The long arm of Canadian courts – BC considers jurisdiction over foreign defendants in competition class actions

August 2011 Author: Randy C. Sutton

Contacts

A recent decision of the British Columbia Supreme Court in the context of a proposed class action illustrates the willingness of the court to exercise jurisdiction over foreign parties, particularly as it relates to competition-related proceedings.


The British Columbia Supreme Court accepted that it had jurisdiction over various defendants who allegedly conspired with others to illegally fix the price of gem-grade diamonds, notwithstanding the lack of any direct connection between the foreign defendants and British Columbia.  In applying the relevant legislation, the court found that the plaintiff’s claim had been sufficiently pleaded to give rise to the court’s jurisdiction, as it was alleged there was harm in British Columbia arising from the defendants’ alleged wrongdoing.  In particular, the products were sold in British Columbia through normal distribution channels, arrived in British Columbia in the ordinary course of business and the defendants knew or ought to have known that the products would be sold in British Columbia.  The decision again focuses attention on the fact a foreign defendant need not have a presence in a Canadian jurisdiction to be party to a Canadian class action; the focus is on the location of harm.

The decision

In the June 1, 2011, decision, Fairhurst v. Anglo American PLC, 2011 BCSC 705, the court was asked to consider the question of jurisdiction over a group of foreign defendants in a proposed class action claiming the defendants and their subsidiaries conspired to increase the price of diamonds.  The proposed representative plaintiff alleged that she and other buyers of diamonds were harmed as a result, and the representative plaintiff sought to certify a class action against the defendants.

None of the defendants ordinarily resided in British Columbia, carried on business there, or even participated in selling or distributing gem-grade diamonds in general.  In fact, there were a number of intervening transactions between the business the defendants engaged in, namely the sale of rough diamonds, and the ultimate sale of gem-grade diamonds in British Columbia.  These transactions included selling rough diamonds to independent customers, or “sightholders,” who then either cut and polished them into gemstones or sold them to other companies.  The polished diamonds were in turn sold to jewellery manufacturers, both wholesale and retail, and eventually to customers like the plaintiff.  The defendants submitted that, as a result of these intervening steps, the court in British Columbia had no territorial competence over the defendants.

The British Columbia Supreme Court applied the Court Jurisdiction and Proceedings Transfer Act (CJPTA), which provides that a court has territorial competence in a proceeding brought against a person if there is a real and substantial connection between British Columbia and the facts on which such proceeding is based. The court found that to determine whether there is a real and substantial connection between British Columbia and the subject matter, section 10 of the CJPTA was relevant.  The words of this provision create a presumption that such connection exists if the plaintiff sufficiently pleads that one of the circumstances outlined in section 10 of the CJPTA applies in the proceeding.

In interpreting the statute, the court referred to the British Columbia Court of Appeal’s decision in Stanway v. Wyeth Pharmaceuticals Inc.,1 which dealt with the jurisdiction of the court.  According to that case, the section 10 presumption of a real and substantial connection is a mandatory presumption with basic facts that are set out in section 10(a) through (l), which are taken as proven if they are pleaded.  The presumption, while rebuttable, is “likely to be determinative in almost all cases.”  Among the section 10 facts that would give rise to a mandatory presumption are proceedings that concern a tort committed in British Columbia, or restitutionary obligations that to a substantial extent arose in British Columbia.

The court found that both these sets of facts were engaged by the plaintiff’s pleading.  Focusing on the tort claim, the plaintiff’s pleading of tortious conspiracy on the part of the defendants does not require that all elements of the wrongful conduct take place in the jurisdiction where the proceeding is brought; it only required that the damage suffered occurred in that jurisdiction.  The court noted:

The plaintiff has properly pleaded harm in British Columbia arising from alleged wrongdoing on the part of the defendants. The diamonds were sold in British Columbia through normal distribution channels. The defendants do not suggest that “their” diamonds were not sold in British Columbia. The diamonds arrived in British Columbia in the ordinary course of De Beers’ business, and the defendants knew or ought to have known that the product would be sold in British Columbia.2

Further, the waiver of tort claim, if successful, would result in a restitutionary obligation which would, to a substantial extent, arise in British Columbia because the tort had occurred in British Columbia and the waiver in the court would result in a restitutionary obligation in the province.

The presumptions having been established, the court found that the defendants were not able to satisfactorily rebut it.  As a result, the British Columbia court has jurisdiction in the proceedings.

Extraterritorial jurisdiction

The jurisprudence on the extraterritorial reach in competition-related claims is limited.  The most significant decision relating to extraterritorial jurisdiction in conspiracy cases is VitaPharm Canada Ltd v. F. Hoffmann-La Roche Ltd.3   At issue in that case were conspiracies entered into outside Canada by Swiss and German corporations.  The court in VitaPharm held the court had jurisdiction to deal with conspiracies outside Canada, so long as the conspiracy in question causes injury to Canadians.  In particular, a conspiracy that injures Canadians can give rise to liability in Canada even if it was entered into abroad.  The Fairhurst decision is consistent with the VitaPharm approach and illustrates that there are few obstacles to finding that Canadian courts will have jurisdiction for the prosecution of extraterritorial defendants, given the focus on the harm the conspiracy creates, rather than on the geographic location where the conspiracy is alleged to occur.

The author wishes to thank Saeed Teebi, summer student, for his help in preparing this legal update.

Footnotes

1 2009 BCCA 592.

2 Ibid, at para 38.

3 (2002) 20 CPC (5th) 351 (“VitaPharm”).

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