Indirect
Continued From Page 9
that the plaintiffs’ claims in both
actions should be struck down.
Basing their opinion on a Supreme
Court of Canada (SCC) decision
involving the law of restitution,
the majority held that indirect
purchasers to whom an overcharge
was allegedly passed on cannot, as
a matter of law, maintain a cause
of action for any corresponding
loss which they allegedly suffered.
Otherwise, defendants could face
the impermissible prospect of
double recovery, i.e. they could be
liable to direct purchasers for 100
per cent of the overcharge they
paid and also to indirect purchasers for whatever amount of the
overcharge may have been passed
on.
Sun-Rype and Microsoft represent yet another 180 degree turn
in the treatment of indirect purchaser class actions in Canada.
Ultimately, the SCC will have to
decide this issue.
Given the roller coaster ride
experienced to date, there is no
telling what will happen. The out-
come is critical because many car-
tel violations affecting Canada
involve sales to indirect purchas-
ers (sometimes principally or even
exclusively). As such, a rule exclud-
ing or substantially curtailing
indirect purchaser actions could
have a significant impact on the
civil exposure faced by cartel par-
ticipants in Canada. n
Microsoft had engaged in various kinds of anti-competitive
behaviour with original equipment manufacturers and others,
which permitted it to overcharge
for its products.
The British Columbia Supreme
Court certified both proposed
class actions. On appeal, however,
Justices Lowry and Frankel of the
British Columbia Court of Appeal
(Justice Donald dissenting), held
as involuntary
creditor
Mark Katz is a partner in the
Competition & Foreign Invest-
ment Review Group of Davies
Ward Phillips & Vineberg LLP
in Toronto.
Remit
Continued From Page 11
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While the trial division
found that the director had
made reasonable efforts and
hence permitted Buckingham
to shelter under the due diligence defence, the Court of
Appeal disagreed. It held that a
director of a corporation cannot justify a “due diligence”
defence under the Income Tax
Act where he condoned the
continued operation of the corporation by diverting employee
source deductions to other purposes. Although the respondent had a reasonable (but erroneous) expectation that the
sale of the division of the company could result in a large
payment which could be used
to satisfy creditors, he consciously transferred part of the
risks associated with this transaction to the Crown by continuing operations, knowing
that employee source deductions would not be remitted.
In the result, the director was
denied the due diligence defence
and held liable for the unremitted deductions.
The interesting but unexamined implication of this decision
is the conflict between the director’s self-interest (i.e. to avoid
personal liability to CRA) and
his or her obligation to advance
the best interests of the company and its relevant stakeholders. As the director in
Buckingham no doubt thought, his
efforts were directed to the latter duty. Had he succeeded, all
corporate stakeholders (
including CRA) would have benefited.
Having failed, the director personally paid the price.
While the Court of Appeal
stressed that a director’s efforts
to keep the financially distressed
company alive must not treat
CRA as an involuntary creditor
by using the unremitted deductions to pay other creditors, it
will often simply not be possible
to both keep operating and
maintain the remittances. In
that situation, Buckingham suggests that it will be extremely
difficult to establish a due diligence defence once the remittances have not been made. n
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Helen Daley is a partner at
Wardle Daley Bernstein LLP, a
commercial litigation firm in
Toronto and has acted in num-
erous commercial list cases.
