Recent decisions from the British Columbia Supreme Court in Latifi v. The TDL Group Corp., 2021 BCSC 2183 and the Federal Court of Canada in Jensen v. Samsung Electronics Co. Ltd., 2021 FC 1185 involved proposed class action suits alleging breaches of the criminal conspiracy provisions in section 45 of the Competition Act. These decisions exemplify an increased willingness by the courts to scrutinize the proposed causes of action and pleadings in determining whether proposed class actions should move forward.
Background
Latifi and Jensen were proposed class action suits. Each alleged breaches of the criminal conspiracy provisions in section 45 of the Act. Private parties can sue for damages suffered as a result of such breaches.
In Latifi, the plaintiff alleged that hiring restrictions among restaurant franchisees (known as “no-poach agreements”) violated section 45 of the Act because they prevented employee poaching between restaurant franchisees. The defendant franchisor successfully struck the plaintiff’s claims – before certification of the class action – on the basis that the Statement of Claim disclosed no reasonable cause of action because the criminal conspiracy provisions of the Act do not apply to buy-side agreements. (“Buy-side agreements” are agreements that involve the purchase or acquisition of goods or services, such as employee services, and in contrast to, supply-side agreements that relate to the sale or supply of products.)
In Jensen, the plaintiffs sought to certify a class action alleging that the manufacturers of dynamic random-access memory (DRAM) chips violated section 45 of the Act by conspiring, through communications in private meetings and through public statements – or “signalling” – to each other, to suppress the supply of DRAM and increase DRAM prices. The defendants successfully argued that certification should be denied as the plaintiffs (i) failed to establish a reasonable cause of action on the facts set out in the Statement of Claim, and (ii) provided no basis in fact for the proposed common issues for the class.
Both Latifi and Jensen were decided at the trial level and may therefore not be the final word if they are appealed.
The Decisions
Buy-side agreements are not captured in section 45 (Latifi)
In Latifi, the British Columbia Supreme Court (the “B.C. Court”) granted the defendant’s application to strike the plaintiff’s claims that the no-poach agreements violated section 45.
The judge agreed with the defendant that section 45, on a plain reading, prohibits agreements or conspiracies between people who compete with one another for the production or supply (but not the purchase) of a product. The B.C. Court held that it was “plain and obvious” that the conspiracy claim against restaurant franchisees was bound to fail because no-poach agreements are not subject to prosecution in Canada under the criminal conspiracy provisions of the Act.
The B.C. Court’s interpretation of section 45 and buy-side agreements is consistent with the Competition Bureau’s approach set out in the Competitor Collaboration Guidelines and the Competition Bureau statement on the application of the Competition Act to no-poaching, wage-fixing and other buy-side agreements. In these Guidelines and Statement, the Bureau has indicated that, based on legal advice, it would consider buy-side agreements for the purchase of products and services, including employee no-poaching and wage-fixing agreements, to fall outside the ambit of section 45. The B.C. Court agreed with the plaintiff that the Bureau’s statements are “neither binding nor determinative” and that conclusions about the meaning of section 45 “do not turn” on the consideration of the Bureau’s interpretation.
Evidence of an agreement among competitors cannot be speculative (Jensen)
In Jensen, the Federal Court (the “Court”) denied the plaintiffs’ certification motion on two grounds.
The plaintiffs failed to plead a reasonable cause of action
The Court held that it was “plain and obvious” that the plaintiffs’ claim could not succeed. The Statement of Claim lacked detail and contained only vague and general allegations that amounted to a fishing expedition. None of the statements relied on by the plaintiffs suggested that the defendants had reached an unlawful agreement with their competitors, whether on DRAM supply or prices. Rather, the pleadings were consistent with the defendants’ engagement in lawful unilateral conduct and conscious parallelism (where competitors adopt similar or identical business practices or pricing absent any agreement to limit competition). The pleadings, therefore, did not adequately disclose a conspiracy between the defendants.
The plaintiffs failed to provide any factual basis for the alleged conspiracy
The plaintiffs offered no evidence that supported an allegation that the defendants were parties to a coordinated restriction of DRAM supply and had made an agreement in breach of section 45 of the Act. There was not a scintilla of evidence regarding any investigations undertaken in Canada, or anywhere else, besides allegedly in China. The court indicated that this was a "very rare" situation in the context of competition class actions, where plaintiffs often rely on the existence of ongoing investigations, criminal charges, guilty pleas, etc.
The plaintiffs also relied on public statements made by the defendant parties regarding DRAM supply. None of the public statements relied on showed that the defendants suppressed, restricted, or limited DRAM supply. The public statements showed the opposite: that the defendants expected increases in DRAM supply during the class period, but that this growth lagged behind the growth in demand. Accordingly, the plaintiffs’ evidence fell short of demonstrating some basis in fact.
Key Take-Aways
- Courts are showing an increased willingness to scrutinize the proposed causes of action and pleadings in determining whether proposed class actions should move forward.
- Buy-side agreements, including no-poach agreements, among competitors are unlikely to fall within the ambit of the conspiracy provisions of the Act.
- Pleadings or evidence of conscious parallelism are not enough to ground a conspiracy claim.
- The Federal Court may be reluctant to certify price-fixing class actions where the conspiracy pleadings are based on bald statements, if the alleged misconduct is consistent with unilateral conduct or conscious parallelism and when there is an absence of some basis in fact to support the allegations. While persuasive, decisions from the Federal Court are not binding on provincial superior courts.
