Supreme Court decision
The Supreme Court of Canada recently rendered judgment on the rules governing false and misleading representations under Quebec's Consumer Protection Act. The country's top court held that the test is not what a consumer of average intelligence, scepticism and curiosity would understand from the commercial representation, but rather what a credulous and inexperienced consumer would comprehend.
The court held that where a prohibited business practice has been established, there is no need to prove actual damages, since an irrefutable presumption of prejudice exists. The Supreme Court also held that punitive damages can be awarded under the Consumer Protection Act even where the circumstances do not justify compensatory damages. The net result is that the sole proof of a prohibited practice may in certain circumstances entitle consumers to punitive damages under the Consumer Protection Act.
Jean-Marc Richard received a letter from Time magazine entitled "Official Sweepstakes Notification". After reading it, he concluded that he had just won a significant cash prize. His excitement yielded to disappointment, however, when he was told by a member of Time's management that the letter merely invited him to participate in a sweepstake. Unhappy with the situation, he decided to institute an action for breach of contract and false and misleading representations within the meaning of the Consumer Protection Act.
The Quebec Superior Court found no breach of contract, but awarded Richard C$1,000 in moral damages and C$100,000 in punitive damages on the grounds that the letter contained several false and misleading representations.
The Supreme Court disagreed with the court of appeal's test, which asked what a consumer of average intelligence, scepticism and curiosity would have understood from the letter. Rather, it held that the proper test for Consumer Protection Act purposes is the comprehension of a "credulous and inexperienced" consumer in the marketplace. On the basis of this test, the letter received by Richard would give the average consumer the impression that he or she had won the grand prize.
The court then considered whether the civil recourses under Section 272 of the Consumer Protection Act were available or whether the sole recourse was penal liability. It concluded that the civil penalties were available, but only to consumers in a contractual relationship with a merchant.
Moreover, the court held that the use of a prohibited practice triggers an irrefutable presumption that a consumer who purchased the goods or service after seeing such a misrepresentation suffered a prejudice. The consumer can not only ask the court to vary or annul the contract, but also claim compensatory and punitive damages.
Perhaps most importantly, the court ruled that an award of punitive damages is not conditional on the granting of compensatory damages. Punitive damages, as an independent remedy, may be awarded to consumers every time that a merchant's conduct is "intentional, malicious or vexatious" or "displays ignorance, carelessness or serious negligence with respect to their obligations and consumers' rights" under the Consumer Protection Act. On the facts of this case, the court awarded C$15,000 in punitive damages, an amount judged sufficient to meet the objectives of the Consumer Protection Act.
The Supreme Court has raised a yellow flag for businesses that advertise in the marketplace. It is now possible for a consumer to sue and recover punitive damages in the range of several thousand dollars, even where the circumstances do not justify compensatory damages. The Supreme Court effectively considers that consumers have a right to believe that the general impression conveyed by commercial representations is the truth – regardless of the fine print.
For corporations, the message is loud and clear: beware. This message is amplified when one considers that the commissioner of competition has indicated that combating misleading advertising is an important priority for the Competition Bureau. The commissioner was successful last year in securing a C$10 million administrative monetary penalty against Bell Canada, Canada's largest telecommunications company, for misleading statements regarding bundled pricing promotions. It is expected that the Supreme Court's decision will influence the interpretation of the misleading advertising provisions under the Competition Act.
For further information please contact Vincent Rochette at Norton Rose Canada LLP by telephone (+1 514 817 4747), fax (+1 214 286 5474) or email ([email protected]).