Umbrella damages

The Supreme Court of Canada ruled 8-1 in Pioneer Corp. v. Godfrey that class action lawsuits against electronics giants Pioneer and Toshiba can go ahead, including “umbrella purchasers” as part of the class. It has been alleged that Pioneer and Toshiba engaged in a price-fixing conspiracy to raise the prices of optical disc drives. When they moved the market, other companies who made these drives but weren’t involved in the conspiracy followed suit, giving rise to the class-action suit launched in BC. These “umbrella purchasers” are seeking to sue the two giants in the alleged conspiracy for purchases made from third parties whose prices were affected when the market moved.

“I have concluded that umbrella purchasers do have a cause of action,” wrote Justice Russell Brown for the majority. “It is not plain and obvious that their claim cannot succeed.”

The two appeals, one from Pioneer, the other from Toshiba, were heard and reported jointly, but each dealt with different issues related to the class action. Pioneer’s claim argued that because the action had commenced after the expiration of the statutory limitation period that it should be dismissed. The majority ruled that the doctrine of discoverability rule applied to extend the limitation period.

The majority also ruled that the class could sue under the common law for findings under the Competition Act, and that the class could certify loss as a common issue.

“It was a good day for plaintiffs,” says Linda Visser, partner at Siskinds LLP, who argued at the Supreme Court for Neil Godfrey (who filed the actions). “We think it’s an important decision from an access to justice perspective, and providing clarity in the law in terms of who can bring a claim for price-fixing actions, when those claims than be brought in terms of the limitation analysis, and what types of claims can be brought.”

Visser says that one of the biggest issues in the decision was regarding the umbrella purchasers, as it impacts who can bring claims and the size of the defendant’s potential liability. She also points to the limitation period.

“There is an obvious unfairness if you were to bar people from bringing a claim that there was even a conspiracy,” says Visser. “The majority’s decision was quite helpful in that regard because it recognizes that inherent unfairness.”

In her dissent, Justice Suzanne Côté cited that if the Competition Act were interpreted to allow claimants to recover any losses that flowed from the alleged conspiracy, it would “have the undesirable effect of exposing defendants to liability that is potentially limitless in scope for loss and damage that are too remote from any price-fixing that occurred.”

Visser says that with regards to this concern, she feels the majority got it right.

“The concern about indeterminate liability is a little different with the facts hand,” says Visser. “For the conspiracy to be effective, you need to move the market price generally – that is the intention of entering into these kinds of agreements.”

Nikiforos latrou, an antitrust lawyer and partner with McCarthy Tétrault LLP in Toronto, says that the decision will have a significant impact on future pleadings, as it could drastically increase the number of potential claimants.

“That has ramifications on the size of claims that will be brought because it really widens the pool of potential plaintiffs,” says Iatrou, who was not involved in the case. “We will have to see how judges interpret this – we now know there is no bar on it, so it will fall to judges later to determine at the certification stage whether that particular group of umbrella purchasers in that particular class action can remain as part of the class.”

latrou says he believes that this umbrella purchaser claim will be used a lot going forward.

“The reality is that most of these claims get settled at the certification stage, and the wider the breadth of claim that can be made, the better starting position the plaintiffs will be in for their negotiations of settlement,” says Iatrou.

latrou points to the question that Côté posed at the start of her dissent. “Are courts at a stage where the balance struck by Parliament in Canada’s competition law should be upset by applying new principles of liability for price-fixing cases, resulting in near-automatic certification of class actions?”

latrou believes it will be up to the certification judges in the lower courts to place some safeguards to avoid the spectre of near-automatic certification. “Some of that will turn on how much they will expect of the plaintiffs at the certification stage to see whether a given umbrella damages claim is likely or not likely to succeed.”

Lawyers for Pioneer and Toshiba did not respond to repeated requests for comment by deadline.