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Ruling opens door to umbrella purchaser suits

A recent Divisional Court decision to grant leave to plaintiffs of an uncertified part of a class action lawsuit opens the door to an increase of claims brought by what’s known as umbrella purchasers, some competition lawyers say.

Ruling opens door to umbrella purchaser suits
Paul-Erik Veel says allowing claims involving umbrella purchasers means defendants could be liable for decisions by third parties they don’t control.Photo: Robin Kuniski
The Divisional Court granted leave to the plaintiffs of claims in Shah v. LG Chem, Ltd., which concerns allegations that a number of companies were part of a global price-fixing conspiracy on lithium-ion batteries.

The motion judge, Superior Court Justice Paul Perell, certified the action.

However, he refused to certify claims relating to unlawful means conspiracy and those advanced on behalf of umbrella purchasers — claimants who did not buy batteries directly from the defendants but allege they were indirectly affected because of a boost in price in batteries they bought from other companies, who were not part of the alleged conspiracy.

Some competition lawyers say the decision to grant leave to the umbrella purchaser claim could potentially lead to an increase in these sorts of claims while the issue makes its way through the courts.

Paul-Erik Veel, a lawyer at Lenczner Slaght Royce Smith Griffin LLP, says part of the problem with allowing such claims to proceed is that it will mean defendants could be liable for the pricing decisions of third parties over which they have no control.

“If you’re going to allow claims by umbrella purchasers, these class actions are now going to have to get into what the prices of those third-party manufacturers would have been in the absence of the conspiracy, how they made their pricing decisions, what their volume of sales were — all of that. And those are complicated enough questions in existing class actions when everyone is a party to the proceeding,” says Veel, who is not involved in the case.

“It gets a lot more complicated when all of a sudden you’ve got non-parties that no one has an automatic right of discovery against.”

In a companion class action suit that has started in B.C. — Godfrey v. Sony Corporation — the judge reached the opposite decision of Perell, and certified the umbrella purchaser claim.

The Divisional Court decided to grant appeal on the claim advanced on behalf of umbrella purchasers because of the conflicting Godfrey decision.

Nikiforos Iatrou, a competition lawyer at WeirFoulds LLP, says defendants will likely have a harder time knocking out these kinds of claims at preliminary stages as this issue makes its way through the higher courts.

He says granting leave in this situation is consistent with what he called a “developing trend of permissiveness with respect to competition class actions.”

Iatrou says that ever since a Supreme Court of Canada decision in 2013 called Pro-Sys Consultants Ltd. v. Microsoft Corp., the courts have been more permissive when it comes to indirect purchaser suits.

“The Supreme Court basically opened the door for indirect purchasers to be able to sue,” says Iatrou, who is not involved in the case.

“So that was a big win for the plaintiffs bar and it’s part of this trend we’re seeing developing of the Canadian environment becoming quite conducive to competition class actions.”

The other part of the claim that was not certified and granted leave was a claim relating to unlawful means conspiracy.

For an unlawful means of conspiracy, which is a tort, to proceed, the plaintiffs need to show that an unlawful element occurred.

In the Shah case, the plaintiffs argued that an alleged breach of a section of the Competition Act was an unlawful element.

But Perell determined that the Competition Act is a “complete code” and, therefore, a breach of part of the act “cannot be used as the ‘unlawful’ element in advancing the claim.”

The Divisional Court granted leave to the plaintiffs to appeal the refusal of the certification of this claim, citing the existence of decisions that conflicted with that of Perell, such as Pro-Sys.

Michael Osborne, a competition lawyer with Affleck Greene McMurtry LLP, says the Supreme Court has already said in A.I. Enterprises Ltd. v. Bram Enterprises Ltd. that a breach of a statute such as the Competition Act cannot be the foundation for the unlawful means conspiracy.

However, Osborne says there are a number of conflicting decisions in cases on the complete code issue that will require some clarification from the Supreme Court of Canada.

“It’s a mess and it’s going to have to be resolved by the Supreme Court,” he says.

As for the claims concerning umbrella purchasers, Veel says he would not be surprised if the issue receives a lot more attention from appellate courts and eventually the Supreme Court.

“This is one of those issues that’s coming up in virtually every competition certification decision as of late, and it’s one that’s going to need to be resolved,” he says.

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