Canadian Supreme Court: No such thing as passing on defence

On Thursday last week the Supreme Court of Canada handed down three much-anticipated judgments concerning indirect purchaser claims. The trio of cases point towards a distinctive, and in many respects more claimant-friendly, approach to class actions than that adopted in the US. They will therefore be essential reading for those preparing for the proposed new collective action regimes here in Europe.

Of even greater interest (from a European perspective) is the Court’s rejection of the passing-on defence – i.e. the defence that a claimant ‘passed on’ some or all of the unlawful overcharges to its own customers. In the large majority of European countries, including England, the courts have yet to decide whether to recognise such a defence (its existence was assumed but not debated in the Devenish case).

The passing on issue was addressed in the first of the three cases, Pro‑Sys Consultants Ltd v Microsoft Corporation 2013 SCC 57. The claimants had restitutionary claims, tortious claims, and claims under the Canadian Competition Act. In rejecting the passing-on defence, the Court endorsed the view (expressed in an earlier case) that:

“[i]t is not generally open to a wrongdoer to dispute the existence of a loss on the basis it has been ‘passed on’ by the plaintiff” because this would burden courts with “the endlessness and futility of the effort to follow every transaction to its ultimate result”.

The Court also went on to hold that, notwithstanding its rejection of the passing-on defence, indirect purchasers are still entitled to bring claims. In that regard, the Canadian approach differs from that in the U.S., where the rejection of the passing on defence led to the rejection (at Federal level) of indirect purchaser claims. This feature of the Pro-Sys Consultants decision also makes the case particularly interesting from the point of view of the debate in Europe, where indirect purchasers are entitled to bring claims.

The typical objection to the Canadian approach (no passing-on defence but indirect purchaser claims allowed) is that it may lead to double-recovery: direct purchasers could claim the whole overcharge; and in addition, indirect purchasers could claim that part of the overcharge which was passed on to them. However, the Court rejected that objection. It noted, firstly, that the relatively short limitation period, combined with the complexity of competition claims, means that the courts assessing damages will generally know whether there are any other claims pending for the same infringement. Secondly, it observed that in such circumstances the courts are able to craft their damages awards so as to avoid double-recovery. In other words, if direct and indirect purchasers are both before the court, the direct purchasers will not get that part of the overcharge which was passed on to the indirect purchasers.

The European Commission has recently proposed a draft Directive which would require national courts to recognise the passing on defence. Unless and until that becomes law, however, the debate remains wide open. The Canadian decision in Pro‑Sys Consultants is therefore set to rank alongside the famous decision of the US Supreme Court, Hanover Shoe, Inc v United Shoe Machinery Corp., 392 U.S. 481 (1968), as powerful authority for European claimants seeking to draw comparisons with antitrust law elsewhere.

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