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Provincial and Federal Courts Decline to Advance Competition Act Claims in Proposed Class Actions

Provincial and Federal Courts Decline to Advance Competition Act Claims in Proposed Class Actions
November 11, 2021

Two decisions recently rendered by the Supreme Court of British Columbia (B.C. Court) and the Federal Court of Canada (Federal Court) suggest a growing judicial willingness to limit, or even put an end to, proposed class actions based on allegations of a breach of the Competition Act. Both decisions, Latifi v. The TDL Group Corp. rendered by the B.C. Court on November 9, 2021 (Latifi), and Jensen v. Samsung Electronics Co., Ltd. rendered by the Federal Court on November 5, 2021 (Jensen), provide important guidance for proposed competition law related class actions.

LATIFI V. THE TDL GROUP CORP.

Background

In Latifi, the plaintiff alleged that a term in the defendant’s franchise agreement requiring franchisees not to poach employees from restaurant brand locations operated by other franchisees or the franchisor suppressed the employees’ wages and brought a claim based on section 36 of the Competition Act for violation of the criminal conspiracy provision in section 45 of the Competition Act, as well as tortious conspiracy, and unjust enrichment. The defendant, represented by Blakes, applied to dismiss the plaintiff’s claim on the basis that section 45 of the Competition Act does not prohibit “buy-side” agreements and that the claim did not otherwise disclose a cause of action.

Decision

  • The Court granted the defendant’s application to strike the claim related to the Competition Act, concluding that section 45 of the Competition Act, and thus section 36, only apply to “sell-side” agreements among competing suppliers of products, not to “buy-side” agreements for the purchase of products.

  • The Court concluded that the contractual “restraint of trade” doctrine (which sometimes applies to non-compete and non-solicitation clauses) could not provide the “unlawful means” for advancing an in unlawful conspiracy claim, as the purpose of the doctrine is to protect contracting parties, not strangers to contracts.

  • The Court struck the claim for unjust enrichment, holding that breach of a corporate policy alone, contrary to the plaintiff’s assertion, cannot negate the juristic reason for any enrichment that occurred—in this case, the contractual obligations between the franchisor and its franchisees. 

Key Takeaways

  • Pre-certification applications, if available, provide an efficient means of narrowing the scope of a proposed class action before the certification hearing.

  • “Buy-side” agreements among competitors do not contravene the criminal conspiracy provision in section 45 of the Competition Act.

  • A plaintiff cannot rely on a restraint of trade in a contract between two other parties to which the plaintiff is a stranger to ground an unlawful means element for the tort of unlawful means conspiracy claim.

JENSEN V. SAMSUNG ELECTRONICS CO., LTD.

In Jensen, the Federal Court denied certification of a class action alleging a conspiracy that breached the Competition Act with respect to Dynamic Random Access Memory (DRAM) chips. Justice Gascon’s decision contains an extensive discussion of the need for specific facts that suggest an actual agreement between competitors, and the continued importance of certification as a meaningful screening device to ensure that defendants are not forced to defend themselves against unsupported claims.

Background

The plaintiffs in Jensen requested certification of a class action alleging that the three leading manufacturers of DRAM chips conspired to limit their global supply (and thereby raise prices) through unspecified communications and through public statements “signalling” each other in violation of section 45 of the Competition Act. The defendants opposed certification on the basis that the plaintiffs failed to establish that a reasonable cause of action exists on the facts set out in the claim, and provided no basis in fact for the proposed common issues for the class.

Decision

  • The Federal Court denied the motion for certification, concluding that it was “plain and obvious” that the plaintiffs did not provide sufficient particularity of any alleged conspiracy, and thus no basis in fact that the claims raised common questions. The Federal Court noted that where there are no guilty pleas or convictions, nor investigation by the Competition Bureau or any foreign antitrust authority, it will be difficult for plaintiffs to adequately support allegations of a conspiracy.

  • In finding that the plaintiffs’ claim was “doomed to fail”, the Federal Court found that “pleadings cannot boil down to mere speculation or a fishing expedition”, instead, pleadings must detail “who, when, where, how, and what” of an alleged agreement in order to give rise to the defendant’s liability. The Federal Court also noted that Canadian law has long recognized that ‘conscious parallelism’ is not prohibited, and that attendance at trade association meetings and public statements by the businesses are not sufficient to suggest an illegal agreement.

  • The Federal Court found that section 45 conspiracy claims cannot be permitted to proceed on “wishful thinking”, holding that “the procedural dimension of class proceedings was never meant to downsize the certification process to a meaningless one, or to become a fig leaf to cover the naked shortcomings of a plaintiff’s motion” (para 294).

  • The Federal Court reaffirmed that the hurdle for plaintiffs on certification is not “subterranean”, and the certification process is there to prevent defendants from facing groundless suits and from being forced to invest significant resources to contest large-scale, time-consuming actions that do not have an evidentiary foundation.

Key Takeaways

  • Plaintiffs must plead material facts with sufficient detail to support the existence of a conspiracy in violation of the Competition Act ― the who, when, where, how and what of the alleged agreement(s).

  • Conscious parallelism and unilateral signalling of price increases are not sufficient on their own to suggest the existence of an illegal agreement.

  • Certification remains a meaningful screen in determining whether matters should proceed on a class basis in competition law related cases.

If you have any questions regarding these developments, please do not hesitate to contact your usual Blakes contact or any member of the Blakes Competition, Antitrust & Foreign Investment group or the Litigation & Dispute Resolution group.