Cartel Conduct: Courts Dismiss Conspiracy Allegations In Proposed Class Actions | Stikeman Elliott LLP


Recent decisions of the Supreme Court of British Columbia in Latifi c. The TDL Group Corp., 2021 BCSC 2183 and the Federal Court of Canada in Jensen v. Samsung Electronics Co. Ltd., 2021 FC 1185 involved the proposed class actions alleging violations of the criminal conspiracy provisions in section 45 of the Competition law. These decisions illustrate an increased willingness by courts to consider causes of action and proposed pleadings to determine whether proposed class actions should proceed.

Fund

Latifi and Jensen have been proposed class actions. Each of the alleged offenses against the criminal conspiracy provisions of section 45 of the Act. Private parties can sue for damages suffered as a result of such violations.

In Latifi, the plaintiff alleged that the restrictions on hiring among franchised restaurants (known as “no-poaching agreements”) violated section 45 of the Act because they prevented employees from poaching between franchised restaurants. The defendant franchisor successfully struck out the plaintiff’s claims – prior to the certification of the class action – on the grounds that the statement disclosed no reasonable cause of action because the provisions of the Criminal Conspiracy Act do not apply to agreements purchase. (“Purchase agreements” are agreements that involve the purchase or acquisition of goods or services, such as employee services, and unlike supply agreements that relate to the sale or supply of products. )

In Jensen, the plaintiffs sought to certify a class action suit 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 public statements – or “signaling” – to each other, to suppress DRAM supply and increase DRAM prices. The defendants successfully argued that certification should be refused because 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 factual basis for the common questions proposed to classify it.

Both Latifi and Jensen were decided at first instance and therefore may not be the last word in the event of an appeal.

The decisions

Purchase agreements are not taken into account in article 45 (Latifi)

In Latifi, the Supreme Court of British Columbia (the “British Columbia Court”) allowed the defendant’s request to strike out the plaintiff’s allegations that the no-poaching agreements violated section 45.

The judge agreed with the defendant that section 45, on its face, prohibits agreements or conspiracies between people who compete for the production or supply (but not the purchase) of a product. The British Columbia Court ruled that it was “plain and obvious” that the conspiracy charge against restaurant franchisees was doomed because no-poaching agreements were not subject to prosecution in Canada under the provisions of the Criminal Conspiracy Act.

The British Columbia Court’s interpretation of Section 45 and the Purchase Agreements is consistent with the Competition Bureau’s approach set out in the Guidelines for Collaboration between Competitors and the Competition Bureau Statement on the Application of the Competition Act to Prohibition of Poaching, Wage Fixing and Other Purchase Agreements. In this guidelines and statement, the Bureau indicated that, based on legal advice, it would consider purchase agreements for the purchase of products and services, including non-poaching and fixation agreements wages of employees, do not fall within the scope of section 45. The British Columbia Court agreed with the plaintiff that the Office’s statements are “not binding or determinative” and that the findings on meaning of Article 45 “do not depend” on the examination of the interpretation of the Bureau.

Proof of an agreement between competitors cannot be speculative (Jensen)

In Jensen, the Federal Court (the “Court”) dismissed the plaintiffs’ motion for certification on two grounds.

Plaintiffs failed to plead a reasonable cause of action

The court ruled that it was “clear and obvious” that the plaintiffs’ claim could not be successful. The statement 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 illegal agreement with their competitors, either on the provision of DRAM or on prices. On the contrary, the pleadings were consistent with the defendants’ engagement in lawful unilateral behavior and conscious parallelism (where competitors adopt similar or identical business practices or prices in the absence of any agreement to limit competition. ). The pleadings therefore did not adequately disclose a conspiracy between the defendants.

The applicants provided no factual basis for the alleged conspiracy

The plaintiffs presented no evidence to support an allegation that the defendants were parties to a coordinated restriction of the supply of DRAMs and entered into an agreement in violation of section 45 of the Act. There was not the slightest evidence of any investigations undertaken in Canada or elsewhere, except allegedly in China. The court said 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 defendants regarding the provision of DRAMs. None of the public statements relied on showed that the defendants had withdrawn, restricted or limited the supply of DRAM. Public statements showed the opposite: that the defendants expected increases in the supply of DRAM during the period of the action, but that this growth lagged behind the growth in demand. Therefore, the applicants’ evidence failed to demonstrate some factual basis.

Key points to remember

  • Courts are showing an increased willingness to scrutinize causes of action and proposed pleadings to determine whether proposed class actions should proceed.
  • Purchasing agreements, including no-poaching agreements, between competitors are unlikely to fall under the provisions of the Conspiracy Act.
  • Pleadings or evidence of conscious parallelism are not sufficient to substantiate an allegation of conspiracy.
  • The Federal Court may be reluctant to certify price-fixing class actions when the conspiratorial acts are based on meaningless statements, if the alleged misconduct is consistent with unilateral conduct or conscious parallelism, and when there is no factual basis to support the claims. . While convincing, the Federal Court decisions are not binding on the provincial superior courts.
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