Pro-Sys Consultants Ltd. v. Neil Godfrey, 2013 SCC 57

SUPREME COURT OF CANADA Citation: Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, [2013] 3 S.C.R. 477 Date: 20131031 Docket: 34282 Between: Pro-Sys Consultants Ltd. and Neil Godfrey Appellants and Microsoft Corporation and Microsoft Canada Co./Microsoft Canada CIE Respondents - and - Attorney General of Canada Intervener Coram: McLachlin C.J. and LeBel, Fish, Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner JJ.

Reasons for Judgment: (paras. 1 to 143) Rothstein J. (McLachlin C.J. and LeBel, Fish, Abella, Cromwell, Moldaver, Karakatsanis and Wagner JJ. concurring) Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, [2013] 3 S.C.R. 477 Pro-Sys Consultants Ltd. and Neil Godfrey Appellants v. Microsoft Corporation and Microsoft Canada Co./Microsoft Canada CIE Respondents and Attorney General of Canada Intervener Indexed as: Pro-Sys Consultants Ltd. v. Microsoft Corporation 2013 SCC 57

File No.: 34282. 2012: October 17; 2013: October 31.

Present: McLachlin C.J. and LeBel, Fish, Abella, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner JJ. on appeal from the court of appeal for british columbia Civil procedure — Class actions — Certification — Indirect purchasers — Plaintiffs suing defendants for unlawful conduct in overcharging for its PC operating systems and PC applications software — Plaintiffs seeking certification of action as class proceeding under provincial class action legislation — Whether indirect purchaser actions are available as a matter of law in Canada — Whether certification requirements are met — Class Proceedings Act, R.S.B.C. 1996, c. 50, s. 4(1) .

P brought a class action against M, alleging that beginning in 1988, M engaged in unlawful conduct by overcharging for its Intel-compatible PC operating systems and Intel-compatible PC applications software. P sought certification of the action as a class proceeding under the Class Proceedings Act , R.S.B.C. 1996, c. 50 (“ CPA ”). The proposed class is made up of ultimate consumers, known as “indirect purchasers”, who acquired M’s products from re-sellers. The British Columbia Supreme Court found that the certification requirements set out in s. 4(1) of the CPA were met and certified the action.

The majority of the Court of Appeal allowed M’s appeal, set aside the certification order and dismissed the action, determining that indirect purchaser actions were not available as a matter of law in Canada and therefore that the class members had no cause of action under s. 4(1)(

a) of the CPA . Held : The appeal should be allowed. Indirect purchasers have a cause of action against the party who has effectuated the overcharge at the top of the distribution chain that has allegedly injured the indirect purchasers as a result of the overcharge being “passed on” to them through the chain of distribution. The argument that indirect purchasers should have no cause of action because passing on has been rejected as a defence in Canada should fail.

The passing-on defence, which was typically advanced by an overcharger at the top of a distribution chain, was invoked under the proposition that if the direct purchaser who sustained the original overcharge then passed that overcharge on to its own customers, the gain conferred on the overcharger was not at the expense of the direct purchaser because the direct purchaser suffered no loss. As such, the fact that the overcharge was “passed on” was argued to be a defence to actions brought by the direct purchaser against the party responsible for the overcharge.

This defence has been rejected by this Court in Kingstreet Investments Ltd. v. New Brunswick (Finance) , 2007 SCC 1 , [2007] 1 S.C.R. 3, and that rejection is not limited to the context of the imposition of ultra vires taxes; the passing-on defence is rejected throughout the whole of restitutionary law. However, the rejection of the passing-on defence does not lead to a corresponding rejection of the offensive use of passing on. Therefore, indirect purchasers should not be foreclosed from claiming losses passed on to them.

The risk of double or multiple recovery where actions by direct and indirect purchasers are pending at the same time or where parallel suits are pending in other jurisdictions can be managed by the court. Furthermore, indirect purchaser actions should not be barred altogether solely because of the likely complexity associated with proof of damages. In bringing their action, the indirect purchasers willingly assume the burden of establishing that they have suffered loss, and whether they have met their burden of proof is a factual question to be decided on a case-by-case basis.

In addition, allowing the offensive use of passing on will not frustrate the deterrence objectives of Canadian competition laws. Indirect purchaser actions may, in some circumstances, be the only means by which overcharges are claimed and deterrence is promoted. Finally, allowing indirect purchaser actions is consistent with the remediation objective of restitution law because it allows for compensating the parties who have actually suffered the harm rather than reserving these actions for direct purchasers who may have in fact passed on the overcharge.

The first requirement for certification at s. 4(1) of the CPA requires that the pleadings disclose a cause of action. A plaintiff satisfies this requirement unless, assuming all facts pleaded to be true, it is plain and obvious that the plaintiff’s claim cannot succeed. In the case at bar, the pleadings disclose causes of action that should not be struck out at this stage of the proceedings. First, it cannot be said that the pleadings do not disclose a cause of action under s. 36 of the Competition Act .

The contention that the s. 36 cause of action is not properly pleaded because it was not included in the statement of claim and that any attempt to add it now would be barred by the two-year limitation period contained in s. 36(4) of the Act is purely technical and should be rejected. The argument that the Competition Tribunal should have jurisdiction over the enforcement of the competition law should also be rejected, since s. 36 expressly confers jurisdiction on the court to entertain the claims of any person who suffered loss by virtue of a breach of

Part VI of the Act. Next, it is not plain and obvious that the claim in tort for predominant purpose conspiracy cannot succeed. The contention that the tort of predominant purpose conspiracy is not made out because the statement of claim fails to identify one true predominant purpose and instead lists overlapping purposes should fail at this stage of the proceedings.

Similarly, the argument that the predominant purpose conspiracy claim should be struck as it applies to an alleged conspiracy between a parent corporation and its subsidiaries should fail because it is not plain and obvious that the law considers parent and wholly-owned subsidiary corporations to always act in combination. Similarly, at this point, it is not plain and obvious that there is no cause of action in tort for unlawful means conspiracy or intentional interference with economic interests.

These alleged causes of action must be dealt with summarily as the proper approach to the unlawful means requirement common to both torts is presently under reserve in this Court in Bram Enterprises Ltd. v. A.I. Enterprises Ltd. , 2012 NBCA 33 , 387 N.B.R. (2d) 215, leave to appeal granted, [2012] 3 S.C.R. v. Depending on the decision of this Court in Bram , it will be open to M to raise the matter at trial should it consider it advisable to do so.

With respect to the restitutionary claim in unjust enrichment, it is not plain and obvious that it cannot succeed. With respectto the argument that any enrichment received by M came from the direct purchasers and not from the class members, and that this lack ofa direct connection between it and the class members forecloses the claim of unjust enrichment, it is not plain and obvious that a claim inunjust enrichment will be made out only where the relationship between the plaintiff and the defendant is direct.

The question ofwhether the contracts between M and the direct purchasers and the contracts between the direct purchasers and the indirect purchasers,which could constitute a juristic reason for the enrichment, are illegal and void should not be resolved at this stage of the proceedingsand must be left to the trial judge. The pleadings based on constructive trust must be struck. In order to find that a constructive trust is made out, the plaintiffmust be able to point to a link or causal connection between his or her contribution and the acquisition of specific property.

In thepresent case, there is no referential property. P makes a purely monetary claim. As the claim neither explains why a monetary award isinappropriate or insufficient nor shows a link to specific property, the claim does not satisfy the conditions necessary to ground aconstructive trust. On the pleadings, it is plain and obvious that this claim cannot succeed. Finally, it is not plain and obvious that a cause of action in waiver of tort would not succeed. There is contradictory law asto the question of whether the underlying tort needs to be established in order to sustain an action in waiver of tort.

This appeal is not theproper place to resolve the details of the law of waiver of tort, nor the particular circumstances in which it can be pleaded. The starting point in determining the standard of proof to be applied to the remaining certification requirements is thestandard articulated in this Court’s decision in Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158: the class representative mustshow some basis in fact for each of the certification requirements set out in the provincial class action legislation, other than therequirement that the pleadings disclose a cause of action.

The certification stage is not meant to be a test of the merits of the action,rather, this stage is concerned with form and with whether the action can properly proceed as a class action. The standard of proof asksnot whether there is some basis in fact for the claim itself, but rather whether there is some basis in fact which establishes each of theindividual certification requirements. Although evidence has a role to play in the certification process, the standard of proof does notrequire evidence on a balance of probabilities.

The certification stage does not involve an assessment of the merits of the claim and isnot intended to be a pronouncement on the viability or strength of the action, rather, it focuses on the form of the action in order todetermine whether the action can appropriately go forward as a class proceeding. Each case must be decided on its own facts.

Theremust be sufficient facts to satisfy the applications judge that the conditions for certification have been met to a degree that should allowthe matter to proceed on a class basis without foundering at the merits stage by reason of the requirements not having been met. In the case at bar, the applications judge’s finding that the claims raised common issues is entitled to deference.

In order toestablish commonality, evidence that the acts alleged actually occurred is not required, rather, the factual evidence required at this stagegoes only to establishing whether these questions are common to all the class members. With respect to the common issues that askwhether loss to the class members can be established on a class-wide basis, they require the use of expert evidence in order forcommonality to be established.

The expert methodology must be sufficiently credible or plausible to establish some basis in fact for thecommonality requirement — it must offer a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge iseventually established at the trial of the common issues, there is a means by which to demonstrate that it is common to the class. Themethodology cannot be purely theoretical or hypothetical, but must be grounded in the facts of the particular case in question, and theremust be some evidence of the availability of the data to which the methodology is to be applied.

Resolving conflicts between the expertsis an issue for the trial judge and not one that should be engaged in at certification. The applications judge’s decision to certify as common issues whether damages can be determined on an aggregate basis andif so, in what amount, should not be disturbed. The question of whether damages assessed in the aggregate are an appropriate remedycan be certified as a common issue. However, this common issue should only be determined at the common issues trial after a finding ofliability has been made.

The ultimate decision as to whether the aggregate damages provisions of the CPA should be available is onethat should be left to the common issues trial judge. The failure to propose or certify aggregate damages, or another remedy, as acommon issue does not preclude a trial judge from invoking the provisions if considered appropriate. The applications judge’s finding that the class action is the preferable procedure should not be interfered with. In the presentcase, there are common issues related to the existence of the causes of action and there are also common issues related to loss to the classmembers.

The loss-related issues can be said to be common because there is an expert methodology that has been found to have arealistic prospect of establishing loss on a class-wide basis. If the common issues were to be resolved, they would be determinative ofM’s liability and of whether passing on of the overcharge to the indirect purchasers has occurred. Because such determinations will beessential in order for the class members to recover in this case, a resolution of the common issues would significantly advance the action. Cases Cited Referred to: Sun-Rype Products Ltd. v.

Archer Daniels Midland Co., 2011 BCCA 187, 305 B.C.A.C. 55, aff’d 2013 SCC58, [2013] 3 S.C.R. 545; Infineon Technologies AG v. Option consommateurs, 2013 SCC 59, [2013] 3 S.C.R. 600; Hanover Shoe, Inc. v.United Shoe Machinery Corp., 392 U.S. 481 (1968); Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1, [2007] 1S.C.R. 3; Commissioner of State Revenue (Victoria) v. Royal Insurance Australia Ltd. (1994), 182 C.L.R. 51; British Columbia v.Canadian Forest Products Ltd., 2004 SCC 38, [2004] 2 S.C.R. 74; Southern Pacific Co. v. Darnell-Taenzer Lumber Co., 245 U.S. 531(1918); Illinois Brick Co. v.

Illinois, 431 U.S. 720 (1977); Multiple Access Ltd. v. McCutcheon, (SCC), [1982] 2 S.C.R.161; Chadha v. Bayer Inc. (2003), (ON CA), 63 O.R. (3d) 22; California v. ARC America Corp., 490 U.S. 93 (1989);Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261; Hunt v. Carey Canada Inc., (SCC),[1990] 2 S.C.R. 959; Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158; Mulcahy v. The Queen (1868), L.R. 3 H.L. 306;Golden Capital Securities Ltd. v. Holmes, 2004 BCCA 565, 205 B.C.A.C. 54; Canada Cement LaFarge Ltd. v.

British ColumbiaLightweight Aggregate Ltd., (SCC), [1983] 1 S.C.R. 452; Smith v. National Money Mart Co. (2006), (ON CA), 80 O.R. (3d) 81, leave to appeal refused, [2006] 1 S.C.R. xii; Correia v. Canac Kitchens, 2008 ONCA 506, 91 O.R. (3d) 353;OBG Ltd. v. Allan, [2007] UKHL 21, [2008] 1 A.C. 1; Bram Enterprises Ltd. v. A.I. Enterprises Ltd., 2012 NBCA 33, 387 N.B.R. (2d)215, leave to appeal granted, [2012] 3 S.C.R. v; Garland v. Consumers’ Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629; Rathwell v.Rathwell, (SCC), [1978] 2 S.C.R. 436; Pettkus v. Becker, (SCC), [1980] 2 S.C.R. 834; Peel (Regional

Municipality) v. Canada, (SCC), [1992] 3 S.C.R. 762; Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269; UnitedAustralia, Ltd. v. Barclays Bank, Ltd., [1941] A.C. 1; Serhan (Trustee of) v. Johnson & Johnson (2006), (ONSCDC), 85 O.R. (3d) 665; National Trust Co. v. Gleason, 77 N.Y. 400 (1879); Federal Sugar Refining Co. v. United States SugarEqualization Board, Inc., 268 F. 575 (1920); Mahesan v. Malaysia Government Officers’ Co-operative Housing Society Ltd., [1979]A.C. 374; Universe Tankships Inc. of Monrovia v. International Transport Workers Federation, [1983] A.C. 366; Zidaric v.

Toshiba ofCanada Ltd. (2000), 5 C.C.L.T. (3d) 61; Reid v. Ford Motor Co., 2006 BCSC 712 ; Pro-Sys Consultants Ltd. v. InfineonTechnologies AG, 2009 BCCA 503, 98 B.C.L.R. (4th) 272, rev’g 2008 BCSC 575 ; Cloud v. Canada (Attorney General)(2004), (ON CA), 73 O.R. (3d) 401; In re: Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (2008); IrvingPaper Ltd. v. Atofina Chemicals Inc. (2009), (ON SC), 99 O.R. (3d) 358; Hague v. Liberty Mutual Insurance Co.(2004), 13 C.P.C. (6th) 1; Western Canadian Shopping Centres Inc. v.

Dutton, 2001 SCC 46, [2001] 2 S.C.R. 534; In Re: LinerboardAntitrust Litigation, 305 F.3d 145 (2002); Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011); Steele v. Toyota Canada Inc., 2011BCCA 98, 329 D.L.R. (4th) 389; 2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corp., 2010 ONCA 466, 100 O.R. (3d) 721. Statutes and Regulations Cited Class Proceedings Act, R.S.B.C. 1996, c. 50, ss. 1 “common issues”, 4(1), (2), 5(4), (7), 10(1), 29(1), (2). Competition Act, R.S.C. 1985, c. C-34, ss. 36,

Part VI, 45(1), 52(1). Authors Cited Antitrust Modernization Commission. Antitrust Modernization Commission: Report and Recommendations. Washington, D.C.: TheCommission, 2007 (online: http://govinfo.library.unt.edu/amc/report_recommendation/toc.htm). Beatson, J. The Use and Abuse of Unjust Enrichment: Essays on the Law of Restitution. Oxford: Clarendon Press, 1991. British Columbia. Official Report of Debates of the Legislative Assembly (Hansard), vol. 20, No. 20, 4th Sess., 35th Parl., June 6, 1995,p. 15078.

Cullity, Maurice. “Certification in Class Proceedings — The Curious Requirement of ‘Some Basis in Fact’” (2011), 51 Can. Bus. L.J.407. Eizenga, Michael A., et al. Class Actions Law and Practice, 2nd ed. Markham, Ont.: LexisNexis, 2009 (loose-leaf updated March2013, release 21). Friedmann, Daniel. “Restitution for Wrongs: The Basis of Liability”, in W. R. Cornish, et al., eds., Restitution: Past, Present andFuture: Essays in Honour of Gareth Jones. Oxford: Hart Publishing, 1998, 133. Gavil, Andrew I. “Thinking Outside the Illinois Brick Box: A Proposal for Reform” (2009), 76 Antitrust L.J. 167. Glover, J.

Maria. “The Structural Role of Private Enforcement Mechanisms in Public Law” (2012), 53 Wm. & Mary L. Rev. 1137. Harris, Robert G., and Lawrence A. Sullivan. “Passing On the Monopoly Overcharge: A Comprehensive Policy Analysis” (1979), 128U. Pa. L. Rev. 269. Landes, William M., and Richard A. Posner. “Should Indirect Purchasers Have Standing To Sue Under the Antitrust Laws? AnEconomic Analysis of the Rule of Illinois Brick” (1979), 46 U. Chi. L. Rev. 602. Landes, William M., and Richard A. Posner. “The Economics of Passing On: A Reply to Harris and Sullivan” (1980), 128 U. Pa. L.Rev. 1274.

Maddaugh, Peter D., and John D. McCamus. The Law of Restitution. Aurora, Ont.: Canada Law Book, 2004 (loose-leaf updatedSeptember 2005). Maddaugh, Peter D., and John D. McCamus. The Law of Restitution. Toronto: Canada Law Book, 2013 (loose-leaf updated May 2013,release 10). O’Connor, Kevin J. “Is the Illinois Brick Wall Crumbling?” (2001), 15:3 Antitrust 34. Osborne, Philip H. The Law of Torts, 4th ed. Toronto: Irwin Law, 2011. Thimmesch, Adam. “Beyond Treble Damages: Hanover Shoe and Direct Purchaser Suits After Comes v. Microsoft Corp.” (2005), 90Iowa L. Rev. 1649.

Van Cott, Charles C. “Standing at the Fringe: Antitrust Damages and the Fringe Producer” (1983), 35 Stan. L. Rev. 763. Werden, Gregory J., and Marius Schwartz. “Illinois Brick and the Deterrence of Antitrust Violations — An Economic Analysis” (1984),35 Hastings L.J. 629. APPEAL from a judgment of the British Columbia Court of Appeal (Donald, Lowry and Frankel JJ.A.), 2011 BCCA 186,304 B.C.A.C. 90, 513 W.A.C. 90, 331 D.L.R. (4th) 671, [2011] B.C.J. No. 688 (QL), 2011 CarswellBC 930, setting aside a decision ofMyers J., 2010 BCSC 285, [2010] B.C.J.

No. 380 (QL), 2010 CarswellBC 508, and decisions of Tysoe J., 2006 BCSC 1738, 59B.C.L.R. (4th) 111, [2007] 1 W.W.R. 541, 44 C.C.L.T. (3d) 146, [2006] B.C.J. No. 3035 (QL), 2006 CarswellBC 2892, and 2006 BCSC1047, 57 B.C.L.R. (4th) 323, [2006] 11 W.W.R. 688, 40 C.C.L.T. (3d) 45, [2006] B.C.J. No. 1564 (QL), 2006 CarswellBC 1691. Appeal allowed.

J. J. Camp , Q.C. , Reidar Mogerman , Melina Buckley and Michael Sobkin , for the appellants. Neil Finkelstein , James Sullivan , Catherine Beagan Flood and Brandon Kain , for the respondents. John S. Tyhurst , for the intervener. The judgment of the Court was delivered by Rothstein J. — TABLE OF CONTENTS Paragraph I. ......... Introduction.................................................................................................... 1 II. ....... Background.................................................................................................... 3 III. ......

The Proceedings Below.................................................................................. 6 A. ....... Certification Proceedings in the British Columbia Supreme Court................ 6 B. ........ Appeal of the Certification to the British Columbia Court of Appeal......... 10 IV. ...... Analysis........................................................................................................ 14 A. ....... Indirect Purchaser Actions (the “Passing-On” Issue)................................... 15

(1) Rejection of Passing On as a Defence.................................................. 18

(2) Significance of the Passing-On Defence in This Appeal...................... 30

(3) Analysis of the “Necessary Corollary” Argument................................ 34 (

a) Double or Multiple Recovery....................................................... 35 (

b) Remoteness and Complexity........................................................ 42 (

c) Deterrence..................................................................................... 46 (

d) Restitutionary Principles............................................................... 50 (

e) Departure From the Rule in Illinois Brick in the United States .... 51 (

f) Doctrinal Commentary................................................................. 52

(4) Conclusion on the Offensive Use of Passing On................................. 60 B. ........ Certification of the Class Action.................................................................. 61

(1) The Requirements for Certification Under the British Columbia Class Proceedings Act .......................................................................... 62

(2) Do the Pleadings Disclose a Cause of Action?.................................... 63 (

a) Section 36 of the Competition Act .................................................... 65 (

b) Tort................................................................................................... 72 (

i) Predominant Purpose Conspiracy................................................. 74 (ii) Unlawful Means Conspiracy and Intentional Interference With Economic Interests.............................................................. 80 (

c) Restitution........................................................................................ 84 (

i) Unjust Enrichment........................................................................ 85 (ii) Constructive Trust........................................................................ 90 (iii) Waiver of Tort.............................................................................. 93

(3) The Remaining Certification Requirements.......................................... 98

(

a) Standard of Proof............................................................................. 99 (

b) Do the Claims of the Class Members Raise Common Issues?....... 106 (

i) Expert Evidence in Indirect Purchaser Class Actions................ 114 (ii) Aggregate Assessment of Damages........................................... 127 (

c) Is a Class Action the Preferable Procedure?................................... 136

(4) Conclusion on the Certification of the Action................................... 142 V........ Conclusion.................................................................................................. 143 APPENDIX: Common Issues Certified by Myers J. I. Introduction [1] It is no simple task to assess liability and apportion damages in situations where the wrongdoer and the harmedparties are separated by a long and complex chain of distribution, involving many parties, purchasers, resellers and intermediaries.

Suchis the problem presented by indirect purchaser actions in which downstream individual purchasers seek recovery for alleged unlawfulovercharges that were passed on to them through the successive links in the chain. [2] The complexities inherent in indirect purchaser actions are magnified when such actions are brought as a classproceeding. When that happens, the courts are required to grapple with not only the difficulties associated with indirect purchaser actions,but are also then asked to decide whether the requirements for certification of a class action are met.

These are the questions the Court isfaced with in this appeal. II. Background [3] The representative plaintiffs in this action, Pro-Sys Consultants Ltd. and Neil Godfrey (collectively “Pro-Sys”),brought a class action against Microsoft Corporation and Microsoft Canada Co./Microsoft Canada CIE (collectively “Microsoft”)alleging that beginning in 1988, Microsoft engaged in unlawful conduct by overcharging for its Intel-compatible PC operating systemsand Intel-compatible PC applications software.

Pro-Sys claims that as a direct consequence of Microsoft’s unlawful conduct, it and allthe class members paid and continue to pay higher prices for Microsoft operating systems and applications software than they wouldhave paid absent the unlawful conduct. [4] Pro-Sys sought certification of the action as a class proceeding under the Class Proceedings Act, R.S.B.C. 1996, c.50 (“CPA”). [5] The proposed class is made up of ultimate consumers who acquired Microsoft products from re-sellers, re-sellerswho themselves purchased the products either directly from Microsoft or from other re-sellers higher up the chain of distribution.

Theseconsumers are known as the “indirect purchasers”. The proposed class was defined in the statement of claim as all persons resident in British Columbia who, on or after January 1, 1994, indirectly acquired a license for Microsoft Operating Systemsand/or Microsoft Applications Software for their own use, and not for purposes of further selling or leasing. (2010 BCSC 285 , at para. 16) III. The Proceedings Below A. Certification Proceedings in the British Columbia Supreme Court [6] Pro-Sys filed its original statement of claim in the British Columbia Supreme Court (“B.C.S.C.”) in December2004.

Thereafter numerous amendments to the Statement of Claim were made with the approval of Tysoe J., ultimately resulting in theThird Further Amended Statement of Claim. A Fourth Further Amended Statement of Claim has not officially been filed. [7] In 2006, Microsoft sought an order striking out the claim altogether and an order dismissing the action. In thealternative, it sought to strike out only portions of the claim. The parties agreed that the outcome of the application to strike would bedeterminative of the certification requirement under s. 4(1)(

a) of the CPA that the pleadings disclose a cause of action. [8] Tysoe J. found causes of action under s. 36 of the Competition Act, R.S.C. 1985, c. C-34, in tort for conspiracy andintentional interference with economic interests and in restitution for waiver of tort (2006 BCSC 1047, 57 B.C.L.R. (4th) 323). Heordered that the portions of the pleadings dealing with unjust enrichment and constructive trust should be struck out as they were notsufficient to support such claims, unless they were amended by Pro-Sys.

Upon further motion to amend the claims (2006 BCSC 1738, 59B.C.L.R. (4th) 111), Tysoe J. allowed amendments to support the claims of unjust enrichment and constructive trust. [9] Following his rulings on the applications to strike and to amend, Tysoe J. was appointed to the British ColumbiaCourt of Appeal (“B.C.C.A.”), and Myers J. assumed management of the case. Myers J. assessed the remaining certificationrequirements set out in s. 4(1) of the CPA, namely (

i) whether there was an identifiable class (s. 4(1)(b)); (ii) whether the claims of theclass members raised common issues (s. 4(1)(c)); (iii) whether the class action was the preferable procedure (s. 4(1)(d)); and (iv)

whether Pro-Sys and Neil Godfrey could adequately represent the class (s. 4(1)(e)). Myers J. certified the action, finding that all four ofthe remaining requirements for certification were met (2010 BCSC 285 ). The common issues certified by Myers J. are listed inthe appendix to these reasons. B. Appeal of the Certification to the British Columbia Court of Appeal, 2011 BCCA 186, 304 B.C.A.C. 90 [10] Microsoft appealed from the decisions of Tysoe and Myers JJ.

The majority of the B.C.C.A., per Lowry J.A.(Frankel J.A. concurring), allowed the appeal, set aside the certification order and dismissed the action, finding it plain and obvious thatthe class members had no cause of action under s. 4(1)(

a) of the CPA. The majority reached this conclusion after determining thatindirect purchaser actions were not available as a matter of law in Canada. As such, it did not consider the other certificationrequirements. [11] Donald J.A., dissenting, would have dismissed the appeal and certified the action, finding indirect purchaser actionsto be permitted in Canada, and finding sufficient grounds for the action. [12] In the B.C.C.A., the present case was heard together with another case dealing with substantially similar issues (Sun-Rype Products Ltd. v. Archer Daniels Midland Co., 2011 BCCA 187, 305 B.C.A.C. 55).

Counsel for the plaintiffs was the same in bothappeals and the appeals were heard by the same panel of judges. As in the present appeal, in Sun-Rype, the issue of whether indirectpurchaser actions are available in Canada was determinative. In reasons released simultaneously with the reasons in this appeal, themajority of the B.C.C.A. disposed of Sun-Rype in the same manner, decertifying and dismissing the indirect purchasers’ class action onthe basis that indirect purchaser actions were not available under Canadian law.

Donald J.A. dissented, finding, as in this appeal, thatindirect purchaser actions were permitted. [13] Leave to appeal was granted in both cases by this Court. They were heard with another indirect purchaser classaction originating in Quebec, Infineon Technologies AG v. Option consommateurs, 2013 SCC 59, [2013] 3 S.C.R. 600, which this Courthas addressed in separate reasons, per LeBel and Wagner JJ. Reasons in Sun-Rype can be found at 2013 SCC 58, [2013] 3 S.C.R. 545. IV. Analysis [14] The issues are addressed in the following order:

(1) Did the majority of the B.C.C.A. err in finding that indirect purchaser actions were not available as a matter of law inCanada?

(2) Were the findings of Tysoe J. as to the requirement that the pleadings disclose a cause of action under s. 4(1)(

a) of the CPAcorrect?

(3) Were the findings of Myers J. as to the balance of the certification requirements under s. 4(1) of the CPA correct? A. Indirect Purchaser Actions (the “Passing-On” Issue) [15] In this appeal, the parties have introduced numerous issues. The one occupying the largest portion of the factumsand the oral argument was the question of whether indirect purchasers have the right to bring an action to recover losses that were passedon to them. Some sources have treated this issue as one of standing.

I think it more appropriate to treat it as a threshold issue to bedetermined before moving into the specific causes of action alleged in the certification application. [16] As I have described above, indirect purchasers are consumers who have not purchased a product directly from thealleged overcharger, but who have purchased it either from one of the overcharger’s direct purchasers, or from some other intermediaryin the chain of distribution.

The issue is whether indirect purchasers have a cause of action against the party who has effectuated theovercharge at the top of the distribution chain that has allegedly injured them indirectly as the result of the overcharge being “passed on”down the chain to them. [17] Microsoft argues that indirect purchasers should have no such cause of action. Its submits that permitting indirectpurchasers to bring an action against the alleged overcharger to recover loss that has been “passed on” would be inconsistent with thisCourt’s jurisprudence, which it says rejected passing on as a defence.

Microsoft says that the rejection of the “passing-on” defencenecessarily entails a rejection of the offensive use of passing on by indirect purchasers to recover overcharges that were passed on tothem. I begin with a description of the passing-on defence and then deal with its impact on indirect purchaser actions.

(1) Rejection of Passing On as a Defence [18] The passing-on defence was typically advanced by an overcharger at the top of a distribution chain. It was invokedunder the proposition that if the direct purchaser who sustained the original overcharge then passed that overcharge on to its owncustomers, the gain conferred on the overcharger was not at the expense of the direct purchaser because the direct purchaser suffered noloss.

As such, the fact that the overcharge was “passed on” was argued to be a defence to actions brought by the direct purchaser againstthe party responsible for the overcharge. [19] The passing-on defence has been rejected in both Canadian and U.S. jurisprudence. It was first addressed by theSupreme Court of the United States in 1968 in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968). In that case,Hanover sued United for damages under U.S. antitrust laws because United would only lease, not sell, its shoe machinery, whichHanover claimed resulted in an overcharge to it.

United argued that Hanover had passed on the overcharge to its own customers and hadtherefore suffered no harm. The U.S. Supreme Court (per White J., Stewart J. dissenting) rejected the passing-on defence toovercharging. It cited difficulties in ascertaining the nature and extent of the passing on of the overcharge as the reason for rejecting thedefence:

Even if it could be shown that the buyer raised his price in response to, and in the amount of, the overcharge and that his margin of profit and total sales had not thereafter declined, there would remain the nearly insuperable difficulty of demonstrating that the particular plaintiff could not or would not have raised his prices absent the overcharge or maintained the higher price had the overcharge been discontinued.

Since establishing the applicability of the passing-on defense would require a convincing showing of each of these virtually unascertainable figures, the task would normally prove insurmountable. [p. 493] [ 20 ] The court added that to leave the only actionable causes in the hands of the indirect purchasers who “have only a tiny stake in a lawsuit and little interest in attempting a class action”, would mean that “those who violate the antitrust laws by price fixing or monopolizing would retain the fruits of their illegality” ( Hanover Shoe , at p. 494). The court thus rejected the passing-on defence.

Since Hanover Shoe , defendants who effectuate illegal overcharges have been precluded from employing the passing-on defence as a means of absolving themselves of liability to their direct purchasers. [ 21 ] The passing-on defence was rejected in Canada in Kingstreet Investments Ltd. v. New Brunswick (Finance) , 2007 SCC 1 , [2007] 1 S.C.R. 3, in the context of a claim for the recovery of taxes paid pursuant to ultra vires legislation.

The dispute in that case arose out of a claim for the recovery of ultra vires user charges on liquor levied by the province of New Brunswick against Kingstreet Investments, whose business, among other things, involved the operation of night clubs.

Bastarache J., writing for a unanimous Court, held that a public authority who had illegally overcharged a taxpayer could not reduce its liability for the overcharge simply by establishing that some or all of the overcharge was passed on to the taxpayer’s customers. [ 22 ] Bastarache J. found the passing-on defence to be inconsistent with the basic premise of restitution law. Basic restitutionary principles “provide for restoration of ‘what has been taken or received from the plaintiff without justification’ . . . .

Restitution law is not concerned by the possibility of the plaintiff obtaining a windfall precisely because it is not founded on the concept of compensation for loss” ( Kingstreet , at para. 47, quoting Commissioner of State Revenue (Victoria) v. Royal Insurance Australia Ltd. (1994), 182 C.L.R. 51 (H.C.A.), at p. 71) . Accordingly, “[a]s between the taxpayer and the Crown, the question of whether the taxpayer has been able to recoup its loss from some other source is simply irrelevant” ( Kingstreet , at para. 45, quoting P. D. Maddaugh and J. D.

McCamus, The Law of Restitution (loose-leaf 2005), at p. 11-45). [ 23 ] Bastarache J. also found the passing-on defence to be “economically misconceived” ( Kingstreet , at para. 48). By this he accepted that the task of determining the ultimate location of the harm of the overcharge is “exceedingly difficult and constitutes an inappropriate basis for denying relief” (para. 44). Echoing the misgivings expressed in Hanover Shoe , he cited the inherent difficulty in accounting for the effects of market elasticities on the prices charged by direct purchasers as the basis for this conclusion.

He found these complexities made it impossible to tell what part, if any, of the overcharge was actually passed on ( Kingstreet , at para. 48). [ 24 ] Pro-Sys says that Kingstreet stands only for the rejection of the defence in the context of ultra vires taxes. In my view, however, there are three reasons that lead to the conclusion that Bastarache J.’s rejection of the passing-on defence in Kingstreet was not limited to that context. [ 25 ] First, this Court’s jurisprudence supports the broader rejection of the passing-on defence. In British Columbia v.

Canadian Forest Products Ltd. , 2004 SCC 38 , [2004] 2 S.C.R. 74 (“ Canfor ”), the Crown claimed “diminution of the value of the timber” that it sold, following a forest fire caused largely by Canfor.

Though the Court ultimately held in that case that the Crown had not in fact suffered loss because it was able to recover its damages through the regulatory scheme it had instituted, Binnie J. stated (albeit in obiter ) 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” (para. 111, quoting Southern Pacific Co. v. Darnell-Taenzer Lumber Co. , 245 U.S. 531 (1918), at p. 534).

Likewise, in the same decision LeBel J., dissenting, though not on this point, said that “ the passing-on defence, on the facts of this case and generally, must not be allowed to take hold in Canadian jurisprudence” (para. 197).

To allow otherwise, LeBel J. indicated, would force a difficult burden of proof on the plaintiff to demonstrate not only that it had suffered a loss, but that it did not engage in any other transactions that would have offset the loss (para. 203). [ 26 ] In Kingstreet , Bastarache J. endorsed the reasons for rejecting the passing-on defence advanced by LeBel J. in the tort law context in Canfor , saying such rejection was of equal if not greater consequence in restitution law (para. 49). [ 27 ] Second, in Kingstreet , Bastarache J. found that the rejection of the passing-on defence was consistent with basic restitutionary law principles.

Specifically, the rejection of the defence accords with the principle against unjust enrichment or nullus commodum capere potest de injuria sua propria (barring wrongdoers from benefiting from their unlawful actions). Preventing defendants from invoking passing on as a defence helps to ensure that wrongdoers are not permitted to retain their ill-gotten gains simply because it would be difficult to ascertain the precise extent of the harm.

Likewise, it is important as a matter of restitutionary law to ensure that wrongdoers who overcharge their purchasers do not operate with impunity, on the grounds that complexities in tracing the overcharge through the chain of distribution will serve to shield them from liability. [ 28 ] Finally, there is support in the academic commentary for the broader rejection of the passing-on defence.

Maddaugh and McCamus have stated that Kingstreet was an “authoritative and apparently comprehensive rejection” of the passing-on defence in Canada, and that “[i]n reaching this conclusion, the Supreme Court reflected a broad international consensus with respect to the unsuitability of this defence” ((loose-leaf 2013), at p. 11-46). [ 29 ] For these reasons, I conclude that the rejection of the passing-on defence in Kingstreet is not limited to the context of the imposition of ultra vires taxes.

There is no principled reason to reject the defence in one context but not another; the passing-on defence is rejected throughout the whole of restitutionary law.

(2) Significance of the Passing-On Defence in This Appeal [ 30 ] As described above, the offensive use of passing on would provide the basis for indirect purchaser actions. Microsoft argues that this Court’s rejection of the passing-on defence carries, as a necessary corollary, a corresponding rejection of the offensive use of passing on. The rationale is that the rejection should apply equally so that if overchargers are not permitted to rely on passing on

in their own defence, indirect purchasers should also not be able to invoke passed on overcharges as a basis for their cause of action. [31] Microsoft relies on the 1977 decision of the U.S. Supreme Court in Illinois Brick Co. v. Illinois, 431 U.S. 720(1977). Illinois Brick manufactured concrete block and sold it to masonry contractors who in turn provided their services to generalcontractors. The general contractors incorporated the concrete block into buildings and sold the buildings to customers such as the Stateof Illinois.

The State was therefore an indirect purchaser of the products of Illinois Brick (p. 726). The State alleged that Illinois Brickhad engaged in a conspiracy to fix the prices of concrete block, contrary to U.S. antitrust legislation, and brought an indirect purchaseraction against the company (p. 727). [32] The U.S. Supreme Court found against the State of Illinois. It held that since, according to Hanover Shoe, passing onmay not be used defensively, it should not be available to indirect purchasers to use offensively by bringing an action alleging that anovercharge was passed down to them.

The court explained that “whatever rule [was] to be adopted regarding pass-on in antitrustdamages actions, it must apply equally to plaintiffs and defendants” (Illinois Brick, at p. 728). [33] Microsoft argues that, just as the prohibition on the offensive use of passing on in Illinois Brick was considered anecessary corollary to the rejection of the passing-on defence in Hanover Shoe, the same result should flow in Canada from the rejectionof the passing-on defence in Kingstreet. The passing-on issue was not raised before either of the applications judges because thosedecisions were released prior to Kingstreet.

However, the majority of the B.C.C.A. accepted this argument in dismissing the Pro-Sysclaim.

(3) Analysis of the “Necessary Corollary” Argument [34] As I will explain, despite the rejection of the passing-on defence, the arguments advanced by Microsoft as to whythere should be a corresponding rejection of the offensive use of passing on are not persuasive. Symmetry for its own sake withoutadequate justification cannot support the “necessary corollary” argument. In my view, the arguments advanced by Microsoft do notprovide such justification. (

a) Double or Multiple Recovery [35] Microsoft submits that the offensive use of passing on through indirect purchaser actions leaves it exposed toliability from all purchasers in the chain of distribution. It says that its inability to employ the passing-on defence means that directpurchasers would be able to seek recovery for the entire amount of the overcharge. If, at the same time, indirect purchasers bring actions,this would result in both direct and indirect purchasers seeking recovery of the same amount.

Microsoft argues that this potential fordouble or even multiple recovery should be a sufficient reason to reject the offensive use of passing on. [36] In Illinois Brick, the U.S.

Supreme Court considered multiple recovery to be a “serious risk” and said that it was“unwilling to ‘open the door to duplicative recoveries’” (pp. 730-31, per White J.): A one-sided application of Hanover Shoe substantially increases the possibility of inconsistent adjudications — and therefore ofunwarranted multiple liability for the defendant — by presuming that one plaintiff (the direct purchaser) is entitled to full recovery whilepreventing the defendant from using that presumption against the other plaintiff . . . . [Emphasis deleted; p. 730.] [37] This concern cannot be lightly dismissed.

However, in my view, there are countervailing arguments to beconsidered. Practically, the risk of duplicate or multiple recoveries can be managed by the courts. Brennan J., dissenting in Illinois Brick,indicated that the risk of overlapping recovery exists only where additional suits are filed after an award for damages has been made orwhere actions by direct and indirect purchasers are pending at the same time.

In both cases, he said, the risk is remote (pp. 762-64). [38] In the first situation, Brennan J. stated that the complex and protracted nature of antitrust actions, coupled with theshort four-year statute of limitations, “make it impractical for potential plaintiffs to sit on their rights until after entry of judgment in theearlier suit” (Illinois Brick, at p. 764).

With respect to actions under the Competition Act, the same reasoning would apply in Canadawhere our competition actions are similarly complex and where legislation restricts individual recovery for damages for violations to justtwo years (see Competition Act, at s. 36(4)(a)). [39] As for the risk of double recovery where actions by direct and indirect purchasers are pending at the same time, itwill be open to the defendant to bring evidence of this risk before the trial judge and ask the trial judge to modify any award of damagesaccordingly. In Multiple Access Ltd. v.

McCutcheon, (SCC), [1982] 2 S.C.R. 161, in discussing the risk of a plaintiffseeking double recovery under separate legal provisions, Dickson J. (as he then was), writing for the majority, held that [t]he courts are well able to prevent double recovery in the theoretical and unlikely event of plaintiffs trying to obtain relief under bothsets of provisions. . . . [T]he Court at the final stage of finding and quantifying liability could prevent double recovery if in factcompensation and an accounting had already been made by a defendant.

No court would permit double recovery. [p. 191] If the defendant is able to satisfy the judge that the risk is beyond the court’s control, the judge retains the discretion to deny the claim. [40] Likewise, if the defendant presents evidence of parallel suits pending in other jurisdictions that would have thepotential to result in multiple recovery, the judge may deny the claim or modify the damage award in accordance with an award soughtor granted in the other jurisdiction in order to prevent overlapping recovery. [41] In view of these practical tools at the courts’ disposal, I would agree with Donald J.A. of the B.C.C.A., dissenting inSun-Rype, that “the double recovery rule should not in the abstract bar a claim in real life cases where double recovery can be avoided”(para. 30).

At this stage of the proceeding, Microsoft has not produced evidence to demonstrate that the courts in B.C. could not precludedouble or multiple recovery. I would thus not reject indirect purchaser actions because of the risk of multiple recovery. (

b) Remoteness and Complexity

[42] Microsoft’s second argument is that the remoteness of the overcharge and the complexities associated with tracingthe loss constitute “‘serious’ and ‘inherent’ difficulties of proof associated with pass-on” (R.F., at para. 20). These difficulties are said togive rise to confusion and uncertainty and place a burden on the institutional capacities of the courts tasked with following eachovercharge to its ultimate result. [43] Microsoft relies on the reasoning of the Ontario Court of Appeal in Chadha v. Bayer Inc. (2003), (ON CA), 63 O.R. (3d) 22.

In Chadha, that court denied certification of an indirect purchaser action citing “the many problems of prooffacing the appellants . . . , including the number of parties in the chain of distribution and the ‘multitude of variables’ which would affectthe end-purchase price” (para. 45 (adopting the findings of the Divisional Court)). Microsoft argues that if any part of the overchargewas absorbed by any party in the chain, “the chain would be broken” and the extent of the overcharge would become increasinglydifficult to trace (R.F., at para. 22, quoting Chadha, at para. 45).

The reasons on this point in Illinois Brick, on which Microsoft reliesheavily, point out that there are significant “uncertainties and difficulties in analyzing price and output decisions ‘in the real economicworld rather than an economist’s hypothetical model’” (pp. 731-32).

The court lamented the “costs to the judicial system and the efficientenforcement of the antitrust laws of attempting to reconstruct those decisions in the courtroom” (p. 732). [44] Indirect purchaser actions, especially in the antitrust context, will often involve large amounts of evidence, complexeconomic theories and multiple parties in a chain of distribution, making the tracing of the overcharges to their ultimate end anunenviable task.

However, Brennan J., dissenting in Illinois Brick, observed that these same concerns can be raised in most antitrustcases, and should not stand in the way of allowing indirect purchasers an opportunity to make their case: Admittedly, there will be many cases in which the plaintiff will be unable to prove that the overcharge was passed on. In others, theportion of the overcharge passed on may be only approximately determinable. But again, this problem hardly distinguishes this case fromother antitrust cases.

Reasoned estimation is required in all antitrust cases, but “while the damages [in such cases] may not be determinedby mere speculation or guess, it will be enough if the evidence show the extent of the damages as a matter of just and reasonableinference, although the result be only approximate.” . . .

Lack of precision in apportioning damages between direct and indirectpurchasers is thus plainly not a convincing reason for denying indirect purchasers an opportunity to prove their injuries and damages.[Text in brackets in original; pp. 759-60.] [45] In bringing their action, the indirect purchasers willingly assume the burden of establishing that they have sufferedloss. This task may well require expert testimony and complex economic evidence. Whether these tools will be sufficient to meet theburden of proof, in my view, is a factual question to be decided on a case-by-case basis.

Indirect purchaser actions should not be barredaltogether solely because of the likely complexity associated with proof of damages. (

c) Deterrence [46] A third argument, which was not raised by Microsoft, but which was discussed in Illinois Brick and is particularlyrelevant to competition actions, is that allowing the offensive use of passing on frustrates the enforcement of competition laws, thusreducing deterrence. While enforcement of competition laws is generally a question for the government, private individuals are engagedin the enforcement by way of s. 36 which gives them a right of recovery for breaches of

Part VI of the Competition Act. [47] The majority in Illinois Brick understood Hanover Shoe to stand for the proposition that “antitrust laws will be moreeffectively enforced by concentrating the full recovery for the overcharge in the direct purchasers rather than by allowing every plaintiffpotentially affected by the overcharge to sue only for the amount it could show was absorbed by it” (p. 735).

The majority in IllinoisBrick agreed, finding that direct purchasers would be in the best position to bring an action because the “massive evidence andcomplicated theories” that are characteristic of indirect purchaser actions impose an unacceptable burden on those plaintiffs, makingsuccess of such actions unlikely and thereby defeating the deterrence objectives of antitrust laws (p. 741). [48] In my opinion, allowing the offensive use of passing on should not frustrate the deterrence objectives of Canadiancompetition laws.

I agree with Brennan J., dissenting in Illinois Brick, that the offensive use of passing on, unlike the passing-on defence,creates little danger that the overcharger will escape liability and frustrate deterrence objectives but, “[r]ather, the same policies ofinsuring the continued effectiveness of the [antitrust] action and preventing wrongdoers from retaining the spoils of their misdeeds favorallowing indirect purchasers to prove that overcharges were passed on to them” (p. 753).

The rationale for rejecting the passing-ondefence because it frustrates enforcement is not a reason for denying an action to those who have a valid claim against the overcharger. [49] Further, despite evidence advanced by the respondents in the Sun-Rype appeal that direct purchasers are often theparties most likely to take action against the overchargers, there may be some situations where direct purchasers will have beenovercharged but will be reticent to bring an action against the offending party for fear of jeopardizing a valuable business relationship.

Inthis case, it is alleged that Microsoft’s direct purchasers are parties to the overcharging arrangements and would themselves not be likelyplaintiffs. Indirect purchaser actions may, in such circumstances, be the only means by which overcharges are claimed and deterrence ispromoted. The rejection of indirect purchaser actions in such cases would increase the possibility that the overcharge would remain in thehands of the wrongdoer.

For these reasons, I would be of the view that an absolute bar on indirect purchaser actions, thus leaving anypotential action exclusively to direct purchasers, would not necessarily result in more effective deterrence than exclusively directpurchaser actions. (

d) Restitutionary Principles [50] Restitution law is remedial in nature and is concerned with the recovery of gains from wrongdoing (see Maddaughand McCamus (2013), at pp. 3-1 to 3-3). In my view, allowing indirect purchaser actions is consistent with the remediation objective ofrestitution law because it allows for compensating the parties who have actually suffered the harm rather than merely reserving theseactions for direct purchasers who may have in fact passed on the overcharge. (

e) Departure From the Rule in Illinois Brick in the United States [51] Although Illinois Brick remains the law at the federal level, it has been made inapplicable at the state level in many

states through so-called “repealer statutes” or by judicial decisions. In 2007, the Antitrust Modernization Commission issued a report to Congress indicating that “more than thirty-five states permit indirect, as well as direct, purchasers to sue for damages under state law” ( Antitrust Modernization Commission: Report and Recommendations (2007) (online), at p. 269). It recommended to Congress that the rule in Illinois Brick be statutorily repealed at the federal level (p. 270). The validity of the “repealer statutes” came before the U.S. Supreme Court in California v. ARC America Corp. , 490 U.S. 93 (1989).

That court held that Illinois Brick did not preempt the enactment of state antitrust laws, even if they had the effect of repealing the rule in Illinois Brick . These developments cast doubt on the “necessary corollary” approach in Illinois Brick . (

f) Doctrinal Commentary [ 52 ] Doctrinal discussions of indirect purchaser actions are still shaped by the initial exchange that occurred directly following the release of Illinois Brick . Shortly after the judgment was issued, American scholars William M. Landes and Richard A. Posner (now a judge of the U.S. Court of Appeals for the Seventh Circuit) published an

article defending the rule barring indirect purchaser actions (see “Should Indirect Purchasers Have Standing To Sue Under the Antitrust Laws? An Economic Analysis of the Rule of Illinois Brick ” (1979), 46 U. Chi. L. Rev. 602, at pp. 634-35). They argued that reserving the right to bring an action against overchargers to the direct purchasers alone would best promote the antitrust laws.

They wrote that allowing indirect purchasers to bring actions would have little to no effect on the objectives of compensation and deterrence because direct purchasers would be more likely to discover the overcharges in the first place and would be more likely to have the information and resources required to bring a successful antitrust action.

They called the direct purchaser a more “efficient enforcer” of antitrust laws, and opined that with indirect purchasers, apportionment of the damages is so costly that it becomes a disincentive to sue and that sharing the right to sue among multiple parties has the effect of making the claims small and of weakening the deterrence effect (pp. 608-9).

As to compensation, they argued that even if indirect purchasers had no independent right of action, they were nonetheless compensated by the ability of direct purchasers to bring an action because the benefit accruing to the direct purchaser as a result of an anticipated successful antitrust action against the overcharger would be reflected in the prices charged by the direct purchasers to the indirect purchasers (p. 605). [ 53 ] Shortly after the publication of Landes and Posner’s article, two other antitrust authorities, Robert G. Harris and Lawrence A.

Sullivan, expressed an opposing viewpoint (see “Passing On the Monopoly Overcharge: A Comprehensive Policy Analysis” (1979), 128 U. Pa. L. Rev. 269, at pp. 351-52). Harris and Sullivan argued that direct purchasers would be reluctant to disrupt valued supplier relationships and would thus be more likely to pass on the overcharge to their own customers.

They would not therefore serve as efficient enforcers of the antitrust laws and, rather, it would be more suitable to vest standing in the indirect purchasers in order to best achieve deterrence. [ 54 ] Landes and Posner published a direct response to Harris and Sullivan the next year (see “The Economics of Passing On: A Reply to Harris and Sullivan” (1980), 128 U. Pa. L. Rev. 1274).

In response to Harris and Sullivan’s argument that direct purchasers would be reticent to sue so as not to compromise valuable commercial relationships, they stated that “any forbearance by the direct purchaser to sue will be compensated. The supplier must pay something to bind the direct purchaser to him and this payment is, functionally, a form of antitrust damages” (p. 1278).

In other words, the direct purchaser is receiving a financial inducement to be a part of the conspiracy and this benefit could be passed along to the indirect purchasers. [ 55 ] In the years since the exchange between Landes and Posner and Harris and Sullivan, the literature has reflected an ongoing debate on the issue of indirect purchaser actions and specifically the rule in Illinois Brick .

A survey of the literature reveals that most recently, however, there is a significant body of academic authority in favour of repealing the decision in Illinois Brick in order to best serve the objectives of the antitrust laws. [ 56 ] Some authors, including Gregory J.

Werden and Marius Schwartz, joined Harris and Sullivan in their critique of Landes and Posner, stating specifically that the notion that indirect purchasers would see any of the benefits accruing to a direct purchaser as the result of an anticipated recovery was “quite implausible” (“ Illinois Brick and the Deterrence of Antitrust Violations — An Economic Analysis” (1984), 35 Hastings L.J. 629, at p. 638-39). [ 57 ] The theory that direct purchasers may be unwilling to sue for fear of disrupting an important supplier relationship has also found favour among academics (see e.g. K. J.

O’Connor, “Is the Illinois Brick Wall Crumbling?” (2001), 15:3 Antitrust 34, at p. 38 (noting that indirect purchasers are perhaps more likely to sue than are direct purchasers because they do not risk severing a “direct business relationship with the alleged violator”); A. Thimmesch, “Beyond Treble Damages: Hanover Shoe and Direct Purchaser Suits After Comes v. Microsoft Corp. ” (2005), 90 Iowa L. Rev. 1649, at p. 1668 and fn. 127 (stating that in many situations the direct purchaser is in fact dependent upon the supplier and as such would be reticent to sue)).

As recently as 2012, the same opinion has been expressed: “This is especially true if direct purchasers are able to pass on any overcharges that result from antitrust violations to consumers. . . . [T]he Supreme Court [of the United States]’s all-or-nothing ‘Indirect Purchaser Rule’ sweeps too broadly” ( J. M. Glover, “The Structural Role of Private Enforcement Mechanisms in Public Law” (2012), 53 Wm. & Mary L.

Rev. 1137, at p. 1187). [ 58 ] As to the objective of compensation, several authors have commented that the rule in Illinois Brick in fact runs contrary to the goal of compensation, with one author calling it “[t]he most far-reaching deviation from the compensatory rationale” (C. C. Van Cott, “Standing at the Fringe: Antitrust Damages and the Fringe Producer” (1983), 35 Stan. L. Rev. 763, at p. 775). Likewise, Andrew I.

Gavil, an antitrust scholar, has stated that “providing compensation to all victims of unlawful conduct for the harms inflicted by the wrongdoer is a secondary but also essential goal of a comprehensive remedial system, one that Illinois Brick disserves in many common circumstances” (“Thinking Outside the Illinois Brick Box: A Proposal for Reform” (2009), 76 Antitrust L.J. 167, at p. 170). [ 59 ] As can be seen from this overview, despite initial support from well-reputed antitrust scholars, it cannot be said that the rule in Illinois Brick still finds favour in the academic literature.

(4) Conclusion on the Offensive Use of Passing On [ 60 ] Although the passing-on defence is unavailable as a matter of restitution law, it does not follow that indirect purchasers should be foreclosed from claiming losses passed on to them. In

summary:

(1) The risks of multiple recovery and the concerns of complexity and remoteness are insufficient bases for precluding indirect purchasers from bringing actions against the defendants responsible for overcharges that may have been passed on to them.

(2) The deterrence function of the competition law in Canada is not likely to be impaired by indirect purchaser actions.

(3) While the passing-on defence is contrary to basic restitutionary principles, those same principles are promoted by allowing passing on to be used offensively.

(4) Although the rule in Illinois Brick remains good law at the federal level in the United States, its subsequent repeal at the state level in many jurisdictions and the report to Congress recommending its reversal demonstrate that its rationale is under question.

(5) Despite some initial support, the recent doctrinal commentary favours overturning the rule in Illinois Brick . For these reasons, I would not agree with Microsoft’s argument that this Court’s rejection of the passing-on defence in previous cases and affirmed here precludes indirect purchaser actions. B. Certification of the Class Action [ 61 ] Having answered the threshold question and determined that indirect purchasers may use passing on offensively to bring an action, I turn to the question of whether the present action should be certified as a class action.

Because the majority of the B.C.C.A. disposed of the appeal based on its finding that indirect purchaser actions were not available in Canada, it did not consider the certification requirements dealt with by Tysoe J. (causes of action under s. 4(1)(

a) of the CPA ) and Myers J. (balance of the certification requirements under s. 4(1)(

b) to (

e) of the CPA ). It therefore remains for this Court to review the certification analysis carried out by the two applications judges. Microsoft contests their findings as to only three of the certification requirements: (1) whether the pleadings disclose a cause of action; (2) whether the claims raise common issues; and (3) whether a class action is the preferable procedure.

(1) The Requirements for Certification Under the British Columbia Class Proceedings Act [ 62 ] Section 4(1) of the CPA provides: 4

(1) The court must certify a proceeding as a class proceeding on an application under

section 2 or 3 if all of the following requirements are met: (

a) the pleadings disclose a cause of action; (

b) there is an identifiable class of 2 or more persons; (

c) the claims of the class members raise common issues, whether or not those common issues predominate over issues affecting only individual members; (

d) a class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues; (

e) there is a representative plaintiff who (

i) would fairly and adequately represent the interests of the class, (ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and (iii) does not have, on the common issues, an interest that is in conflict with the interests of other class members.

(2) Do the Pleadings Disclose a Cause of Action?

[63] The first certification requirement requires that the pleadings disclose a cause of action. In Alberta v. ElderAdvocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261 (“Alberta Elders”), this Court explained that this requirement isassessed on the same standard of proof that applies to a motion to dismiss, as set out in Hunt v. Carey Canada Inc., (SCC), [1990] 2 S.C.R. 959, at p. 980. That is, a plaintiff satisfies this requirement unless, assuming all facts pleaded to be true, it is plainand obvious that the plaintiff’s claim cannot succeed (Alberta Elders, at para. 20; Hollick v.

Toronto (City), 2001 SCC 68, [2001] 3S.C.R. 158, at para. 25). [64] Pro-Sys has alleged causes of action (1) under s. 36 of the Competition Act, (2) in tort for conspiracy and intentionalinterference with economic interests, and (3) in restitution for unjust enrichment, constructive trust and waiver of tort. For the reasonsthat follow, I would agree with Tysoe J. that the pleadings disclose causes of action that should not be struck out at this stage of theproceedings. (

a) Section 36 of the Competition Act [65] Under s. 36 of the Competition Act, any person who has suffered loss or damage as a result of conduct engaged in byany person contrary to

Part VI of the Act may sue for and recover that loss or damage.

Section 36 provides: 36.

(1) Any person who has suffered loss or damage as a result of (

a) conduct that is contrary to any provision of

Part VI . . . . . . may in any court of competent jurisdiction, sue for and recover from the person who engaged in the conduct or failed to comply with theorder an amount equal to the loss or damage proved to have been suffered by him, together with any additional amount that the courtmay allow not exceeding the full cost to him of any investigation in connection with the matter and of proceedings under this section. [66]

Part VI of the Competition Act is entitled “Offences in Relation to Competition”. The

Part VI offences alleged in thisappeal are (1) conspiracy, contrary to s. 45(1), and (2) false or misleading representations, contrary to s. 52(1). At the time of the hearingbefore Tysoe J., those provisions read as follows: 45. (1) [Conspiracy] Every one who conspires, combines, agrees or arranges with another person (

a) to limit unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any product, (

b) to prevent, limit or lessen, unduly, the manufacture or production of a product or to enhance unreasonably the price thereof, (

c) to prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, storage, rental, transportation orsupply of a product, or in the price of insurance on persons or property, or (

d) to otherwise restrain or injure competition unduly, is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years or to a fine not exceeding ten milliondollars or to both. 52. (1) [False or misleading representations] No person shall, for the purpose of promoting, directly or indirectly, the supply or use of aproduct or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever, knowingly or recklesslymake a representation to the public that is false or misleading in a material respect. [67] The bulk of Microsoft’s objections to the cause of action under s. 36 of the Competition Act are tied to the theorythat offensive passing on is not permitted.

In view of my earlier finding that indirect purchaser actions are permitted, those arguments areno longer of consequence in this appeal. [68] However, Microsoft also argues that the s. 36 cause of action is not properly pleaded before this Court because itwas not included in Pro-Sys’s statement of claim. It argues that any attempt to add it now would be barred by the two-year limitation

period contained in s. 36(4) of the Act. However, Donald J.A., dissenting in the B.C.C.A., found Microsoft’s contention to be a purelytechnical objection, and not one that would form a basis to dismiss the claim. I would agree. The Third Further Amended Statement ofClaim alleges that the unlawful conduct was continuing, a fact that must be accepted as being true for the purposes of this appeal. As aresult, it cannot be said that the action was not filed in a timely manner. [69] Moreover, the Third Further Amended Statement of Claim states specifically that “[t]he plaintiffs plead and relyupon . . . .

Part VI of the Competition Act” (para. 109, A.R., vol. II, at p. 48) and seeks damages accordingly. Although the Third FurtherAmended Statement of Claim does not expressly refer to s. 36, recovery for breaches under

Part VI of the Competition Act may only besought by private individuals through a claim under s. 36. I agree with Donald J.A. that “the parties put their minds to s. 36 at thecertification hearing and so no surprise or prejudice can be complained of” (B.C.C.A., at para. 59). For these reasons, I would not accedeto Microsoft’s argument that the claim should be barred by the limitation provision of the Competition Act. [70] Microsoft made other brief arguments objecting to the cause of action under s. 36.

Before Tysoe J., it argued that theCompetition Tribunal should have jurisdiction over the enforcement of the competition law. I agree that a number of provisions of theCompetition Act assign jurisdiction to the Competition Tribunal rather than the courts. However, that is not the case with s. 36, whichexpressly provides that any person who suffered loss by virtue of a breach of

Part VI of the Act may seek to recover that loss. Thesection expressly confers jurisdiction on the court to entertain such claims. [71] For all these reasons, it is not plain and obvious that a claim under s. 36 of the Competition Act would beunsuccessful. For the purposes of s. 4(1)(

a) of the CPA, it cannot be said that the pleadings do not disclose a cause of action under s. 36of the Competition Act. (

b) Tort [72] Pro-Sys alleges that Microsoft combined with various parties to commit the economic torts of conspiracy (bothpredominant purpose conspiracy and unlawful means conspiracy) and unlawful interference with economic interests. A conspiracy ariseswhen two or more parties agree “to do an unlawful act, or to do a lawful act by unlawful means” (Mulcahy v. The Queen (1868), L.R. 3H.L. 306, at p. 317).

Despite the fact that the tort of conspiracy traces its origins “to the Middle Ages, [it] is not now a well-settled tort interms of its current utility or the scope of the remedy it affords” (Golden Capital Securities Ltd. v. Holmes, 2004 BCCA 565, 205B.C.A.C. 54, at para. 42). [73] Nonetheless, in Canada, two types of actionable conspiracy remain available under tort law: predominant purposeconspiracy and unlawful means conspiracy. I first address the arguments related to predominant purpose conspiracy.

I then turn tounlawful means conspiracy and unlawful interference with economic interests and deal with them together, as the arguments againstthese causes of action relate to the “unlawful means” requirement common to both torts. (

i) Predominant Purpose Conspiracy [74] Predominant purpose conspiracy is made out where the predominant purpose of the defendant’s conduct is to causeinjury to the plaintiff using either lawful or unlawful means, and the plaintiff does in fact suffer loss caused by the defendant’s conduct.Where lawful means are used, if their object is to injure the plaintiff, the lawful acts become unlawful (Canada Cement LaFarge Ltd. v.British Columbia Lightweight Aggregate Ltd., (SCC), [1983] 1 S.C.R. 452, at pp. 471-72). [75] It is worth noting that in Cement LaFarge, Estey J. wrote that predominant purpose conspiracy is a “commercialanachronism” and that the approach to this tort should be to restrict its application: The tort of conspiracy to injure, even without the extension to include a conspiracy to perform unlawful acts where there is a constructiveintent to injure, has been the target of much criticism throughout the common law world.

It is indeed a commercial anachronism as soaptly illustrated by Lord Diplock in Lonrho, supra, at pp. 188-89. In fact, the action may have lost much of its usefulness in ourcommercial world, and survives in our law as an anomaly. Whether that be so or not, it is now too late in the day to uproot the tort ofconspiracy to injure from the common law.

No doubt the reaction of the courts in the future will be to restrict its application for the veryreasons that some now advocate its demise. [p. 473] Notwithstanding these observations, whether predominant purpose conspiracy should be restricted so as not to apply to the facts of thiscase is not a matter that should be determined on an application to strike pleadings. [76] At para. 91 of its Third Further Amended Statement of Claim, in a

section discussing both predominant purpose andunlawful means conspiracy, Pro-Sys states that “[t]he defendants were motivated to conspire” and then lists the defendants’ three“predominant purposes and predominant concerns”: (1) to harm the plaintiffs by requiring them to purchase Microsoft products ratherthan competitors’ products; (2) to harm the plaintiffs by requiring them to pay artificially high prices; and (3) to unlawfully increase theirprofits (A.R., vol.

II, at p. 43). [77] Microsoft argues that the tort of predominant purpose conspiracy is not made out because Pro-Sys’s statement ofclaim fails to identify one true predominant purpose and instead lists several “overlapping purpose[s]” (R.F., at para. 93). Microsoftsubmits that by pleading that it was “motivated solely by economic considerations” (para. 94), Pro-Sys in effect concedes that thepredominant purpose of Microsoft’s alleged conduct could not have been to cause injury to the plaintiff as required under the law. [78] There is disagreement between the parties as to what the pleadings mean.

Microsoft says that Pro-Sys failed toidentify injury to the plaintiffs as the one true predominant purpose. Pro-Sys argues that its pleadings state that Microsoft acted with thepredominant purpose of injuring the class members which resulted in, among other things, increased profits. While the pleadings couldhave been drafted with a more precise focus, I would hesitate on a pleadings application to rule definitively that the predominant purposeconspiracy pleading is so flawed that no cause of action is disclosed.

At this stage, I cannot rule out Pro-Sys’s explanation thatMicrosoft’s primary intent was to injure the plaintiffs and that unlawfully increasing its profits was a result of that intention. For thisreason, I cannot say it is plain and obvious that Pro-Sys’s claim in predominant purpose conspiracy cannot succeed.

[79] Microsoft also argues that this claim should be struck to the extent it applies as between corporate affiliates because“[p]arent and wholly-owned subsidiary corporations always act in combination” (R.F., at para. 95). Pro-Sys says that “[t]his is not trueas a matter of law” (appellants’ response factum, at para. 55). Both parties cite, among other cases, para. 19 of Smith v. National MoneyMart Co. (2006), (ON CA), 80 O.R. (3d) 81 (C.A.), leave to appeal refused, [2006] 1 S.C.R. xii, which says that“there can be a conspiracy between a parent and a subsidiary corporation”.

In my view, this statement appears to leave open a cause ofaction in predominant purpose conspiracy even when the conspiracy is between affiliated corporations. Again, it would not beappropriate on a pleadings application to make a definitive ruling on this issue.

In the circumstances, I cannot say it is plain and obviousthat the predominant purpose conspiracy claim as it applies to an alleged conspiracy between a parent corporation and its subsidiariesshould be struck at this phase of the proceedings. (ii) Unlawful Means Conspiracy and Intentional Interference With Economic Interests [80] The second type of conspiracy, called “unlawful means conspiracy”, requires no predominant purpose but requiresthat the unlawful conduct in question be directed toward the plaintiff, that the defendant should know that injury to the plaintiff is likelyto result, and that the injury to the plaintiff does in fact occur (Cement LaFarge, at pp. 471-72). [81] The tort of intentional interference with economic interests aims to provide a remedy to victims of intentionalcommercial wrongdoing (Correia v.

Canac Kitchens, 2008 ONCA 506, 91 O.R. (3d) 353, at para. 98; OBG Ltd. v. Allan, [2007] UKHL21, [2008] 1 A.C. 1). The three essential elements of this tort are (1) the defendant intended to injure the plaintiff’s econom

[…]