensure that the requirements of Rule 23 are satisfied, which may require it to probe behind the pleadings and will often entail overlaps with the merits of the plaintiffs’ underlying claim.

That U.S. courts probe behind the pleadings at certification deviates from the Canadian approach, in which inquiries into the merits of the claim are not to be made at the certification stage. The more stringent U.S. evidentiary standard is explained in part by SCOTUS’s repeated emphasis that a representative plaintiff must “affirmatively demonstrate” compliance with Rule 23. In Canada, there need only be “some basis in fact” that a methodology is capable of proving loss on a class-wide basis. In Pro-Sys, the SCC held that it is impossible to define this standard in the abstract. Rather, each case must be decided on its own unique facts, which must satisfy the conditions for certification. That said, as noted above, the SCC was also clear that this standard does not involve a determination of the viability or strength of the action and falls short of requiring proof on a balance of probabilities. As a result, the permissive “some basis in fact” test explained by the SCC has led to a less stringent evidentiary standard in Canada.

Though Pro-Sys established the evidentiary standard for establishing loss on a class-wide basis, it did not help explain what it actually means for loss to be established class-wide. It left that component of the test to be determined in later decisions. The second part of this two-part article takes up the evolution of the test for certification of common issues and discusses the effect of uninjured class members on certification and class causes for umbrella purchasers.