Indirect purchasers in Canada – do they have cause for action? Two sides of the argument

  • July 11, 2012
  • Becky Rynor

If you have a liquid-crystal display TV screen – or, predating that, a cathode ray screen – lawyer J.J. Camp says you have been the victim of price-fixing.

“The memory in that TV, the dynamic random access memory, was price-fixed,” says Camp. The companies involved pleaded guilty, he says, to the tune of “hundreds and hundreds of millions of dollars.”

As the indirect purchasers of those bits of electronic gadgetry  – after the manufacturers, distributors, wholesalers and retailers or direct purchasers – should consumers have their claims or class actions recognized by the courts? Camp’s Vancouver firm, Camp, Fiorante, Mathews, Mogerman, is currently handling “about a dozen” of these cases. He figures it’s a no-brainer.

“On the assumption that the consumers paid the overcharge, it tortures common sense to think otherwise. There is no doubt that the indirect purchasers – almost invariably the consumers – pay the overcharge,” he says. “Why on earth would they not have the right to bring suit?”

But indirect purchaser class action litigations are the topic of heated debate in legal circles, with lawyers such as Camp on one side, and lawyers such as Adam Fanaki, a competition lawyer and litigator, on the other. As part of his practice with Davies, Ward, Phillips and Vineberg in Toronto, Fanaki advises companies on cartel investigations and related class actions.

He points to two decisions by the B.C. Court of Appeal last May – Pro-Sys Consultants Ltd. v. Microsoft Corp., and Sun-Rype Products Ltd v. Archer Daniels Midland Co. – which held that indirect purchasers of products which have allegedly been involved in price fixing “have no cause of action maintainable in law.” The decisions mark the first time a court has held conclusively that indirect purchaser actions are not available in Canada as a matter of law. Those decisions were appealed to the Supreme Court of Canada in October. Fanaki acted as counsel for the Canadian Chamber of Commerce, one of the intervenors before the Supreme Court.

The SunRype case involved allegations that the manufacturers of high-fructose corn syrup conspired to fix prices on the syrup, a sweetener used in a wide variety of products. Fanaki says the manufacturer sold the corn syrup to companies which could have added it to products such as, for example, breakfast cereal, which is then sold to a grocery store, then bought by customers.

“Now, as the consumer, I am one of the indirect purchasers of that high-fructose corn syrup,” he says. “At each stage of the distribution chain the price is being marked up as the product makes its way into the hands of the distributor, the manufacturer, then to the grocery store. At each stage of that process the price is changing and the syrup becomes an increasingly smaller – almost immaterial – part of the overall cost of the product.”

He agrees direct purchasers are perfectly capable of suing and recovering the losses that are suffered as a result of alleged cartel conduct. “If we look at the vast majority of cases that have been resolved through court approved settlements, they include significant payments being made to direct purchasers.”

But when it comes to class actions by indirect purchasers, Fanaki sides with the B.C. Court of Appeal.

“In that cereal example, how much more did you pay for the cereal as a result of the increase in the cost of the high-fructose corn syrup, if that happened? It’s virtually impossible to determine that or to try to isolate an element of that to say there has been a cost increase.”

Fanaki also argues class action on behalf of indirect purchasers could lead to “double recovery.”

“In practical terms, permitting direct purchasers to recover all of the alleged overcharge while at the same time giving indirect purchasers the right to sue for damages in relation to the very same overcharge means that a defendant could face liability in respect of the same loss at least twice to different plaintiffs.”

“Nobody is looking for more than recovery on the basis of what the overcharge was,” says J.J. Camp. “Not a single person in Canada has ever argued in favour of multiple damages. What we ask is that the whole of the overcharge be disgorged and disgorged only once and that it be distributed to the people who paid the overcharge.”  He charges “it defies logic,” to say consumers and other indirect purchasers don’t have a cause of action in these cases.

“The indirect purchasers are almost invariably the ones who suffer the harm, that is to say they pay the overcharge,” he says. “The people who fix prices get away with it for years and years on many of these price-fixing cases and who knows how many of these cases we actually find out about. The scholarship in this area suggests it’s as few as one in six that gets uncovered. The U.S. goes after these companies with a vengeance. We don’t do that in Canada.”

Camp says it is his understanding that the Competition Bureau – which investigates cases like this – is under-resourced and not able to aggressively pursue many cartelists.  “For instance, a vitamins case I had many years ago in conjunction with other lawyers across Canada, they prosecuted those multinational, international price-fixing firms and they recovered $100 million in fines. None of that money stayed with the Competition Bureau. It all went into the general coffers of the government. Yet the Competition Bureau is stretched for staffing and resources to do further prosecutions.”

Fanaki says in class actions involving indirect purchasers, it is typical that “consumers receive nothing. These settlements typically involvecy-près payments. Those are payments that are made to charities and other associations in lieu of payments being made to consumers. The reason that is happening is because it is too difficult to determine whether indirect purchasers have actually suffered a loss.”

Ultimately the Supreme Court of Canada will have to settle this legal debate. In the meantime, J.J. Camp says he is moving forward in a case in which the Competition Bureau is investigating chocolate companies Mars, Cadbury, Nestle and Hershey in an alleged price-fixing action.

“We’ve settled at just over $20 million against the companies that allegedly fixed prices. We’re moving to get the settlement approved and we’re moving to get the distribution protocol approved. But we do have a guideline in our distribution that 75 per cent of the settlement monies remaining after legal fees and expenses will go to consumers,” he says. “It has to be a cheque worth cutting; you don’t have to prove receipts – you have to file a sworn declaration that you consumed ‘X’ amount of chocolate over the two years or more that these prices were fixed and you’ll get a cheque.”

Becky Rynor is a freelance journalist in Ottawa.