Pioneer Corp v Godfrey: SCC Gives Umbrella Purchasers an Umbrella from Indeterminate Liability

When it comes to class action plaintiffs, the Supreme Court giveth and the Supreme Court taketh away.

The Supreme Court of Canada (“SCC” or “Court”) did their taking last April, in Telus Communications Inc v Wellman, 2019 SCC 19 [Wellman], when they ruled that business customers with arbitration clauses in their contracts are ineligible to join in class actions, even when the class is led by consumers with no enforceable arbitration clause.

More recently, however, in Pioneer Corp v Godfrey, 2019 SCC 42 [Godfrey], the Court gave a significant gift to potential plaintiffs by unambiguously opening the door to plaintiffs who might otherwise have found themselves on the outside looking in at class proceedings. So-called “umbrella claims” relate to claims arising from price-fixing schemes where the plaintiff has not purchased goods or services from the alleged co-conspirators but instead purchased from an unrelated company that was able to inflate their own prices as a result of the price-fixing.

The factual and procedural background

Alleging that two groups of defendants had unlawfully conspired to inflate the prices of Optical Disc Drives (ODDs) between 2004 and 2010 – devices like CD-ROM, DVD, and Blu-ray drives – Neil Godfrey sought to certify a class action against those manufacturers. Godfrey plead the claim on behalf of three categories of British Columbia-resident plaintiffs: 1) people who had bought ODDs (or products containing them) directly from one of the defendants (“direct purchasers”); 2) people who had bought ODDs and ODD products made by the defendants but purchased from a non-defendant (“indirect purchasers”); and 3) people who had purchased ODDs and products that were made and sold by non-defendant companies (“umbrella purchasers”) (Godfrey, para 5).

At a certification hearing before the BC Supreme Court, the defendants, led by Toshiba, argued that the claims on behalf of umbrella purchasers were bound to fail and should therefore be excluded from the class and the proceeding. The certification judge disagreed, although they struck down part of the pleadings, and certified the entire class (Godfrey v. Sony Corporation, 2016 BCSC 844).

This ruling triggered appeals that ultimately failed (Godfrey v. Sony Corporation, 2017 BCCA 302). Savage JA ruled that the umbrella purchasers both a) have a cause of action; and b) that there are no policy questions such as indeterminate liability engaged in this case that would make it plain and obvious that such a claim would fail.

The legal background

In British Columbia, as in most provinces, the Class Proceedings Act, RSBC 1996, c 50 [Act], requires that all proposed class actions be subject to a certification hearing where it is determined whether the action can go forward to trial. In order to proceed, s 4(1) of the Act requires the certification judge to find that a) the pleadings disclose a cause of action; b) there is an identifiable class of two or more people; c) the claims of the class members raise common issues; d) class proceedings would be the preferred method of moving forward to fairly and efficiently determine the claims; and e) there is a named plaintiff who can represent the class. In order for a claim to disclose no cause of action, the court must find that it is “plain and obvious” that the claim cannot succeed.

Section 45(1) of the Competition Act, R.S.C., 1985, c. C-34 makes it a crime to “conspire, agree or arrange” with a competitor to “fix, maintain, increase or control” the price for products, while s 36(1) of the Competition Act gives a private right of action to any person who “suffers loss or harm as a result of” a breach of s 45(1). In addition, the SCC (in R v. Nova Scotia Pharmaceutical Society, [1992] 2 SCR 606, for instance) has found a mens rea component to s 45, to the effect that a defendant must have had a subjective intention to agree to the price-fixing agreement and must have been aware of the agreement’s terms. The defendant also must have had an objective intention to unfairly limit competition. It was on this basis, as well as the basis of a number of common law torts, that Godfrey brought forward his action (Godfrey, para 2) .

Up until the Supreme Court’s ruling in this case, Canadian courts had been divided on whether umbrella purchasers had grounds for being part of claims based on anti-competitive activities. In an Ontario case regarding price-fixing and Lithium-Ion batteries, both the certification judge and a Divisional Court panel agreed that certifying a claim on behalf of umbrella purchasers would expose defendants to indeterminate liability and declined to certify a claim on that basis (Shah v LG Chem, Ltd, 2015 ONSC 6148 and Shah v LG Chem, Ltd, 2017 ONSC 2586 respectively). They considered, and rejected, the BCSC’s reasoning in Godfrey. The appeal in that case was heard in Ontario after the BCCA’s ruling in Godfrey and the Court of Appeal there aligned their findings with the BC high court, allowing the action to go forward (Shah v. LG Chem Ltd, 2018 ONCA 819).

The Court (for example in R v Imperial Tobacco Canada Ltd, 2011 SCC 42 [Imperial Tobacco]) has also ruled that in at least some cases where the damages experienced are purely financial in nature, indeterminate liability – circumstances where defendants have no control over the degree of harms suffered by plaintiffs – can nullify a cause of action. The defendants lead by Toshiba relied largely on this line of reasoning.

How the SCC reasoned

First, the Court had to contemplate whether the umbrella purchasers had a viable cause of action under ss 45 and 36 of the Competition Act. In deciding in favour of the plaintiffs on this score, the Court found that the language of the statute in allowing “any person” who has “suffered loss or damage” as a result of a breach of s 45 does not inherently exclude umbrella purchasers (Godfrey, paras 61-68). Further, the Court found that such a reading is in harmony with the overall purpose of the Competition Act to “maintain and encourage competition in Canada” and to provide consumers “with competitive prices and product choices” (Competition Act, s 1.1).

After finding that there was no statutory bar to the umbrella purchasers’ action, the Court turned to the policy question of indeterminate liability and whether common law may prevent the action from going forward. Toshiba, for their part, argued that they had no control over the number of people purchasing from non-defendant companies or over the number of ODDs purchased and should, therefore, be shielded from liability for those losses, as the Court found in Imperial Tobacco (Godfrey, paras 69-70).

In this case, the Court takes note of the theory underlying umbrella purchaser claims. In essence, they say, under certain circumstances a group of companies conspiring to raise the price of a product between them can have an effect on the market price for those products across the board.  In particular, the Court notes, the defendants in this case were alleged to control approximately 94% of the global ODD market and were in a position to move the entire market.

The court went beyond that, though, to find that the only way the defendants could have profited from their alleged scheme is if the cost for ODDs across the board rose, otherwise purchasers would simply switch to lower-priced competitors. And so, the court reasoned, not only were the effects of their alleged price-fixing not indeterminate, they would have been pre-determined by the defendants.

The Court also found additional limiting factors arising from the Competition Act itself to potential liability in this case, namely that umbrella claimants will have to show a) that their  losses were caused by the price-fixing conspiracy; and b) that the defendants intentionally entered into a price-fixing arrangement that they knew or reasonably ought to have known would unduly lessen competition (Godfrey, paras 72-76).

The Takeaway

This case does not resolve the question of whether the defendants in this case are in fact liable to the umbrella purchasers, or even under what circumstances defendants might be liable to umbrella purchasers. That will be a matter for trial or, more likely, settlement. What this case does is remove significant barriers to umbrella purchasers bringing their claims forward, and with that, one hopes, create additional disincentives to anti-competitive conduct by companies who may now fear increased damages awarded against them.