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Canadian Court Green Lights Worldwide Diamond Price-Fixing Case Against De Beers

Posted  June 15, 2011

A justice of the British Columbia Supreme Court has ruled that an alleged worldwide diamond cartel led by rough diamond seller De Beers had sufficient anticompetitive impact on Canadian consumers to enable a price-fixing class action to survive a motion to dismiss at the pleading stage.

The plaintiff alleges that De Beers and the other defendants sought to eliminate competition in the sale of gem grade diamonds in British Columbia, Canada, and elsewhere, by fixing the price of gem grade diamonds and allocating the market for gem grade diamonds.

De Beers had argued that the court lacked jurisdiction of the claims in Fairhurst v. Anglo American PLC because only one of the defendants did any business in British Columbia.  And all defendants traded only in rough diamonds, not the gem grade diamonds purchased by consumers like the plaintiff.  De Beers argued that the defendants were far higher in the “diamond pipeline.”  In the words of its expert, “any connection between the Defendant’s sales of rough diamonds on the one hand and the Plaintiff, other Proposed Class Members and any diamond jewelry purchases made in British Columbia on the other hand, is remote in the extreme.”

Madam Justice B.J. Brown, however, concluded that De Beers was not only higher in the “diamond pipeline”– it more or less owned the pipeline.  The court noted that De Beers was long the largest producer of rough diamonds in the world, acted historically as the “diamond industry custodian,” and “possessed a degree of monopoly power in the rough diamond market for over a century.”

Drawing upon jurisdictional authority to hold foreign manufacturers liable for knowingly sending hazardous products into the stream of commerce in Canada, the court ruled that a “tortious conspiracy” such as the alleged worldwide diamond cartel is said to occur wherever damage from the conspiracy is suffered:  “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.”

The court deemed allegations of a diamond cartel whose aim was to “creat[e] an overcharge” that would necessarily harm consumers was sufficient to give the court jurisdiction at this stage in the litigation.

Tagged in: Antitrust Litigation, International Competition Issues, Monopolization, Price Fixing,