What you don’t (reasonably) know can’t hurt you – Discoverability applies to claims under Part VI of the Competition Act
Published on April 10, 2015
Posted in: Adrienne Boudreau, Blog
Price-fixing conspiracies harm retailers and consumers by forcing them to pay unlawful overcharges on products and services. The Competition Act, which regulates business conduct throughout Canada, allows retailers and consumers to recover any losses that they suffered as a result of such unlawful conspiracies. Without this important remedy, retailers and consumers could not obtain compensation from price-fixing conspirators.
However, the ability to use this remedy depends to a great extent on how quickly the right of action expires.
In general, a plaintiff is not allowed to “sit on his rights.” A person starting a lawsuit must do so within the applicable limitation period. Generally, this means the lawsuit has to be started no more than two years after the plaintiff knows that he has suffered harm. In cases where the plaintiff doesn’t immediately know about the harm the two-year period will generally start to run from the date the plaintiff “discovered” (or should have reasonably discovered) the harm.
Until Fanshawe College v. AU Optronics the law was unclear about whether “discoverability” applied to claims for alleged conspiracies under the federal Competition Act. Does the limitation period start running from the date the unlawful conduct ended? Or from the date affected persons discover that they may have been harmed by the unlawful conduct?
The Ontario Superior Court of Justice has now clarified this issue: limitation periods for claims under Part VI of the Competition Act don’t begin to run until plaintiffs discover, or should have reasonably discovered, that they may have been harmed by the unlawful conduct.
The Fanshawe case is a proposed class action. Fanshawe College of Applied Arts and Technology (“Fanshawe”) bought products containing liquid crystal display (LCD) screens for use at its institution. It claims that various companies unlawfully conspired to fix – or artificially inflate – the price of these products and advances claim relying on the common law tort of conspiracy as well as Part VI of the Competition Act. Fanshawe sought various remedies on behalf of itself and other persons in Canada that had been similarly affected.
Two of the defendants in the lawsuit were AU Optronics Corporation (“AU”) and Hannstar Display Corporation (“Hannstar.”) AU and Hannstar attempted to have Fanshawe’s lawsuit dismissed through summary judgment. They argued that Fanshawe waited too long to start its lawsuit. AU and Hannstar relied on the Ontario Limitations Act and the federal Competition Act in support of their limitation arguments.
Fanshawe started its lawsuit against AU and Hannstar in July 2009 (the “2009 Ontario Action”). The lawsuit alleged that the defendants, and others, engaged in an unlawful conspiracy that ended on December 11, 2006. Fanshawe was represented in the lawsuit by Siskinds LLP.
AU and Hannstar argued that a number of events should have prompted Fanshawe to start the 2009 Ontario Action before July 2009. These events included:
- In December 2006, a number of Canadian newspapers published articles discussing allegations of price-fixing in the LCD industry. Also in that month a class proceeding concerning these allegations was started in the United States;
- In March 2007, a proposed class proceeding concerning price-fixing in the LCD industry was started in British Columbia. AU and Hannstar were named as defendants in that action;
- In May 2007, a similar proceeding was commenced in Ontario (the “2007 Ontario Action.”) Siskinds LLP was counsel to the plaintiff. Importantly, AU and Hannstar were not named as defendants in this action, although the claim contained allegations that these companies “may have participated as co-conspirators” in the alleged conspiracy; and
- In September 2008, Fanshawe was added as a plaintiff to the 2007 Ontario Action.
The Ontario Limitations Act
Generally, under the Ontario Limitations Act, plaintiffs must commence lawsuits within two years of “discovering” a claim. The date of “discovery” is the day that the person with the claim first knew, or should have reasonably known, that they had sustained a loss.
The Court first considered whether Fanshawe actually “knew” about the alleged conspiracy more than two years before starting the 2009 Ontario Action. Based on the evidence before it, the Court found it was not possible to determine when Fanshawe first “knew” about the alleged conspiracy. The Court found that this was a matter that would need to be settled at trial.
On this point, the defendants argued that Fanshawe had an “affirmative obligation” to prove that particular officers, directors or employees had no knowledge of the alleged conspiracy. The Court said that this submission went “too far.” The Court refused to find that Fanshawe had any such an obligation. It also found that the defendants did not actually identify any “agent” of Fanshawe who actually knew about the conspiracy more than two years before the 2009 Ontario Action was started.
The defendants also argued that Fanshawe “knew” of the alleged conspiracy because its lawyers, Siskinds, knew about it when they started the 2007 Ontario Action. It was true that Fanshawe had retained Siskinds since about 2002. However, this retainer was for matters unrelated to the alleged conspiracy. The Court found that while sometimes the knowledge of a lawyer can be imputed to the client, for this to happen there must be a connection between the subject matter of the retainer and the information known by the law firm. There was no such connection here.
Finally, the defendants submitted that Fanshawe “ought to have known” about the alleged conspiracy more than two years prior to commencing the 2009 Ontario Action. The Court also rejected this argument and found that, on the evidence, this submission was a “distant and unwarranted stretch.” Among other reasons, the Court noted that just because Fanshawe is a large, sophisticated entity does not necessarily mean that it had any greater knowledge about the alleged conspiracy than would a natural person.
The federal Competition Act
Under the Competition Act an action under Part VI must be brought within two years from either i) the day the offending conduct was engaged in; or ii) the day on which a criminal proceeding relating to the conduct is finally disposed of.
The plaintiff had pleaded that the alleged conspiracy ended on December 11, 2006. There is no Canadian criminal proceeding relating to this alleged conspiracy. The defendants argued that, therefore, the 2009 Ontario Action had to be started on or before December 10, 2008. They argued that this was a firm deadline and that when the plaintiffs actually “discovered” the conspiracy didn’t matter.
Prior to the Fanshawe case the law was unclear on whether the concept of “discoverability” applied to actions for breaches of Part VI of the Competition Act.
After reviewing the case law on the subject, the Court found this section of the Competition Act was subject to discoverability. The Court suggested that a plaintiff who started a claim within two years of learning of the offending conduct will not be out of time, even if the actual conspiracy ended more than two years earlier.
This decision will ensure that price-fixing cases under section 36 of the Competition Act continue to serve their function of compensating retailers and consumers who have been secretly and unlawfully overcharged. Any other conclusion would have risked nullifying this powerful remedy.
There are obvious practical problems with a strict, two-year time limit for claims under Part VI of the Competition Act where victims don’t discover the wrongful conduct within two years of it occurring. If discoverability did not apply, so long as price-fixing conspirators kept their conduct secret for just over two years and there was no prosecution against them by a public authority, conspirators would never be subject to claims by victims who were affected by their unlawful conduct.
By importing the discoverability principle into section 36, the Fanshawe case prevents this unfairness by allowing lawsuits to be brought within two years of when a person actually knew or ought to have known of the wrongful conduct.
In addition, this case takes a common sense and realistic approach to the question of when a person “ought to have known” of the wrongful conduct. Instead of inferring a high degree of knowledge on the part of the plaintiff about the defendants’ activities based on news reports and other lawsuits, the Court required a trial in order to assess what a reasonably informed person in the position of Fanshawe should have known.
- Update January 4, 2016: this decision is under appeal. See 2016 ONSC 17 (CanLII).