Member Article

In a highly-anticipated and extremely significant pair of decisions for businesses and consumers alike, the Supreme Court of Canada (“SCC”) ruled on Thursday (October 31, 2013) that the ultimate consumers at the end of a supply chain can effectively leap-frog the supply chain by having direct legal recourse in a class action against a manufacturer who illegally overcharged for the product supplied.

The SCC handed down simultaneous decisions in two appeals from the British Columbia Court of Appeal, namely Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57 and Sun-Rype Products Ltd. v. Archer Daniels Midland Company, 2013 SCC 58 (as well as a related decision from Quebec).

Until these decisions, Canadian law did not support a cause of action by indirect purchasers against manufacturers or suppliers one or more times removed up the supply chain. While these cases have received attention for changing that law, they are significant for a number of reasons and to a number of classes of persons.

The SCC expressly declined to follow U.S. Supreme Court jurisprudence that does not allow for claims by indirect purchasers unless specifically provided for by legislation. Although common law at the federal level in the U.S. operates to bar indirect purchaser class actions, thirty-five states have provided for direct and indirect purchaser action through "repealer statutes" or judicial decisions.

Some of the effects of these decisions will be:

• To increase the likelihood that consumers will band together to pursue claims against manufacturers and suppliers; and

• To reinvigorate causes of action available under the Competition Act or related to such claims (such as economic
  tort claims).

But the rulings in these cases are not just important to competition and class action law or to manufacturers and consumers.

The SCC clarified that the so-called "passing on" defence should be rejected across restitutionary claims.  Previously that defence had only been rejected definitively in relation to claims for reimbursement of taxes paid pursuant to ultra vires legislation. 

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