Indirect Purchaser Cases to be Heard by Supreme Court

On December 1, 2011, the Supreme Court of Canada agreed to hear appeals in two cases that raise the issue: can indirect purchasers sue to recover losses arising from a price fixing conspiracy?^[i] This issue has bedevilled Canadian courts for years.

Direct purchasers are purchasers who buy directly from the participants in a price fixing conspiracy. They obviously pay more for the product than they would otherwise. Indirect purchasers are those purchasers who buy the product itself from the direct purchasers, or who buy products that include the product whose price was fixed. Some indirect purchasers, particularly consumers, may be at the end of a long line of intermediate purchasers. Indirect purchasers only suffer a loss if the purchasers above them in the distribution chain pass the overcharge on instead of absorbing it. It is extremely difficult to determine whether the loss has been passed on, and if so, how much of it was passed on.

For example, in the Sun-Rype case, the plaintiffs allege that producers of high-fructose corn syrup agreed to fix prices. The plaintiff class includes both direct purchasers (such as Sun-Rype itself), and indirect purchasers, for example consumers who bought juice containing high-fructose corn syrup.

In Sun-Rype and its companion case, Pro-Sys, the BC Court of Appeal held that indirect purchasers cannot recover losses caused by price fixing conspiracies, even if the loss was passed on by direct purchasers. The court came to this conclusion because of decisions by the Supreme Court of Canada that rejected the so-called “pass-on” defence. That is, it is no defence to say that the direct purchasers did not suffer a loss because they passed it on to indirect purchasers. As a result, the BC court concluded, the direct purchasers are entitled to collect the entire overcharge caused by the conspiracy, and there is nothing left for the indirect purchasers to claim, since the law prevents double-recovery of losses from a defendant.

Courts in Canada are far from unanimous on this point. Other decisions of the BC Court of Appeal go the other way, as do decisions in Ontario and Quebec.

Now the Supreme Court will be able to determine this technical yet very important issue.

Consumers should not get their hopes up, however: consumers have never actually collected any money from settlements of price-fixing class actions in Canada. Instead, the money intended for consumers is donated to universities, consumer groups, and charities.

^[i] Sun-Rype Products Ltd. v. Archer Daniels Midland Company; Pro-Sys Consultants Ltd. v. Microsoft Corporation.