In Jensen v. Samsung Electronics Co. Ltd., 2023 FCA 89, the Federal Court of Appeal (the "Court") upheld the lower court's refusal to certify a proposed class action involving allegations that the defendants had breached sections 45 and 46 of the Competition Act, R.S.C. 1985, c. C-34 (the "Act"). The decision reinforces the increased willingness by courts to scrutinize the proposed causes of action and pleadings in determining whether proposed class actions should move forward.

Background

The plaintiffs sought to certify a class action alleging that the manufacturers of dynamic random-access memory (DRAM) chips violated sections 45 and 46 of the Act by conspiring through direct communications in private meetings and through public statements – or "signalling" – to each other, to suppress the global supply of DRAM and increase DRAM prices.

As detailed in our previous post on this litigation, the defendants successfully argued that certification should be denied on the basis that the plaintiffs:

  • failed to establish a reasonable cause of action for breach of sections 45 and 46 of the Act on the facts set out in the Statement of Claim; and
  • provided "no basis in fact" for the proposed common issues.

The plaintiffs appealed the Federal Court's decision denying certification, arguing that the motion judge improperly considered the merits of the case and "stepped beyond his more limited role in a certification motion".

The Decision of the Federal Court of Appeal

The Court dismissed the plaintiffs' appeal and endorsed the lower court's decision.

Reasonable cause of action

The Court upheld the motion judge's finding that the plaintiffs' pleading did not disclose a cause of action in conspiracy. Reiterating that certification must remain an important gate-keeping mechanism, rather than a "mere formality", the Court rejected plaintiffs' arguments that the motion judge had applied an inflated standard of particulars that was impossible to meet in the context of an offence that is secretive in nature. The Court echoed the motion judge's finding that, even in the absence of direct evidence of an agreement, the plaintiff must still plead material facts and full particulars of an agreement based on indirect or circumstantial evidence, such that an agreement could be inferred.

According to the Court, the motion judge had correctly held that 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. The Statement of Claim lacked detail, contained only vague and general allegations, and the pleadings in general were consistent with 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 Court therefore concluded that the motion judge had been correct in holding that the pleadings did not adequately disclose a conspiracy between the defendants.

Commonality of issues

The Court upheld the motion judge's ruling that there was no basis in fact for the existence of the proposed common issues.

Rejecting the plaintiffs' arguments that a two-step approach to the "some basis in fact" test improperly implies a merits analysis, the Court endorsed the two-step approach, holding that:

(1) putative class members must have a claim, or at the very least some minimal evidence supports the existence of a claim; and

(2) there must be some evidence that the common issue is such that its resolution is necessary to the resolution of each class member's claim.

In full agreement with the motion judge, the Court emphasized that for the certification process to be meaningful and to achieve its objective of rooting out frivolous claims, there must be some minimal evidentiary basis to support the existence of a claim. Quoting the motion judge, the Court stated: "a cause of action with no factual underpinning does not become somehow more founded because it is common to a group of plaintiffs, nor does it gain any more value or traction just because it is shared by hundreds, thousands or millions".

Key Takeaways

  • The decision highlights the increased willingness of courts to exercise their gatekeeping function and scrutinize proposed causes of action and the evidentiary basis put forward as some basis in fact to support the proposed common issues.
  • The decision reinforces the importance of pleading material facts with sufficient particularity. Pleadings or evidence of conscious parallelism are not enough to ground a claim in conspiracy.
  • The decision endorses the two-step analytical approach to assessing whether there are common issues. Under this approach, some basis in fact is needed to support both the existence of a claim and that resolution of the proposed common issue is necessary to the resolution of each class member's claim.

The authors would like to acknowledge the support and assistance of Max van der Weerd, summer student at law.